TTAC Called It: Fitch Downgrades GM on Liquidity Fears
Reuters reports that Fitch Ratings has downgraded GM’s credit rating even deeper into junk territory, down to ‘CCC’, the eighth-lowest speculative grade in its corporate rating scale. Fitch based its downgrade on GM’s lack of liquidity. As TTAC predicted, The General’s cash flow– or lack thereof– is reaching a crisis point. “Fitch believes that GM would reach minimum required levels of available liquidity within the next 12 months without access to external capital,” analysts said in a note. “Contributing factors include weakening overseas results and the impact of the credit crisis on GM and GMAC’s ability to finance retail sales.” Fitch reckons GM will score its share of the $25b federal low-interest loans. To no avail. The wording of the agency’s note is as frightening as it is terse: “In all, Fitch believes that GM will be challenged to raise financing in an amount that exceeds $10 billion, and will therefore be unable to offset expected liquidity drains over the next 12 months.”
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Here's a brilliant idea (know, you KNOW I'm sticking my tongue right into my cheek, right?) Since the gummint, in their "infinite wisdom", are going to socialize (i.e. print monopoly money) to "save" everything in sight, why not "do a British Leyland" and simply let the idjits in Washington DC nationalize GM, Ford and Chrysler and merge them - into AMERICAN MOTORS, natch?! We could have Firestone tires, Ford cruise control ("flamin'"), Chrysler interiors, GM diesels (for great efficiency - they wouldn't use any fuel while broken down, right?) and what a plethora of names we'd have for the new venture. How about GREMLIN (that'd be very appropriate) for the new subcompact, for a start. May as well not only use PACER for the futuristic diesel plug in hybrid (only $90,000) but reach "way back" and add EDSEL to that monicker, as well, since there was a 1958 Edsel Pacer... Now for the all wheel drive CUV, we've GOT to bring back EAGLE, complete with rust, bizzaro drivetrain and - hm, let's use the ex-GM straight six. May as well go retro, eh? As for the larger car, may as well call it a MATADOR, and naturally enough, the luxury car would be an AMBASSADOR. The combination Camaro/Challenger could be renamed the JAVELIN and of course, the ex-Corvette would become the AMX. As for trucks, well, just slap the JEEP GLADIATOR name on those puppies. Sounds nice and macho, eh?
"FWIW, the pension at GM is fully funded if not overfunded" More of a Ponzi scheme like Social Security. Example 500,000 retirees at $50,000 per year. equals $25 billion per year. They don't have the money to cover that. The government took over the pensions for the unionized steel companies when they went broke, so there is a precedence.
The pension assets at GM are only overfunded based on their actuarial tables and assumptions about future earnings in the market. If those assumptions about earnings don't hold up (have you looked at the S&P 500 lately?), the whole house of cards falls. Then the PBGC (read: Taxpayers) will have to step in and take over their pension assets and payouts. Believe me, the pencil jockeys at GM and Delphi KNOW this, and are planning accordingly. GM agreed to the VEBA to keep the workers on the lines; they had no intention of ever actually funding it. They have bought themselves some time to set up their C11, and when they do, the pensions will go over the side. And we'll be holding the bag.
Once it goes, we (the taxpayers) will be stuck with the pension funds – which are pretty much – unfunded. Last time this happened, it was the steel industry. There are a LOT more UAW retirees than there were steel plant employees, and they had been “promised” a LOT more than the steel workers. Ain’t gonna get ½ of it but the ½ they DO get – we get to pay with printing-press monopoly money known as Fed Dollars. “Warm up the printing presses, boys.”