CNN - Deepening Crisis at GM, May Need to Borrow 10 Billion to Stay in Business

Discussion in 'OT Driven' started by TriShield, Jun 20, 2008.

  1. TriShield

    TriShield Super Moderator® Super Moderator

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    As the auto giant grows sicker, its chances for a full recovery get dimmer.

    [​IMG]

    By Alex Taylor III, senior editor
    Last Updated: June 19, 2008: 10:05 AM EDT

    NEW YORK (Fortune) -- The news coming out of Detroit is getting worse, and unlike in past years, there will be no full recovery. Analysts are betting that General Motors will be forced to take emergency financial measures this year that could hamper its competitiveness for a long time to come.

    Here's why the damage is likely to be permanent: The sales slump is digging a far deeper hole than seemed possible just a few months ago. June is shaping up as a full-fledged disaster. Expectations are that U.S. sales of cars and trucks will run at an annual rate of 12.5 million, as compared with 16.3 million last year and 15.2 million for the first quarter of 2008. If you are keeping score at home, those are practically Depression levels. Citibank analyst Itay Michaeli expects that June sales for GM (GM, Fortune 500) and Ford (F, Fortune 500) will be down 28% and 27% respectively. Since truck sales alone are likely to fall much further than that, the impact on profitability will be even greater.

    There's a cascading effect that comes from such a punishing decline. With the trade-in value of trucks and SUVs plummeting, the companies are left with huge write-offs on vehicles returning from lease. Meanwhile, repeat customers are being kept out of the market because they don't have enough equity in their old trucks to buy new ones.

    As investors have sold off GM stock, they have pushed its market capitalization below $8.5 billion. That's only $1 billion more than Cerberus invested in Chrysler last year. If you valued GM on the terms Chrysler got last year, it implies that investors are getting GM's very profitable Asian and Latin American business for free.

    With investor Kirk Kerkorian now holding a stake in the company, Ford at least has a committed investor on its side, which is effectively putting a floor under the price of its stock. There is nobody filling that role at GM.

    This stunning sales decline means that GM is continuing to burn cash at a fearsome rate - perhaps $1 billion a month by some estimates. Rod Lache of Deutsche Bank figures that GM will consume as much as $19 billion in cash over the next two years. Since it began the second quarter with $23.9 billion on hand and needs $10 billion to $15 billion to keep the lights turned on, that leaves a big hole.

    To fill it, GM could follow the Chrysler example and start selling off its non-earning assets like land, empty plants, and even underperforming brands like Hummer and Saab. Or it could follow the example of Ford and borrow against its unencumbered assets like trademarks and real estate. Anybody want to make a guess as to how large a mortgage GM could get on its headquarters in downtown Detroit?

    Whatever GM does, it is likely to be expensive. Borrowing $10 billion at around 10% interest would cost it $1 billion a year. Analyst Himanshu Patel of JP Morgan lopped $1.20 per share off his estimate for 2010 earnings to account for the interest payments.

    It is also likely to leave GM weaker for the long haul. In order to attract financing, analyst Lache figures that GM will need to develop a comprehensive restructuring plan that would include cutting more overhead and further consolidating its brands.

    That will accelerate GM's shrinkage. In May, GM sold only 268,892 vehicles in the U.S., leaving it just a smidgen ahead of Toyota (TM), which sold 257,404. June could see Toyota beating GM out for the title of the number one auto company in the U.S.

    In GM history, 1992 is generally considered the worst year of modern times, with multiple plant closings, huge losses and the shunting aside of CEO Robert Stempel. Now it looks like 2008 will have that beat.

    As GM continues to slide downhill, there is going to be plenty of finger pointing to identify who is to blame. There is plenty to go around. Some comes from just plain bad decision-making, like the Fiat deal, the Delphi spinoff and the Saab acquisition. But a lot stems from the poor running of the day-to-day automotive business. Every time that gasoline prices have spiked, GM has gotten burned, and its Japanese competitors have out-maneuvered it at every turn: first into small cars, then to crossover vehicles, and now with hybrids and other fuel-saving technologies.

    Business historians and plain old second guessers will have a field day.

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  2. GrassHopper

    GrassHopper Happiest motherf***er you're EVER gonna meet OT Supporter

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    Some charity BS for knocked-up teen
    Bailing out big businesses that have been run poorly and unioned to death?

    What happened to America? :wtc:
     
  3. Chaos

    Chaos New Member

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    it will be a sad day if GM closes its doors. :wtc:
     
  4. TriShield

    TriShield Super Moderator® Super Moderator

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    We're all going to share the pain too.
     
  5. Supernoma

    Supernoma servus publicae OT Supporter

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    Rumor has it GM stocks are twice as absorbent then the quilted Brawny paper towel.... might as well stock up while its cheap!
     
  6. Harry Caray

    Harry Caray Fine purveyor of x.264, h.264 & TS HD-Video !!! HD

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    And what do we learn about all this CHILDREN ???

