Editorial: General Motors Death Watch 211: For Whom the Bell Tolls
It’s the morning after the day of. The day General Motors admitted to the world that they don’t have enough cash to last until the end of the year. And for once, GM’s standard-issue PR ploy– leave the bad news until Friday afternoon, reveal some corrective action (axing 7k jobs) and downplay its significance– worked against the General’s generals. GM’s impending bankruptcy was buried beneath and within President-elect Barack Obama’s first press conference. The story was denied bailout-fueling urgency. It’s the ultimate condemnation of GM CEO Rick Wagoner’s administration: they can’t even exploit their own incompetence for the company’s survival.
“Red Ink Rick” bears no small amount of responsibility for this, the ailing American automaker’s final PR debacle. In an interview with GM goodfella Phil LeBeau, Wagoner contradicted the public statement accompanying The General’s cataclysmic third quarter financial results, which read as follows: “Even if GM implements the planned operating actions that are substantially within its control, GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business.”
“As we close the quarter, we’ve got 16.2b in available liquidity,” Wagoner soothed the CNBC reporter. “Um, that’s well above, ah, what we think our minimum operating crash requirement is.”
Huh? When Tracinda investor and Lion of Las Vegas Kirk Kerkorian scored a seat on GM’s board for Jerry York, his consigliore pegged the amount the General needed to keep the lights on at $10b. (Back when $10b was a lot of money.) Other sources say it’s $14b. Even using York’s lower number, GM’s currently burning through cash at a rate of $3.2b a month. So, at best, GM’s got two months to go. They won’t make it to New Year’s.
So why isn’t Wagoner facing the inevitable and telling the American public “bail us out or we’re NSFWed?” Because, apparently, the CEO who’s been at the helm during GM’s descent into desperation reckons his latest cost-cutting measures will make the company’s fourth quarter cash burn “look more like the first two quarters of the year.” Even assuming GM’s burn rate returns to a retro-style $1b per month, the automaker has what, an extra six months?
As the scorpion said, it is in my nature; Wagoner is a born prevaricator. Now that the company has passed the point of no return— the point where even $25b in direct federal aid can’t resurrect GM’s market share, strengthen/trim brands, develop market-leading products, promote those [theoretical] products and bank enough profits to pay off existing debt (never mind any new obligations to American taxpayers)– Wagoner will continue to bluff and bluster until all hope of a C11 resurrection disappears.
No surprise there. But I must admit that I am surprised by the mainstream media’s reaction to this non-turn of events. TTAC’s Best and Brightest have crammed my in-box with links to stories analyzing GM’s Q3 results, and the looming prospect of a Chapter 11 filing. The AP’s Tom Krisher’s report, “GM’s Running on Fumes,” is typical of the coverage: we knew it was bad, but not this bad, but anyway, Congress will bail ‘em out. In other words, GM’s admission of a terminal liquidity crisis is a bit of a false sunset.
None of the reports puts the focus where it should be: GM’s busted business model. The fact that House Speaker Nancy Pelosi’s United Auto Workers-shaped trial balloon– we’ll stuff $25b into the Detroit union’s VEBA health care fund– wasn’t immediately shot down as the most ineffectual bailout idea ever created by hand of man reflects the ongoing myopia afflicting the press.
GM’s bailout boosters will eventually come ‘round to the idea that there must be some kind of radical change at GM for the company to qualify for federal aid. But their idea of “radical change” is likely to be politically rather than economically-driven. Jobs, jobs, jobs will be the order of the day. Not cars, cars, cars. Wagoner, Lutz and the rest of the gang who couldn’t talk straight may be forced out (to survive on the hundreds of millions they plundered from their employer). But the priorities will not shift.
What GM needs is root and brand overhaul, a cathartic cleansing of existing dealer agreements and union contracts and obligations. Not to mention an entirely new mindset regarding product development and brand promotion. As we’ve stated here for the last three years, the only way GM can accomplish these tasks is through the federal protections of bankruptcy law.
Rick Wagoner’s ultimate argument against doing the right thing, the only thing that can save GM: no one will buy a car from a bankrupt automaker. By the same token, no one with any sense buys a car from an automaker headed for bankruptcy. With or without intelligent press reporting, GM’s death throes are becoming clearer every day. As is the final, inevitable result
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