GM warned on Nov. 7 that despite its efforts to raise money by cutting costs and selling assets, it will run short of cash – that is, it won’t be able to pay its bills – in the first half of 2009.
GM didn’t use the term, but that’s synonymous with bankruptcy.
GM says in a filing with the Securities and Exchange Commission that the only way GM will have enough liquidity is:
1. If U.S. auto sales improve. Yet in the same document, GM forecasts U.S. auto sales will fall to only 11.7 million units in 2009. That’s a really pessimistic forecast, even by recent standards. It’s also about 1.6 million units lower than the latest 2009 forecast from Ford, announced the same day.
2. If GM raises more money than expected from asset sales. However, GM says in effect it’s already selling everything that’s not nailed down, like the Hummer brand, and it’s prying up some things to sell that are nailed down.
3. If GM can cut costs even more than it has already. New-product development is probably the next thing to go, which would leave GM in a bad position when ultimately, the market starts to recover. GM already announced measures to raise $10 billion in cash, and on Nov. 7 announced an additional $5 billion worth. Yet GM projects it will still fall short.
4. If capital markets or private funding come to the rescue. But GM states thats unlikely, since credit markets are “seized up.”
In other words, GM says between the lines that it needs what approaches a miracle. That leaves government funding as the last hope — or maybe the least-unlikely one.
GM reported a net loss of $2.5 billion for the third quarter, including special items, versus a net loss of $42.5 billion in the third quarter of 2007. Both of those include big special items: a big gain in the quarter just ended, related to lower costs for retiree healthcare benefits, and a really huge one-time loss in the year-ago quarter, for the loss of future tax benefits.
Without the special items, GM posted a net loss of $4.2 billion for the quarter, compared with a net loss from continuing operations of $1.6 billion in the same period last year.
“Volatility in the world’s financial markets, tightening of consumer and business credit and historically-low consumer confidence have created a very challenging environment,” said Rick Wagoner, GM chairman and CEO, in a written statement.
by : Jim Henry has been writing about the auto industry from a business perspective for more than 20 years. He is also a member and past president of the New York-based International Motor Press Association.