By Robert Farago
April 30, 2008 -
Dean Radin believes some people are psychic. No surprise there; investigating psychic phenomena is what Radin does for a living. And yet, when author Mary Roach asked the electrical engineer if there's a middle ground between believing that the dead contact the living through electromechanical devices and viewing the whole thing a hoax, Radin said "The middle ground between genuinely true and outright faking is unconscious delusion." Welcome to GM's world.
I have no doubt that GM CEO Rick Wagoner and his acolytes will face this quarter's $3.25b loss with equanimity. Why not? During the last four years, they've glibly provided every imaginable excuse for GM's inability to book a profit; from "restructuring" costs, to labor buyouts, to the housing crisis and gas prices and beyond. The "turnaround is on course" is burned into their collective unconscious. They murmur reassuring words– to themselves and the outside world– and get back to the business of losing money.
In reality, there was a time when GM had the financial clout to make a $3.25b quarterly loss look like a right cross to a WWE wrestler's chin. But whether or not Wagoner et al admit it, the automaker's $23.9b supply of cash, marketable securities and other available funds– and that's worldwide folks, not North America– simply isn't enough to see the automaker through the current crisis, or the crisis to come.
The key point: GM needs to be analyzed for its cash flow, not earnings. This quarter, GM’s direct operating cash flow was negative $3.9b including special items. Total cash flow after non-operating items: negative $3.4b. Speaking to financial analysts, COO Fritz Henderson' tried to compare GM's current cash levels vs. last year's first financial quarter. But that’s irrelevant. All that matters is cash generated vs. cash spent over the last three months. And that’s decidedly negative.
In fact, GM was only saved from a total C11 meltdown in recent years by asset sales (well north of $10b, maybe as much as $20b). There's no escaping it: GM's business is going up in flames. You can feel the burn at the sharp end.
Henderson said GM NA's dealer inventory in April is around 840k units, the lowest level since 1983. But Fritz also said dealer stocks of full-size pickup trucks– GM's former cash cow– are still "higher than we'd like." Uh, GM has stopped making pickups (thanks to a strike by American Axle workers). And Toyota is about to pile discounts of the hood of its superabundance of Tundras. And Ford is about to launch the new F-150.
But it ain't just lost pickup profits plaguing GM. SUV sales have also cratered. In March, GM's truck and SUV sales (combined) dropped 22 percent. Worse still: falling SUV/pickup residuals trap existing GM owners in their current rigs. They can't be turned into repeat buyers to soak-up truck production– should it ever restart in any meaningful fashion.
Meanwhile, GM has no credible small cars to take up the slack. In a market where B-Class cars are flying off the lot, GM's products come complete with rebates. The automaker has no known programs to develop profitable vehicles in this segment except the Volt– which is (sticking with reality) a non-starter. For traditional domestic car buyers, a resurgent Ford looks set to steal whatever's left of GM's lunch.
In the financial realm, there's blood all over the carpet. Thanks to bad loans, bad management and a bad economy, GM's former financial powerhouse– car and mortgage lender GMAC– is heading for disaster. In terms of that beleaguered cash pile, GM has announced that it will advance up to $650m to its bankrupt former division Delphi in 2008. At the same time, GM's credit ratings are falling. Will the company lose access to its existing credit facilities?
As always, Wagoner and GM's camp followers cling to whatever good news they can pull from the wreckage. Today's Bloomberg headline on GM's Q1 loss sets the standard for self-denial: "GM Has Smaller Loss Than Estimated on Overseas Sales." In other words, overseas markets will keep GM afloat. Only, as discussed here many times and explained above, it won't. As TTAC commentator lprocter1982 points out, "GM's international profits, combined, don't equal even a third of their total loss."
To use the vernacular, stick a fork in GM. It's done. It's all over bar the lawsuits, recriminations, government bail-outs and unfurled golden parachutes. In fact, if GM's management accepted the full reality of the company's situation, they'd file for Chapter 11 now, while the automaker still has enough cash to reinvent itself, before Chapter 7 dissolution.
Of course, that would mean the end of Rick Wagoner's administration, his $14.4m annual compensation package and the sharp exit of his fantastically well-paid people (e.g. Car Czar Bob Lutz). Could the GM Empire finally be destroyed by unbridled personal greed? In truth, it's a done deal.
Subscribe to Newsletter60 Responses to “ General Motors Death Watch 175: Phone Calls From the Dead ”
Pages: [1] 2 3 4 5 6 » Show All Reverse Order
Pages: [1] 2 3 4 5 6 » Show All Reverse Order
Leave a Reply 
Back to Top
You must be logged in to post a comment.
Digg
del.icio.us
Blinklist
Furl
Netscape
Google
NewsVine
Reddit
StumbleUpon
Technorati
YahooMyWeb
Windows Live
POWERED
April 30th, 2008 at 12:33 pm
“In fact, if GM’s management accepted the full reality of the company situation, they’d file for Chapter 11 now, while the automaker still has enough cash to reinvent itself.”
They need someone with chapter 11 experience. They’re waiting for Delphi to come out of it’s bankruptcy so they can “borrow” Steve Miller for what would be his biggest bankruptcy protection oversight. Miller only took $1 per year after they filed. Of course, he had all sorts of “extras” that come with his CEO position.
