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: Autoline Detroit: Gm Is On Its Last Legs



SobeSVT
11-07-2008, 02:14 PM
AUTOLINE DETROIT on AUTOBLOG

GM IS ON ITS LAST LEGS
John McElroy

There is only one number that really matters in today's financial report from General Motors: how much cash it has in the kitty. And the answer is, not enough. GM is now burning through its cash reserves at a rate that will run short before Christmas.

Every month GM spends $13 billion to pay all the bills that keep the company running. And it has to pay out even more on top of that to meet other obligations, like paying the UAW for the VEBA or bailing out Delphi. Like all other companies, GM keeps a reserve of cash on hand that it can dip into when it doesn't sell enough new cars to get the money to pay its bills. But that cash reserve is running out fast.

John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.

Up through the first half of this year, GM burned through its cash at a rate of over $1 billion a month. Yet, as this morning's financial report discloses, that rate increased to nearly $2 billion a month during the third quarter. And as bad as that is, it gets worse.

GMAC cost GM $1.4 billion in badly needed cash flow. Last month GM's sales in the American market fell 45%. GM says half of that drop was due to GMAC restricting financing to its dealers and customers. Specifically, GM sales fell by nearly 140,000 vehicles. So that means GMAC alone cost GM 70,000 sales.

On average GM gets about $20,000 for every vehicle it sells so that means GMAC cost GM $1.4 billion in badly needed cash flow. And that's just for the month of October.

With less cash coming in, that means GM will burn through its cash reserves more quickly. I'd estimate that GM's cash burn is now more like $3 billion a month. And this is where the situation turns dire.

GM now only has a little over $16 billion in cash reserves. And the company needs a minimum of $13 billion to keep the lights on and the assembly lines humming. So it's pretty obvious what the company is up against. In another month or so it will no longer have enough cash to pay its bills.

GM is teetering on the brink of bankruptcy and needs immediate help. OK, so let's say I'm wrong, and assume that thanks to drastic action it's only burning through its cash at a rate of $1 billion a month. After all, GM says it's working on all kinds of contingencies to sell assets, borrow more money, delay product programs and stop building new plants. In fact, it has plans to raise the liquidity of the company-meaning to come up with the money it needs-to the tune of nearly $20 billion. Even so, the company admits it will hit the minimum level of cash it needs before the year is out, and it will definitely fall below that minimum early next year.

In other words, GM is teetering on the brink of bankruptcy and needs immediate help. Unless a miracle happens, there's only one place it can realistically turn to: the Federal Government. The company needs a bridge loan to get it through this downturn. And it needs the money yesterday.

for more CLICK HERE (http://www.autoblog.com/2008/11/07/autoline-on-autoblog-with-john-mcelroy/)

mchicha
11-07-2008, 09:57 PM
I have to say, if Bush lets this company and all the jobs go, I really will not have any respect for him. Those are alot of jobs to save, more than banking jobs they are trying to save now.

And no one will buy a car from a bunkrupt automaker. That said, the Feds need to either take equity positions or guarantee loans. I mean who could have foreseen a 45% drop in sales in less than 2 months?

YellowZx5
11-09-2008, 08:42 AM
I really never have had any respect for the current administration. I kinda agree that there needs to be something done with this automaker, but also think GM is not concentrating on that they need to be, Small Cars! Not SUV's or Hybrid SUV!! OMG!!

If this company goes belly up, I blame them and not the administration. Who brings smaller cars to other countries and not where they are needed most, GM Does!!

We will see where this goes from here, but I hate to see it go.

SobeSVT
11-09-2008, 01:20 PM
Bush already passed this bucket to president Obama. President Obama has already manifested his interest in helping Detroit.