GM: The End is Nigh

Robert Farago
by Robert Farago

TTAC has long warned of a “run on the bank” scenario, whereby GM suppliers demand cash up front for their wares, effectively eliminating the automaker’s cash pile, terminating its ability to build cars and driving the compay into C11. Over the last few weeks, it’s become increasingly clear to anyone paying attention that GM’s cash situation– hence its ability to pay its suppliers– is terminal. Its credit rating is CCC (the U.S. and international banking system is constipated anyway) and its tapped-out available credit lines. GM CEO Rick Wagoner has publicly declared that his employer has enough cash to last until the end 2009– telling the world that they don’t have enough money beyond that point. Jettisoning HUMMER– without a buyer– has sent all the wrong messages. Selling GM RenCen HQ, again without being ABLE to, is another enormous PR debacle. And if confidence in the company isn’t low enough, and it surely it is, Wall Street has finally lost faith. GM’s stock price has fallen below $10, below $8, below $5. So, we now hear that a major, overseas GM supplier has put its foot down. I can’t tell you who, what, when or where. But there’s a deadline for payment approaching, and GM can’t take the hit. Never mind the hits that follow. More info as and when. Meanwhile, check out the Chrysler/Getrag story. Now think about GM. How many billions does it buy from overseas suppliers? German banks want government guarantees; the Germans refuse unless there’s 100 percent cash collateral. This is how things fall apart.

Robert Farago
Robert Farago

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4 of 31 comments
  • Kevin Kluttz Kevin Kluttz on Oct 10, 2008

    What was wrong with my post?

  • ZoomZoom ZoomZoom on Oct 10, 2008
    blindfaith : With the market capitalization being low enough that Toyota can purchase it. It would seem to me that they should buy and dump it in the trash. At first, I thought this was perfect. Then I realized that Toyota would have the perfect self-contained laboratory test opportunity here. Instead of dumping it in the trash, they should encase the entire bunch of dinosaur managers in amber and study them so that all of society can learn how to avoid becoming extinct. It may work even if we just always do the opposite of what the dinosaurs did...
  • Ronin Ronin on Oct 10, 2008

    You don't need a huge tier-1 supplier to halt the lines; just a key supplier of one essential component. For example, occupant restraints: airbags, or seatbelts. Line down.

  • Edgett Edgett on Oct 10, 2008

    @bluecon The Obama idea of taxing the rich is so stupid. The rich will just not invest and just move their money where Obama cannot touch it. If you will look at historical U.S. tax rates, the argument just doesn't hold up. There are actually wealthy people in Japan, Germany and France who keep working there. I wonder why? The wealthy stayed here in the 1950's when the top tax rate was 90%. And if what we "lost" were wealthy tort lawyers, wealthy financial manipulators and "investment bankers", where's the loss? Whether the game is to tax the rich, or simply reduce taxes and spend the money anyway, someone has to pay the bills. The pyramid scheme of believing that we can borrow our way to prosperity doesn't work for individuals or for governments. The situation at GM is just sad. It is easy to blame unions or management, just as in the financial crisis one can blame greedy lendors or greedy borrowers; the fact is that both are at fault and nothing gets solved when everyone is pointing fingers.