Quote:] GM Posts $9.6B Loss, Wants More Money From the Feds
GM looks to the government for its latest cash fix


When reports indicated that GM might soon request more cash, many observers puzzled at the news.  Hadn't GM just received a massive $13.4B USD loan from the federal government?  Well, $13.4B USD doesn't last too long when you're losing $9.6B USD a quarter.  That's how much GM lost in the Q4 2008, according to its earnings reports released today.

The struggling automaker has seen its sales plummet to oblivion thanks to the ravaged economy.  And while its Japanese and Korean competitors are able to sustain on a broader world market, GM is largely unable to reach customers in places like Korea or Japan thanks to a variety of conditions, such as lack of dealerships allowed in Japan and tariffs in Korea.  Even its domestic competitor Ford is a bit more fortunate in that it had a larger cash reserve then GM.

To put it concisely -- GM is in deep trouble, and bankruptcy seems more and more like the only option.  GM's Chief Executive Officer, Rick Wagoner, however, refuses to entertain such thoughts and is preparing to ask the treasury for more money.

In total, $1.5B USD of GM's losses come from continuing operations, such as the development of GM's upcoming flagship product, the Chevy Volt.  About $3.7B USD of the losses came from one-time expenses, such as writing down the assets of the struggling Saab and Hummer brands, which GM wants to sell.  It also spent $900M USD on restructuring and capacity changes.  In total the losses put GM $30.9B USD into the red for the year, the second biggest yearly loss in the company's 100-year history. 

John Casesa, a managing partner at consultant Casesa Shapiro Group LLC in New York comments, "The size of the loss matters not only because it impacts what it will cost to restructure the company, but also the kind of bill for which the taxpayer is on the hook.  Conditions in this quarter could not have been worse."

The deciding hour for GM will be when it makes its case to President Obama and his advisors for an estimated additional $16.6B USD in support.  President Obama, while making it clear that survival of the domestic auto industry is a top priority, has recently indicated that bankruptcy for America's Big Three, particularly GM and Chrysler, may be the only way to turn things around.  The alternative, some analysts say is spending anywhere from $100B USD to $200B USD in taxpayer-funded loans, to prop up the industry until it can turn around.

In the short term, GM needs $2B USD more in March or it will run out of cash.  The basic problem is that GM is not selling enough vehicles.  It saw its sales drop 34 percent in Q4 2008 to $30.8B USD.  That big drop exceeded even analysts' very pessimistic predictions.

GM's Wagoner released a carefully worded statement, saying, "We expect these challenging conditions will continue through 2009."

His Chief Financial Officer, Ray Young, added, "We don’t know if we’re going to receive additional government funding.  That’s the reason we objectively put the statement in the press release."

GM owes $12.4B USD to its salary and pension plans, which many retirees across the country depend on for income.  The money from these retirees, who range from retired engineers and draftsmen to plant workers, provides a great deal of cash injection into the consumer market.  Losing that injection would be a major hit to consumer spending.  GM already cut 47,000 jobs last month, amid the tens of thousands it has already cut.

That's not all of GM's problems, though.  In total, it has $62B USD in debt not including government loans.  It hopes to cut it to $33.5B USD this year, but if sales continue to plunge, much of the cuts could simply be to absorb the current losses.  Rod Lache, a Deutsche Bank AG analyst in New York suggests that GM's debt will decrease insignificantly; he estimates it will be at around $60.3B USD at the year's end, excluding government loans.

meford4u,Feb 26 2009, 01:08 PM Wrote:Can you picture yourself as a retiree with no pension?
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meford4u,Feb 26 2009, 01:08 PM Wrote:Maybe GM should be allowed to die, but the repurcussions would be mind blasting.

Can you picture yourself as a retiree with no pension?

With the US government handing out $$$ like candy, it is highly unlikely they won't come to GM's aid.
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NOS2Go4Me,Feb 26 2009, 01:39 PM Wrote:

meford4u,Feb 26 2009, 01:08 PM Wrote:Can you picture yourself as a retiree with no pension?
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This is a commensurate example of being responsible for your own retirement funds, at least in part.

As for GM, only one thing comes to mind:


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