GM Running On Fumes

gm running on fumes

Bloomberg reports that General Motors has tapped the remaining $3.5b of a $4.5b revolving credit line. (Needless to say, the bad news arrived on a Friday– the by-now usual pattern for the embattled automaker.) In an official statement, GM said the cash “will go to help cover restructuring costs.” Or, as Bloomie’s put it, “GM, the largest U.S. automaker, has said it needs to raise $4 billion to $7 billion by selling assets and adding debt to ensure it has enough liquidity to operate through the end of 2009. GM has lost $69.8 billion since the end of 2004, its last profitable year.” The reality is that Q3 will show another big loss; the loss might have put GM in violation of certain covenants/ratios in the loan agreement, which would give the bankers the right to deny funding and pull the line. Of course, we don’t know the details. But, as TTAC’s Deep Throat put it, this company is running close to the edge. Meanwhile, GM’s former captive lender GMAC (The General now owns 49 percent) renewed a credit facility with Citigroup yesterday. GMAC now has access to $13.8b, down from last year’s $21.4b.

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  • PaulyG PaulyG on Sep 20, 2008

    If I was the treasurer of GM and took a look at what happened this week (Lehman Brothers BK, the AAA rated AIG essentially being liquidated, Wachovia and WaMu still on the ropes, questions about the viability of Morgan Stanley and Goldman), I would not hesitate drawing down on the revolver to make sure I had the funds available, despite the negative arb. Who knows the financial health of my counterparties if I needed to draw down on the revolver in the future?

  • Skimmilk Skimmilk on Sep 20, 2008

    I believe that the closest comparison is how hard the Bancrofts tried to hold onto a company (the Wall Street Journal) despite shares going into the tank, and a paper that was losing relevance by the day. Wagoner and his crew take pride in being the C level execs of one of the most visible manufacturing company in the world. Compounding things is the fat salary and benefits which make rich golden parachutes look like chump change. I can't believe whoever holds GM shares hasn't booted all the crazies in charge of the company to make the hard decisions necessary. Then again, who are the crazies who knowingly hold GM stock (besides S&P passive investors)?

  • Mel23 Mel23 on Sep 21, 2008
    If I was the treasurer of GM and took a look at what happened this week (Lehman Brothers BK, the AAA rated AIG essentially being liquidated, Wachovia and WaMu still on the ropes, questions about the viability of Morgan Stanley and Goldman), I would not hesitate drawing down on the revolver to make sure I had the funds available, despite the negative arb A WSJ article in Mondays' paper agrees with you, but also cites concern about their being able to continue operation: ------ "Given the tremendous uncertainty in the financial markets and the position GM is in, they're better off trying to tap their lines now, rather than later and finding they can't," said Joe Phillippi, analyst at AutoTrends Consulting Inc. in Short Hills, N.J. But, he added, it could be a sign GM thinks the end of 2008 and beginning of 2009 will be tougher than initially anticipated. In July, GM laid out a plan to cut costs by $10 billion and raise $5 billion in cash through a variety of measures, such as asset sales and new, secured financing. That plan was supposed to keep the company afloat through the end of 2009. But GM's has run into trouble meeting those goals. Banks have proved unwilling to help the company raise the $2 billion to $3 billion in financing that is a key part of its plan. -------

  • Mel23 Mel23 on Sep 21, 2008
    Then again, who are the crazies who knowingly hold GM stock (besides S&P passive investors)? The link below shows that 14 of the top 15 holders are bailing. I'd think they'd hang around until the bailout came through. Or maybe they doubt it will, at least in time. http://moneycentral.msn.com/ownership?Symbol=GM

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