GM Profitable by 2014! Or Not.

Robert Farago
by Robert Farago
gm profitable by 2014 or not

And there I was, calling “profit” GM’s new “Voldemort.” Yesterday, Government Motors’ federally-funded advisers used the ‘p” word in documents filed with federal bankruptcy court. Evercore Partners predict that the zombie automaker will return to life (though not as we know it) by 2014. What’s more, stock in New GM will be worth $48 billion straight out of the gate. Hang on. I’m lousy at math (as you know). But if the United States government owns 60 percent of a $48 billion New GM, our share on day one would be worth $28.8 billion. So, if the feds dumped those shares, we’d “only” lose $19.2 billion. SELL! Of course, it doesn’t work that way. But then, I’m betting dollars to donuts (heads-up: it’s national donut day) that it won’t work the way Evercore Partners says it will, either. With a little help from the Detroit Free Press, let’s look at their numbers . . .

The company’s financial adviser, Evercore Partners, offered projections for GM’s finances in its bankruptcy case based on several scenarios. It forecasts that GM will lose $17.5 billion this year before reaching a profit of $3 billion in 2011 before taxes, rising to $7.8 billion in 2014.

The new GM will count on a rebound in U.S. vehicle sales from about 10 million this year to about 16 million by 2012 to pull back into profitability, pumping up its output from 3.8 million vehicles worldwide this year to 6 million by 2014. The estimates are slightly more pessimistic than what GM used in its Feb. 17 plan, but match those of some analysts.

Taxes? Didn’t we already establish that the Treasury Department made a special exemption for Old Skanky GM that allows the self-same beancounters to carry forward their liabilities into New GM, and, therefore, pay not dime one in taxes?

Whoa! That’s a whole lot of loss there pardner! That’s nearly three quarters of all the New money the feds are shoveling New GM’s way. Anyone remember that $10 billion pad GM needs to keep the lights on?

Even with con-concomitant federal bailouts headed to anyone who even talks about the auto industry (e.g. suppliers, dealers, customers, union members, “affected” communities, Canadians), a $10 billion cash flow safety net would leave GM with just $2.5 billion at the end of the first year. That’s hardly enough to hand-build a dozen $40,000 Chevrolet Volts.

The Freep may think that Evercore’s (an ironic name if ever there was one) projections are more pessimistic than before, but there not what I’d call pessimistic pessimistic. I mean, a six million new car sales jump in the next two years? If New GM really wants to come to the dark side, they need to do worse than that. How about flat-lining sales for another year, with, say, a 10 percent increase in the year thereafter?

Actually, let’s be even more TTACian about this: do these projections account for GM’s falling market share? I think not. What if Buick, Cadillac, Chevy and GMC continue along the same arc they’re on now? What’s going to reverse the curse? The new Lucerne, CTS Sportwagon, Cruze and rebadged somethingorother?

Bottom line: New GM won’t last much more than a year without a fresh federal funding infusion.

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2 of 22 comments
  • King Bojack King Bojack on Jun 05, 2009

    Technically taxes are the government's money after they rob your paycheck/merchants revenues. Well, what more will it take before you'll at least give the illusion of optimism that the government or GM are/aren't wasting their time? They've entered ch 11 They've raped their dealer network Improved quality (having next to 0 resources too) Kicked the Union in the junk Unloaded/ing toxic brands Canned Wagoner, Lutz is gone Shat on debt holders Dumped health care on the VEBA (by hook or crook) Out of all of these the quality and deseriability of their current cars is the only one up for opinion. The rest is fact for better/worse. What more will it take? Is a total clean up of any and all GM management what you're after? A giant public apology? Supposing a soothsayer scares LaNeve and Fritz and co. into early retirement and the whole board dies in a train wreck, what do you and who do you suppose would be best qualified to fix it? What would you do exactly in GM's current situation? Not flames but honest questions Mr. Farago.

  • Gregw Gregw on Jun 06, 2009

    This $48 billion estimate is pretty close an estimate I published a few weeks ago of $50 billion. The article is here: Based on this I suggested people buy GM bonds when they were trading for 6 cents on the dollar. Before trading was suspended this week they had just about doubled to around 11 or 12 cents. If GM is worth $48 billion post bankruptcy, then the equity bondholders will get will be worth more like 17 cents. My initial estimate is the warrants that GM bondholders will get will bring up the value of the GM bonds to about 37 cents on the dollar.

  • Master Baiter Might as well light 50 $100 bills on fire.
  • Mike1041 At $300K per copy they may secure as much as 2 or 3 deposits of $1,000
  • Sgeffe Why on Earth can’t you just get the torque specs and do it yourself if you’re so-inclined?!
  • Sgeffe As was stated in another comment, the FAA nominee went down in flames. But the NTSB chairwoman certainly didn’t, and she’s certainly not qualified either!Lots of this kind of stuff going on both sides of the aisle—Ben Carson would have arguably made a better Surgeon General than HUD Secretary under Trump, for example.
  • Art Vandelay Interesting, the Polestar 2 I had as a rental utilized Android Automotive which is what GM said it is going to exclusively, yet it still offers Apple CarPlay according to this. Wonder if GM will do the same.