General Motors Death Watch 175: Phone Calls From the Dead

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.

Join the conversation
2 of 60 comments
  • Jaje Jaje on May 05, 2008

    Workers just walked off the line at the Fairfax, KS (primary Malibu) plant. They know that this car is critical for GM and can afford to strike here and hold out for more than other plants.

  • Joeaverage Joeaverage on May 05, 2008

    So what are they going to accomplish doing this? Pay raises from a company that prob just wants a way to reach bankruptcy so they can abandon labor markets where the UAW rules with a heavy fist? Really, clue me in here. Any chance the board of directors will take a pay cut too?

  • Dennis Howerton Nice article, Cory. Makes me wish I had bought Festivas when they were being produced. Kia made them until the line was discontinued, but Kia evidently used some of the technology to make the Rio. Pictures of the interior look a lot like my Rio's interior, and the 1.5 liter engine is from Mazda while Ford made the automatic transmission in the used 2002 Rio I've been driving since 2006. I might add the Rio is also an excellent subcompact people mover.
  • Sgeffe Bronco looks with JLR “reliability!”What’s not to like?!
  • FreedMike Back in the '70s, the one thing keeping consumers from buying more Datsuns was styling - these guys were bringing over some of the ugliest product imaginable. Remember the F10? As hard as I try to blot that rolling aberration from my memory, it comes back. So the name change to Nissan made sense, and happened right as they started bringing over good-looking product (like the Maxima that will be featured in this series). They made a pretty clean break.
  • Flowerplough Liability - Autonomous vehicles must be programmed to make life-ending decisions, and who wants to risk that? Hit the moose or dive into the steep grassy ditch? Ram the sudden pile up that is occurring mere feet in front of the bumper or scan the oncoming lane and swing left? Ram the rogue machine that suddenly swung into my lane, head on, or hop up onto the sidewalk and maybe bump a pedestrian? With no driver involved, Ford/Volkswagen or GM or whomever will bear full responsibility and, in America, be ambulance-chaser sued into bankruptcy and extinction in well under a decade. Or maybe the yuge corporations will get special, good-faith, immunity laws, nation-wide? Yeah, that's the ticket.
  • FreedMike It's not that consumers wouldn't want this tech in theory - I think they would. Honestly, the idea of a car that can take over the truly tedious driving stuff that drives me bonkers - like sitting in traffic - appeals to me. But there's no way I'd put my property and my life in the hands of tech that's clearly not ready for prime time, and neither would the majority of other drivers. If they want this tech to sell, they need to get it right.