When you hear about someone with Chapter 11 experience joining the staff of one of the automakers, it’ll be all over except for the filing. Is there anyone like that at any of the Det2.8?
April 30th, 2008 at 12:36 pm
I mentioned before in a previous post that in 10 years’ time, if GM has gone bankrupt, automotive historians will look back on this episode and will all wonder the same thing:
“Why did the board of directors and shareholders allow Rick Wagoner and his management team to stick around for as long as he did?”
When you look back on the whole sorry episode, it’ll make for interesting reading. Both GM and Ford were in dire straits; one company brought an outsider to manage the company and breath new life into the company and the other just carried on doing what it did, making excuses along the way.
If it wasn’t the UAW “holding the company to ransom”, it was the Transplants for not building their cars in the United States, thus, giving them a competitive advantage. If it wasn’t that, it was the customers’ fault for not considering GM cars (some of the more eagle eyed readers will see a glimpse into why GM fell. Their sense of entitlement). At no point, did management think that maybe it was their fault and that fresh blood was needed or (at the very least) a fresh perspective). It was always somebody else’s fault.
And this is why the GM deathwatch is necessary. This pathetic episode of Detroit’s automotive history needs to be documented (independently) to show people, in the future, what went wrong for GM. It wasn’t the transplants unfairly “stealing market share”, it wasn’t the UAW demanding a fair wage and it wasn’t the customers “not doing their patriotic duty”. It was the management, pure and simple. They had a sense of entitlement, rather than a sense of competitiveness. Management were paid no matter what the outcome ($14 million and record losses) and no-one was responsible for their decisions (The FIATsco, who was held accountable for it?) Unless management changes its way of thinking or the BOD installs a new management team, then GM will continue down this path. It will continue down this path because the current management team, believe they are on the right track, despite evidence suggesting otherwise.
“The definition of insanity is doing the same thing over and over and expecting different results.”
Benjamin Franklin
April 30th, 2008 at 12:44 pm
Note: This is just speculation on my part.
I wonder if the juxtaposition of the BIG raises, 3.4B loss and labor unrest is delibrate?
I would imagine that Ron G. and the UAW are ticked.
I can only imagine (no, I really can’t) Buzz’s state of mind up in Canuk land.
Could they be trying to drive the unions to strike so they can pile the whole C11 descision on their shoulders?
Then Red Ink Rick (loved that the other day) and Bob-a-looie, could just go “it was out of our hands, we did what we could, boo hoo etc”.
POP!
POP!
POP!
And we see some pretty AU colored chutes basking in the blood hued sunset.
Uncharitably,
Bunter
BTW, noticed the pro-GM turnaround crowd has been a bit quiet today.
If even they can’t find a positive…
April 30th, 2008 at 12:46 pm
Kudos Katie.
Some good thoughts there.
Bunter
April 30th, 2008 at 1:26 pm
All I can say is I am glad I sold my GM stock at $39 (after buying at $19) and held my Ford stock (which I bought at $8).
I do hope that GM can pull themselves out of this mess—-but am not hopeful due to management (or mis-management) inability to make tough decisions and build in accountability. This is a shame given the fact that GM product has really turned the corner.
April 30th, 2008 at 1:26 pm
So no more debate about paper losses versus real losses right. Where are the “its all the biased media’s fault postings.”
April 30th, 2008 at 1:31 pm
Bunter,
I mentioned the same notion a week or two ago - that GM is letting the UAW strike so they can lay the blame on them (even though it’s not their fault. Well, most of it isn’t their fault).
April 30th, 2008 at 1:35 pm
In a sense, the GM armageddon spells good news - it proves that it pays to define a real market, and to cater to its needs.
Honda and Toyota have done so. BMW definitely. Porsche likewise (with some strange maneuvers). Skoda is doing both the definition and the transformation, as they feel they deserve a reputation in tune with their quality.
Meanwhile, GM stands with a palette of brands, that are without a market. Some insane numbers man with a calculator decided that each of the brands was to be a compleat selection of car platforms unto itself, based upon a similar genesis — and that customers would somehow appreciate buying identical cars that were rebadged just to maintain the pretense that the dealers were selling different cars.
The GM website still spells it out for all to see: we’re a car named GM, and we have 53 models, some with different plaques attached somewhere on the sheet metal. Care to buy one? Please?
I was once in the middle of trying to make one of those brands fly, and the amount of sheer obduracy that every distinguishing idea was met with was staggering. The word delusional has been mentioned above in this thread; yes, delusional to the nth degree in the expectation that a lot of factors they have absolutely no control over will fall in line with their hopeful projections, while they are ignoring what they can actually control: whether their cars are topical to the market as it actually is and is developing, and not to the market as they would wish it to be.
The last ten to fifteen years of GM management will end up in business cases as the worst instance of destructive smoke-and-mirrors game ever seen at a major corporation. And those looking for the condensed, distilled, freeze dried nugget of wisdom required to explain it all will have to consider this: the world’s largest carmaker was hell bent on building cars that were destructive to itself, the environment, the economy and its customers - no matter what.
It is perplexing and sad. They could have had it all, and just didn’t care.
April 30th, 2008 at 1:36 pm
They’ll place the blame on the recession and higher fuel prices and they will place no blame on themselves.
April 30th, 2008 at 1:41 pm
Hey do they have enough in the tank to even make it till the next president comes into office? Maybe they won’t last long enough to get a bailout.