A shocking number, but not a death knell

[Ming]

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.


SOURCE

[robsBU08]

GM will be fine, they have some good products coming out and are working on some great new technology. My girlfriend drives a 2005 Acura TSX and she likes my new Malibu better, I am trying to get her to trade it in on a new Camaro next year

[fp115]

This article is almost shocking. It actually tells it as it is and nothing else. Guess there is a reason why its free press.

[tamatt27]

Originally Posted by fp115

This article is almost shocking. It actually tells it as it is and nothing else. Guess there is a reason why its free press.

I agree. I wonder if all of GM's woes and bad press will give them the perception of the underdog in the public's eyes after Toyota takes #1?

[tgagneguam]

It's funny, when a successful company does well, it simply posts a profit, quarter after quarter, year after year. There's no need for explanations, there are no footnotes, there's no lengthy, contorted accounting mumbo-jumbo to explain that the situation isn't as bad as it seems. There's usually just a few simple statements: our revenue grew, and we made this much from that increased revenue. Plain and simple. Sure, GM didn't really lose $15.5 billion last quarter, but even when you take away these inconsequential (ahem) paper write-offs, they yet again did not bring money through the door. And that's important.

I am not an accountant, but I can tell that each quarter GM needs to start 'splaining away an awful lot. This has happened for quite a few quarters, and I imagine it will continue well into '09. And that comes across as quite suspicious and certainly not indicative of a healthy company, media bias and its grand conspiracy to destroy GM, notwithstanding.

[fp115]

Originally Posted by tgagneguam

It's funny, when a successful company does well, it simply posts a profit, quarter after quarter, year after year. There's no need for explanations, there are no footnotes, there's no lengthy, contorted accounting mumbo-jumbo to explain that the situation isn't as bad as it seems. There's usually just a few simple statements: our revenue grew, and we made this much from that increased revenue. Plain and simple. Sure, GM didn't really lose $15.5 billion last quarter, but even when you take away these inconsequential (ahem) paper write-offs, they yet again did not bring money through the door. And that's important.

I am not an accountant, but I can tell that each quarter GM needs to start 'splaining away an awful lot. This has happened for quite a few quarters, and I imagine it will continue well into '09. And that comes across as quite suspicious and certainly not indicative of a healthy company, media bias and its grand conspiracy to destroy GM, notwithstanding.

Even when GM was making profit, the broadcasts were just as lengthy and they went into detail about what worked, what didn't work and how they plan to improve. Its the same for every company, the only difference is that the press will decide which is the spin they want on things, to most people they don't care if a company makes money, but if they lose some, they want to know why and where.

[steve333]

It boils down to this-
Rick Wagoner and the other cats 'n jammer kids in charge of GM are incompetent morons. Until they are flushed from the system and wholesale changes are instituted GM will never be a healthy company.
Rick has to go.

[Orbit Orange]

Until they are flushed from the system and wholesale changes are instituted GM will never be a healthy company.

Could you elaborate on these wholesale changes please? I'm curious as to what will bring GM back to health.

[roteague]

I'm glad that Rick Wagoner and Bob Lutz are leading GM right now. They are doing a great job, given the meager resources they have to work with.

[Buickman]

Originally Posted by Orbit Orange

Could you elaborate on these wholesale changes please? I'm curious as to what will bring GM back to health.

Return to Greatness

[Orbit Orange]

Return to Greatness

I'm not following. Is this a thread on the site? Is this a book? More elaboration please.

[MonaroSS]

I hate to burst some people's bubbles but there is a reason why the law makes companies include these so called "paper" and "non-operational" losses in their financial reports.

The reason they have to is because they are REAL losses of wealth.

You don't just lose money when it's hard cash. When they come and take your car and house away you also lose the equity in them, even though it wasn't hard cash.

The $2 Billion loss from vehicle leases may not be cash, but it was the loss of an asset which was that coming off of lease GM thought they would have had $2 Billion dollars more in the value of those vehicles that would have then been sold and that asset converted into hard cash. So that's $2 Billion in future hard cash that GM has lost. Is it GM's fault that suddenly SUV's and Trucks are worth far less due to $4 gas? Yes.

GM decided the bulk of their sales would be SUV's and Trucks whereas Toyota decided the bulk of it's sales, and thus the vehicle lease residuals it was exposed to, would be more frugal cars that have not suffered devaluation due to $4 gas. So if you make a strategic decision and it pays off then you can rightly claim you made a good decision, but when you make a business forecast and decide badly, then it is your fault.

When they wrote off $30+ Billion in tax offsets, that was $30+ Billion of real hard cash that GM would not have had to pay the IRS in tax on profits had they have made any.

OK you can argue they lost nothing as they had no profit to tax and thus nothing to offset, but the point is that HAD they have been managed to make money, as they are meant to, then that is $30 Billion that should by now be in GM’s bank account and going into better future product. I'm sure Toyota is and has been able to pocket all it's legitimate tax offsets and thus convert them into real hard cash. So that 'paper' loss by GM gives Toyota’s war chest $30 Billion further advantage over them. These things are real, with real consequences.

This whole parsing of results saying "no the real loss is a lot less" is bullcrap. These are ALL real losses. That's why GAAP makes you legally have to declare them to the public.

[Tstag]

GM do not have $21 billion in available cash. They have $7-10 billion because they need roughly $14 billion dollars to keep the lights on and manage day to day affairs.

So with the $5 billion in available credit they actually have nearer $12 - $15 billion dollars to get them through to 2010 without any additional loans. So by the middle of 2009 they might be in big trouble if they continue to lose $4 billion a quarter. GM should really aim to raise another $10 billion in cash. That would see them through this. But I wouldn't lend these guys any money...

[fp115]

Originally Posted by Tstag

GM do not have $21 billion in available cash. They have $7-10 billion because they need roughly $14 billion dollars to keep the lights on and manage day to day affairs.

So with the $5 billion in available credit they actually have nearer $12 - $15 billion dollars to get them through to 2010 without any additional loans. So by the middle of 2009 they might be in big trouble if they continue to lose $4 billion a quarter. GM should really aim to raise another $10 billion in cash. That would see them through this. But I wouldn't lend these guys any money...

They have $21b plus up to $5b in credit.

[1931Chevy]

I want GM to survive, but everytime they have a loss, they come with the same story, we are making cuts here and there and will save some billions , and how long they have been doing , what GM needs its a total shakeup and rethink what are we doing wrong and where do we want to be,