General Motors Death Watch 63: GM RIP

At 9:30am this morning, a group of lawyers representing bankrupt auto parts supplier Delphi will appear in front of Federal Bankruptcy Judge Robert Drain. The lawyers will file legal motions for Sections 1113 and 1114. It's a legal request to void Delphi's current collective bargaining agreements with the United Auto Workers (UAW). The moment the judge says the word "granted," he will terminate the wage structure, post-retirement health care and life insurance plans for the company's 33k US hourly workers. The UAW will respond with a strike against Delphi. Starved of its former subsidiary's parts, GM's assembly lines will fall silent. The General will begin its final slide into Chapter 11.

There will be a gap between Delphi's filing, the judge's final ruling (May 9th) and industrial action. During this highly fraught interregnum, Delphi President Steve 'Quotation Marks' Miller may make a fourth wage and benefits offer to the UAW. The proposal would fall somewhere between the workers' current compensation ($27 per hour) and Miller's last last stand ($16.50 per hour). As we've said before, the UAW will accept nothing less than the status quo, and that's somewhere where Miller won't go– at least not without GM footing the bill. Common sense says if GM CEO Rick Wagoner was going to ride to Delphi's rescue, he would have done so already. Chances are he can't.

Analysts estimate that the General's got about $20b lying around. Take away the $10b GM needs to run its business, add in its line of credit, discount its line of credit (the company just got locked-out of $5.6b worth of previously available funds), add in recent and upcoming sales of overseas assets (including Isuzu), discount the cost of recently announced worker buyouts and plant closures, add back the cost of worker buyouts (it's unlikely that many workers outside the infamous jobs bank will take-up GM's offer), discount ongoing losses from its automotive operations, ponder the possibility of more "accounting adjustments," throw your hands in the air regarding the possibility of GM selling majority interest in its GMAC finance unit (The General's only remaining lifeline), and you'd be forgiven for wanting to check Rabid Rick's wallet.

GM's inability/reluctance to pay off Delphi's UAW work force may be the clearest indication of The General's true financial situation. In fact, despite a stock price still hovering around $20 a share, the world's largest automaker could very well be worthless. I write that with some trepidation. I'm aware that any large institution in extreme financial crisis is susceptible to the fatal effects of negative perception. So much so, it's entirely possible that GM's fate will be sealed somewhere well away from federal bankruptcy court, by someone who simply loses faith in The General's future. For example…

Although The General has pledged to reduce sales to rental car fleets, the automaker still sells as much as 15% of its US production to these volume/discount buyers (roughly 600k vehicles). All of the purchases are financed by large banks, who lend money to the fleets based on the strength of GM's buyback guarantee. All of these banks have industry analysts who now admit (if not actually forecast) the possibility of a GM bankruptcy. Should the banks suddenly decide that GM's buyback guarantees are meaningless, financing for GM products would dry up quicker than the Mojave Desert after a light drizzle. Without rental sales, well, as TTAC's Deep Throat eloquently puts it, GM would soon be Tango Uniform.

Alternatively, GM's suppliers could be its ultimate downfall– a poignant reversal given how harshly The General has treated its parts-providing "partners." While GM's biggest suppliers aren't anywhere near as short-sighted as the UAW (i.e. they know better than to kill the golden goose, no matter how pitted and pathetic it may seem), a smaller, mission critical, non-GM dependent supplier could look at the lay of the land, get up its gumption, and refuse to give GM credit on terms. GM would have to put cash up front for its parts. Once news of the deal got out, all of GM's suppliers would seek similar protection. GM couldn't survive this "run on the bank" scenario.

And so it goes. As anyone who's been following this story knows, we're at the point where if it's not one damn thing, it's another. Critics who call for Wagoner's head are missing the point. GM has expended all its capital: political, creative, financial, moral and, now, psychological. When I started this GM Death Watch, TTAC was one of the few places where the words "GM" and "bankruptcy" appeared in the same sentence. Those days are gone, and it's not our fault. Time and time again, GM had their chance to do the right thing. To stand up, admit their failures and change their business. Now, it's too late.