    E85 was fucking stupid....
    Don't build more gas guzzling SUV's then you can sell....
    Don't build more SHITTY vehicles then you can sell....
    Start to build smaller, more fuel efficient cars BECAUSE....

    the USA doesn't need another version of the Escalade, Yukon, Denali, Suburban, Blazer, etc,etc,etc,etc,

    EDIT: Oh yeah... this just in... Americans drove 4 BILLION miles LESS in the last 2 months then since the START OF THE AUTO REVOLUTION...

    Yeah... gas prices suck... and so do your cars and MPG
     
  7. Load"*",8,1

    Load"*",8,1 Guest

  8. ChemicalWhore

    ChemicalWhore OT Supporter

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    its their fault.
     
  9. Morethanchris

    Morethanchris New Member

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    That's too bad. Their cars have really improved in the last few years. Fuck unions.
     
  10. TriShield

    TriShield Super Moderator® Super Moderator

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    The company has been hijacked and run by faggots from the UAW to the board to Rick Wagoner.

    What a fucking waste.
     
  11. deusexaethera

    deusexaethera OT Supporter

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    It's hard to feel bad. GM has consistently been the last to acknowledge changing trends (except for the rise in popularity of SUVs in the 90's; you gotta give them that one), and they've been consistently punished for it. You'd think they'd have learned by now.

    I do want them to last long enough to roll out the Volt/E-Flex, though; I want to see how successful that product will be. Personally, I think it could be their golden goose.
     
  12. Harry Caray

    Harry Caray Fine purveyor of x.264, h.264 & TS HD-Video !!! HD

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    ehh... that's something that's left to be said... but the whole E85 joke that GM pushed hard for the last 4 years was a disaster... :rofl:

    Oh yeah... "FLEXFUEL"... was watching ABC news and they were doing an bit on gas prices and the USPS...

    For EVERY PENNY (.01) that gas goes up, it costs the USPS on avg $125mil a year more in fuel prices :eek3: :o

    4 years ago, they bought 20% of their fleet with "FLEXFUEL" vehicles... now, they are ALL PRETTY MUCH USELESS as there's no places to either refill or E85 prices are HIGHER then reg gas :rofl:

    Oh... BTW.... there are now more then 800% Bio-Diesel fueling stations then E85 and more on the way...

    GO GM
     
  13. Afanasi

    Afanasi Heterosapien

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    that's not necessarily the problem, it sold a few more cars than toyota. although, that definitely would boost sales a lot.
     
  14. thrlride

    thrlride NO MA'AM

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    sucks. Hope they pull through
     
  15. RDB

    RDB Blinded By Subpar Modulators

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    maybe someone on the board will realise that taking a design and rebranding it across all brands was probably a dumb idea
     
  16. MCohen

    MCohen #NotMyPresident #AmericaIsAlreadyGreat #GoSolar OT Supporter

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    lol @ unions eventually putting their own workers out of a job
     
  17. therealciviczc

    therealciviczc New Member

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    I never know who to blame. It seems like the management decisions are awful from time to time, but every company has that. Obviously the unions are a problem, but research has shown that GM spends more money per car sale trying to make up for unfavorbale market position (in other words, the fact people would rather buy jap cars) than they do paying extra costs by being union. It really seems like they're still suffering from half assing the 1980s and most of the 1990s. They never recovered from building so many shit cars.
     
  18. Ruiner

    Ruiner Evil Inside

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    FUCK! I want a fucking C6 Z! SDFjdsal;kjfdsalfjdsl;kjfsdaf
     
  19. Morethanchris

    Morethanchris New Member

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    It doesn't really take much to make a vehicle run on E85. Yes, it was a joke, but they still run on regular gas, too. Vehicles get less mileage on E85, so even if it is cheaper, you are just refueling more often and probably spending the same amount in the long run.
     
  20. Harry Caray

    Harry Caray Fine purveyor of x.264, h.264 & TS HD-Video !!! HD

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    umm... Supply and demand...

    simple... crap goes in... crap goes out...

    There are no 20yr old 300k mile+ GM vehicles that have nothing done to them on the road still (or few anyways)..

    look at Camry's, etc... My GF had a bus card put on her old one the other day asking if she wanted to sell it (91 Camry) with 240k now and still gets 29mpg :rolleyes:

    Oh... BUT THE NEW MALIBU...
    :mamoru:
     
  21. hsmith

    hsmith OT Supporter

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    :rofl: thats what they get for dealing with unions and building gas guzzlers
     
  22. Captain Jack

    Captain Jack I know I know nothing

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    I could loan GM $100
     
  23. SilverTurtle

    SilverTurtle New Member

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    :rolleyes:
     
  24. hsmith

    hsmith OT Supporter

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    :bowrofl: they won't let GM reform, so they are going to make GM go bankrupt - and they will all lose their jobs :bowrofl:

    so instead of some keeping jobs, they'd rather everyone be out of one

    :doh:
     
  25. Beege

    Beege If I had a dime for every time I was wrong, I'd be

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    Iococca did the same thing and it worked for him at the time.
     

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