Bailout Watch 540: NYT Loses Faith in New GM
For taxpayers to be made whole, the new mini-G.M. would have to produce earnings sufficient to support an enterprise value of at least $95 billion, the sum of a $69 billion market cap and its $26 billion of debt and preferred stock under the restructuring plan. Using market valuation multiples of five times that means New G.M. must generate operating cash flow somewhere in the order of $19 billion annually.
That would require both increasing annual sales to some $150 billion, almost 50 percent more than the entire company, shorn of its various financial and international businesses, is expected to generate this year, and matching the whopping 14 percent operating cash flow margin that Toyota achieved in its best year ever. It requires a vast leap of faith to believe that can happen.
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@Pch101 I believe you’ve interpreted this without paying mind to what has actually happened. The task force’s jobs are to find a new owner and to cram down the debt so that the balance sheet clean up is as cheap as possible. I'm not disagreeing with you. I think I see quite clearly what is happening. As I said previously "It’s a short-term political answer that will lead to another, and another, until whatever is left of GM is finally sold off/absorbed/merged with another company". The fates of GM and Chrysler were destined to end up in foreign hands I think this one statement summarizes what may be a generational divide in this country. There was a time in history when a statement like this made in public would have seemed very strange. These days we just let it happen. It's very sad. I know I know, we have no choice. I've heard it all before.
@agenthex If you don’t like being in that situation, then I suggest planning properly so it doesn’t happen Some of us have tried harder than you know. Of course, Pch101 has summarily written off American talent, so maybe it was a losing battle all along.
Martin B summed it up: "I don’t see a problem with the NYT article. The govt will have loaned GM $50B and own 72.5%, which means they need a $69B market cap, which together with $26B in debt and prefs, means GM needs to be valued at $95B. Rule of thumb is valuation = 5 x operating income (EBITDA, approx), so if GM can sell $150B worth of vehicles at a 14% margin they can do it. That’s 50% more sales than they are doing now, at a margin Toyota has achieved only in its best years. What are the chances? Nil." But part of the valuation of a company is expectations. If people think GM will turn it around, that the new product and structure leads to further success, the stock price will rise. Of course, if the New GM is heavily into projects that are thought to be losers (like the Volt) or the Daewoo-supplied vehicles look like they'll continue to be losers... --- Speed Racerrrr, Getting rid of Wagoner simply sent an important message. Henderson's not any better but he's also not any worse. Lutz then volunteered to retire. Two down. --- PCH101, I think you are about right. As for who we ultimately get to run it, I think we do want someone with manufacturing experience and who has dealt with unions.