By Robert Farago
October 6, 2008 -
As Edward Niedermeyer reported earlier today, the re-organization plan for Delphi pegs the bankrupt parts maker and former GM division’s worth at $7.2b (down from $12.8b). Delphi’s “valuation” is ridiculous; the company is still highly dependent on GM’s biz. Banking on GM is like entrusting a quasi-governmental lender to Rep. Barney Frank. To wit: today’s market cap for General Motors was under $5b, after the American automaker’s stock tumbled to its lowest level ($8.24 a share) in more than 54 years. Bottom line: Delphi is unlikely to emerge from bankruptcy; it will be liquidated. Meanwhile, let’’s hope misery loves company; Fitch Ratings downgraded Ford’s credit to GM’s sub-basement level: CCC. Oh, and Fitch dropped Ford Motor Credit to the same rating (explaining Mazda’s decision to cut bait and fish with their own auto loan sources). Bottom line: the credit crisis is hitting GM and Ford (and Chrysler) at both the sharp end (auto loans) AND the macro-level (access to working capital). The center will not hold.
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POWERED
October 6th, 2008 at 9:56 pm
and what roughly manufactured parts
lurch on semis
towards Detroit to be cobbled together
…i mean born
October 6th, 2008 at 10:45 pm
Once again: comparing GM’s current stock price to it’s price in 1954 is pretty meaningless. Adjusted for inflation, GM’s stock in 1954 was worth $64 today. Or, GM’s price ($8.24) today would have been only $1.08 in 1954. GM’s stock is way below anything it ever was (inflation adjusted).
October 7th, 2008 at 8:20 am
But for the idea that ultimately the government will not let the company fail, GM is no longer a “going concern”. The cash on hand is too modest for a company going through constant, expensive downsizing, the monthly cash burn is too great and there is no end to the downward spiral in sight given the prolonged recession that appears to be ahead of us.
October 7th, 2008 at 9:45 am
I guess GM will be nationalized after all (once they default on the gov’t loans). Whodathunk, in America of all places.
October 7th, 2008 at 11:42 am
It’s “cut bait [do nothing] OR fish [do something].” GM is cutting bait with the Impala. Ford went fishing with the Flex.
Paul, thanks for reminding us that inflation distorts comparisons of nominal dollars.
Strippo, you’re right on the “going concern” issue. A year or more ago I was wondering how GM’s auditors were facing up to the question of the viability of a unprofitable company with liabilities greater than assets.
October 7th, 2008 at 11:43 am
Maybe we can call the final solution American-Leyland, just for old times sake.
October 7th, 2008 at 11:51 am
Liquidated? no. To liquidate something you need buyers. Scrapped is more like it. Won’t cover the legal fees.