GM Cash Conflagration Threatens the Big B

Robert Farago
by Robert Farago
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gm cash conflagration threatens the big b

In my imagination, GM execs start every major meeting cranking-up the Talking Heads' "Burning down the House" and dancing in that awkward style peculiar to drunk 50-somethings at the latter part of their daughter's wedding. In real life, they probably exchange worried glances over highly polished tables every now and then and continue their "work" with grim, monotone determination. Well here's an arched eyebrow for you guys: The Wall Street Journal reports that GM CFO Ray Young is "open to raising additional financing to weather the auto industry's current downturn and other challenges facing the company" at the same time that he "remains confident in its liquidity for 2008." I love a mixed message in morning. Smells like… bankruptcy. "If the current adverse economic conditions persist or deteriorate further we would consider a wide range of actions," Mr. Young said. On Ray's To-Do list: "opportunistically" tapping credit markets, including funding sources in the U.S., selling "noncore" assets and/or "reprioritizing" its capital spending. Question: what credit markets? GM credit ratings sucks. Cerberus' struggles with Chrysler have polluted the private equity pond and GM's already spending $2b on interest payments. What non-core assets? GM's already sold off everything it's got of any real value. And what do you mean by "reprioritizing" cap ex? Cutting back on product development? And I wonder why this article neglected to mention the newly released information that GM's cash burn for the year is estimated at $8b– and counting. $24b (claimed liquidity) – $10b (float) – $8b (current cash burn) – ? = C11. [thanks to jthorner for the tip]

Robert Farago
Robert Farago

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  • Michael Karesh Michael Karesh on May 14, 2008

    The Sloan divisional setup actually started to crumble a couple years after it was first fully in place. In the 1930s the Depression and the high-cost of the new steel bodies forced parts sharing across the divisions and a severe compression of the price differences between the brands. I wrote a paper in grad school about how differentiation between the GM brands from the 1930s on was more a matter of perceptions than any actually larger differences between them. By the 1950s most of the smaller American manufacturers had gone OOB, and European cars and compacts had not yet arrived, at least not in significant numbers. When all you have available were largish RWD three-box cars, the differences between them were more evident. Fast food provides an analogy. Once there were only burgers, and the differences between McDonalds and Burger King seemed substantial. But add Arby's, Taco Bell, Subway, and so forth and those burgers don't seem so different. GM's failure to adapt its divisional scheme as the market's offerings diversified in the 1960s killed their perceived differences. The peak in GM's market share: 1962.

  • Mel23 Mel23 on May 14, 2008

    So typical of Wagoner and his enablers to wake up to a problem after it might well be too late. When Ford went to the well a year or so ago and found that more money was available than they had planned to seek, they grabbed it since they correctly judged that their needs might be greater than they expected at that time and that funding might become more expensive down the road. A very wise decision at the time and even more so now. But of course Wagoner, arrogant and clueless as ever, was confident that his turnaround would catapult them back into the black/green. I think a bailout will happen, and just hope somebody looks out a little for the taxpayers and insists on Wagoner being dumped. A blurb in AutoNews today points out that GM needs to raise $9B over the next two years just to replace debt that's coming due in that time.

  • Jthorner Jthorner on May 14, 2008

    This is the same CFO who just burned nearly a billion dollars in precious cash to buy out the lease on HQ and pick up some office space in Pontiac, Michigan. Un_______ believable.

  • HEATHROI HEATHROI on May 14, 2008

    They won't be bailed out - with the nation running an overdraft of about 300 billion dollars and a public debt with huge exhaust plume of zeros any spare change in the treasury will be vacuumed up by the banks and other 'special interest' groups and 'stakeholders". There will be some window dressing but nothing more than that.