General Motors Death Watch 53: On A Plate

I once showed-up for a job interview in the adult film industry. (It was an honest mistake.) Before I bailed, I complimented Mr. Triple X on the spectacular view over the Hudson River. He closed the blinds. "I'm agoraphobic.' When I asked the pornographer why someone afraid of open spaces would chose an office overlooking a large part New Jersey, he said "It's not enough to have a million dollars. People have to KNOW you have a million dollars." The obverse is also true. Losing $8.6b is bad, but it's worse if people KNOW you lost $8.6b. Just ask GM.

While GM's prospects have been on the wrong side of dire for the last three financial quarters, both analysts and the general public generally believed The General would limp back to port to make the necessary repairs. After yesterday's announcement, nobody's kicking ice around the deck anymore, waiting for the engines to restart. GM's financial report evoked the unmistakable sound of exploding boilers. Everyone on board now knows that the world's largest automaker is destined for a watery grave. GM CEO Rabid Rick Wagoner's pathetic bleatings about an [eventual] $6b reduction in GM's materials and labor costs sound about as convincing as "this ship is unsinkable."

Truth be told, GM's financials are far worse than yesterday's official report revealed. For example, GM took $3.6b in charges against earnings to cover Delphi's pension liabilities. Yes, well, GM currently reckons the final tab for the parts workers' pensions will be somewhere between the stated $3.6b and… $12b. GM also took a $2b charge against earnings for its much-publicized production cutbacks. Although most of this figure is earmarked for employee costs, those costs continue: the idled workers go straight into the UAW "jobs bank' (where they're paid full whack not to build cars). By the same token, the charge doesn't include the cost of buying-out a large percentage of these idled UAW workers' contracts. Plant write-down accounts for the remaining charge, but the amount stated won't cover the cost of writing down ALL the plants GM intends to close– or will be forced to close.

And none of this includes the damage from Rabid Rick's forthcoming billion dollar (plus) payoff to the UAW to maintain Delphi's union peace. Remember: the cash outflow from these events is out there… waiting. If GM had to pay these charges today, the company's bank account would be perilously close to its minimum operating cash level ($10b). In short, Rabid Rick's erstwhile turnaround strategy relies heavily on underwater bilge pumps. If GM continues to lose market share, if it doesn't create some financial buoyancy, Rabid Rick's crew will have bought no more than a six month reprieve before GM begins its descent into Davey Jones' locker.

File all of the preceding information under "Iceberg, Tip Of." Meanwhile, Wagoner's music-facing ceremony also failed to include any mention of the lifeboat: GMAC. Due to the looming prospect of bankruptcy, only magic bean salesmen appear to be interested in GM's loan arranging cash cow. (If GM goes belly-up, creditors would pig pile on GMAC.) And Rabid Rick didn't make any mention of GM's dividend payments, which show a bizarre, Rasputin-like ability to avoid necessary execution. Oh, and what of the ongoing SEC probe into GM's accounting practices? You can bet there are a lot of crossed fingers on THAT score…

As bad as GM's financial situation is, as bad as it's going to get, the bottom line is more about psychology than numbers. The entire world now knows The General is in deep shit. (When the President of the United States says he ain't gonna bail GM's ass out, a lot more consumers suddenly know GM's ass needs bailing.) An ever-increasing number of current and potential GM buyers are suddenly realizing that they could be left with worthless trade-ins, questionable warranty protection, limited parts availability and problematic service. At some tipping point, they'll simply stop buying GM products. The General's hull will fracture, and the ship will slip between the waves in triple-quick time. Ironically enough, fleet sales will be the first to go…

There's only one thing that could bridge the death accelerating perception gap between GM's potential/inevitable slide into bankruptcy and the [slim] chance that everything will [someday] be all right: GM CEO Rabid Rick Wagoner. THIS is the time for Rabid Rick to publicly announce a bold, clear, inclusive and unequivocal course to a financial safe haven. But no. Rabid Rick's refusal to say (guess? predict? estimate?) when GM will be profitable again is a PR obscenity. Hey Rick; news flash. If you say you don't know when, you're also saying you don't know how, and if you're saying you don't know how, it's time to jump in your golden lifeboat and go. It's not good enough to BE the captain; you have to ACT like one.