General Motors Death Watch 175: Phone Calls From the Dead
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.
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