A shocking number, but not a death knell
BY TOM WALSH
DETROIT FREE PRESS COLUMNIST
August 2, 2008
Now that it's out there and Wall Street has reacted with only a mild rebuke -- GM stock dropped 84 cents to close at $10.23 a share Friday -- what should Detroiters think about the future of their largest corporate citizen?
For starters, don't fret that GM will collapse this weekend, or next month, or next year. Only $3.6 billion of the $15.5 billion of red ink was in hard cash, and when companies fail, it's usually when the hard cash runs out and they can't pay their bills or employees. GM still has $21 billion of cash on hand and access to a credit line for $5 billion more if needed.
Because most of the special write-offs weren't in cash, GM says it has adequate cash to fund operations through 2009, even if the U.S. market stays weak.
Young, in an interview Friday afternoon, said GM may start reducing its cash burn in the second half of this year because it no longer will be rapidly reducing inventories as it did during the American Axle strike, and it will boost output of more fuel-efficient cars, which will help cash flow.
Thankfully, the American Axle strike is history. And there's reason to hope the Chapter 11 bankruptcy of Delphi, GM's former parts supplier, will conclude soon. Delphi filed for bankruptcy in October 2005.
I'm tempted to say things can't get worse than the convergence of bad news that whacked GM in the second quarter. But of course, things could -- and no one expects a rapid recovery of the U.S. economy. Still, things eventually will get better; they always do. GM's challenge is to stay afloat and keep investing in new products and technology in the meantime.
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