Filed under: GM, Earnings/Financials, Autoline on Autoblog
Autoline on Autoblog with John McElroy
by John McElroy on Nov 7th 2008 at 4:30PM 
GM IS ON ITS LAST LEGS
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.
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.
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.
I believe the company will get the money it needs and I believe that in two to three years it will emerge as a lean, mean, profit machine. But make no mistake, as you read this right now, GM is on its last legs.
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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.
I believe the company will get the money it needs and I believe that in two to three years it will emerge as a lean, mean, profit machine. But make no mistake, as you read this right now, GM is on its last legs.
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Reader Comments (Page 1 of 3)
Frank 4:38PM (11/07/2008)
as we watch rome burn to the ground.....
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Lemmiwinks 12:50AM (11/09/2008)
naw... dem homoseckshules kaint git murried yet...
Kurt Moeller 4:44PM (11/07/2008)
check check
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MachinaDC5 4:47PM (11/07/2008)
Maybe John McElroy's finally starting to catch up to the times. Good to see he's getting realistic. Although I don't know if GM will ever emerge as a lean mean anything... Especially if they get addicted to government bailouts.
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Scott 4:54PM (11/07/2008)
"I believe the company will get the money it needs and I believe that in two to three years it will emerge as a lean, mean, profit machine."
I wonder how he could keep a keep a straight face when he wrote that. Even if they survive, so does the UAW and the firms unsustainable structure. Any "bailout" from our new congress will include enormous boons to the unions.
You could buy both GM & F right now for $7B. The ENTIRE companies. Giving them more than that is essentially nationalizing the industry.
Believing a gov't owned/run/protected entity is going to magically compete with toy/nissan/honda/germans, is a true triumph of hope over experience.
This all ends badly either way. The only question is how much taxpayer money goes with it.
The feds might as well buy them for $7B and turn it into another giant welfare program. But at least be honest enough to call it what it is - a giant make-work project like the WPA.
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sam Scherer 4:58PM (11/07/2008)
as if gm isn't a jobs program already
Josu 6:19PM (11/07/2008)
Renault rescued Nissan from banrupcy and is a state owned/protected company saved from bankrupcy several times by the French government, some times violating the European Commision laws if needed. Only a bunch of idiots let their big car companies go bankrupt without a fight. ALL EUROPEAN car manufacturers in continental europe has been bailed out by government one time or another. Fiat, after GM leaves. VW was in fact controlled by IG Mettal and the government of the lander in wich is based, untill Porsche fight against that takeover protection of the lander in the European Commision. And Renault even if on paper is privately held the French government owns a 18,5% of it and really it controls it. Carlos Goshn will be there as long as Sarkozy want, you can have this for sure.
Bob Zeliff 9:45AM (11/08/2008)
I mostly agree with you. GM can and should be bought now by new management. The current management could not adjust and make the correct products and policies (with a few exceptions) in the best of times over the last 5 years. They have proven not to be able to lead the company. The government should not bail out this management team...it will prove to be the diaster we have all watched. Let it fail, get bought out at a bargain price, have a clean sheet of paper and new mgt and board of directors can take it forward. This applies to all of the 3 US manufactures
James604 4:55PM (11/07/2008)
If major airlines were saved by the government before, GM definately will but that company needs to get a lot smaller and less...burocratic. The day that GM gets rid of that UAW old contract costs & benefits, the company will turn around big time....or set up shop outside North America.
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Goat Law 5:34PM (11/07/2008)
I hope you were joking about GM's prospects for clearing out the unions. Obama is the best friend that unions have had since John Gotti. Any bailout will include additional protection for the unions. GM will never recover from this, unless the money is given with no strings attached. Now let me think about the last time the government gave money with no strings attached???
...
We may be here a while.
James604 5:58PM (11/07/2008)
I didint say remove Unions, I was implying the contracts with the UAW need to be re-negotiated so that line workers are no longer making a rediculous $70k a year (including wages + benefits) which can not currently be supported by the vehicle gross margins or sales, when this may have been possible a decade or longer ago.
