TTAC Called It: GM Cash Conflagration Goes Critical

by Robert Farago

Published: June 18th, 2008

ttac called it gm cash conflagration goes critical

Long time readers will know I've been advising them to watch GM's cash flow. The fact that the automaker has been selling everything that wasn't nailed down– propping-up their bottom line with tens of billions of dollars worth of "income" from former assets– was/is a sure sign GM was/is hurting for life-sustaining liquidity. Last week, I posted that " Our spies tell us GM's set to top-up its cash hoard by $10b– which would raises its debt to $50b." Confirmation came today via Bloomberg. "General Motors may borrow $10 billion as early as next quarter because rising commodity costs and falling U.S. sales are crimping cash flow, an analyst at JPMorgan Chase & Co. said. The largest U.S. automaker may secure a bank loan by borrowing against foreign operations, inventory, trademarks or its stake in lender GMAC." GMAC? I don't think so. CNNMoney reports that Moody's has just downgraded GMAC deeper into "junk status" (to B3 from B2). Lest we forget, GMAC recently obtained a new $11.4b credit line, partly to lend Residential Capital (resCap) $3.5b to keep their mortgage subsidiary solvent. GMAC's exposure to ResCap has increased from $750m to $4.6b. If ResCap fails… Meanwhile, even worse, "The downgrade also reflects growing pressure on the profitability of GMAC's auto finance operations, arising from higher average borrowing costs and weakening asset quality." Fan. Excrement. Collision.

Robert Farago

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4 of 27 comments

Mikey on Jun 18, 2008

Thanks bunter 1,I got all kinds of back up plans With 35.8 years in I'm going to ride the GM train utill it comes off the tracks.10 months is a lifetime these days,so we carry on.

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The Luigiian on Jun 18, 2008
That transportation in the future will not be by personal car but by public transport or not at all. Any sceptics? Electric cars. Solar power. Wind power. Hydroelectric power. Geothermal power. Mass transit is grossly inefficient outside of major cities. Compact electric motors recharged nightly with solar cells and wind turbines will transport most of America.

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Redbarchetta on Jun 19, 2008
Am I the only one who thinks that, over the long term, a GM bankruptcy would unlock the creativity and talent currently stifled by bad management? I agree with you and I think I have already said it a bunch of times. Quite possibly a new renaissance of American auto manf. Think about it starting from scratch with a new business model using the hidden talent trapped in GM and resources that are left. Provided is wasn't started with the same crap management that infests so many Amercan businesses today. I'm kind of excited about what might be coming from it, something that could whip the Japanese asses and that we can all be proud of as Americans. It wont be GM though that name will be too damaged to resurrect, plus its not a brand. It will just be one or maybe 2 of their brands, Chevy and maybe Cadillac, the rest are garbage. Pontiac could survive as a small niche brand, but would probably need to be bought by a large company to work.

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Bunter1 on Jun 19, 2008

mikey-glad your OK man. Take care. Bunter

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