Unions are great until they suffucate company that employs its members.
steve 5:00PM (11/07/2008)
maybe they go bankrupt and lose all those expensive costs,,,,,sucks for pensioners and employees but what is is
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Todd 5:02PM (11/07/2008)
There is only one answer - When Washington Mutual imploded, the Federal Government found a buyer, negotiated the terms ( in secret on a Sunday ) and that was it.
No more taxpayer bailout cash. No more million dollar paydays for the execs. Just have the government call Toyota and broker the deal. Ask that they keep 50% of the work force for a year or two. That's it.
They did it for the failed banks, just do the dame for Ford, GM and Chrysler.
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ryan 5:25PM (11/07/2008)
probably won't happen that way. think of how many JOBS would be lost. think of how many people get PAID by these companies, who then go and buy milk, and gas, and computers, and tvs. even if they're the new generation of UAW at 15/hr, that's still good money, enough to keep the economy going.
then, BESIDES the people that get paid to make the cars, what about the truck drivers that deliver the cars? then the lot attendant who cleans them? then the salespeople? what about the company reps that are there to answer questions for the dealerships?
if those companies go down, 3 of the 4 dealerships on my street go out of business. 25 dealerships within a 45 mile radius deal in chevrolet alone, not including any other arms of GM.
brokering a deal to toyota would probably not be in the industries best interests. i don't agree with million dollar exec pay. i don't agree with VEBAs and 30/hr to put a door on a car. i don't agree with being in an industry where people are trained to hate me. but i do agree with jobs. and that's what washington's going to see.
i'm more ticked about the other bailouts compared to this one. this one makes sense. AIG makes me angry.
GeoSB8K 11:09AM (11/08/2008)
WaMu is federally insured like all U.S. banks, GM is not federally insured nor is it a bank. The govt has zero power to pick up the phone and broker a deal with anyone in this case. GM needs a loan right now to get through this and that would make this more like the AIG deal where they got their bridge loan and the govt received the option to assume 80% ownership of the company if that loan was not bad back. The problem here is unlike AIG, GM has been losing money here in the states since 2004. While doing so has run up net loses of over 70 billion. AIG could actually pay back their loan, GM does not have a reasonable hope of doing that.
Even if they get 25 billion with zero strings attached they will be in the same place they are now (given they continue to lose 3B a month) in a little over 8 months from now. Realistically they would need a loan that could bring them through for the next two years at least which would be more like 75 billion. As tax payers we would be lucky to see a dime of that returned. Some how in two years from now (in a tighter credit market than 04-07 but hopefully better than now in 08) GM would have to do what it has been incapable of doing in the last four years, i.e. make money instead of losing it.
Steve B 5:09PM (11/07/2008)
I've always wondered something......let's say GM goes bankrupt. What will happen with all the loans taken out through GMAC for automobile financing? Will they be sold to another bank? Will the car payments be made to the FDIC?? Or something completely different all together?
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bepsf 5:17PM (11/07/2008)
If GM goes bankrupt, the payments to GMAC would continue to be due and payable to the remaining entity which would be left to pay the bills to the creditors which would include preferred shareholders, bondholders, lawyers, suppliers and employees - in roughly that order.
rsfourever 5:17PM (11/07/2008)
first of all, if i'm correct, GM doesn't entirely own GMAC. but either way, if GM and GMAC both go bankrupt, they start selling off their assets to pay the creditors. GMAC's assets are loans. so they will start selling of their loans to whoever will pay the most for them (general less than $1 on the $1 because of the situation)... then, the person must continue making the payments to whoever the new owner of that loan is.
so for example, GMAC might sell all it's loans to citigroup, who would pay 90cents on the dollar for the remainder of the loan value, and begin collecting principal and interest payments from the people who own the vehicles...
sam Scherer 5:24PM (11/07/2008)
GMAC is not fully owned by general motors. Its not uncommon for the automakers to separate themselves from their bank-like functions. Its usually seen as a safety net to prevent a domino effect hit to the company.
The GM leasing system is pretty weird. If you lease a saab for example it goes through saab leasing (not legally part of saab) and not GMAC.
Rainy99 5:10PM (11/07/2008)
Do you need a nap or something?
Reply