sourceFor liquidity planning purposes, GM is using assumptions of U.S. light vehicle industry volumes of 14.0 million units in 2008-2009 which are significantly below trend. Other planning assumptions include lower U.S. share of approximately 21 percent and continued elevated average oil price estimates ranging from $130 to $150 per barrel by 2009. Based on those assumptions, GM is taking actions to further reduce structural cost, and generate cash, with the goal of maximizing liquidity.
I question the accuracy of these assumptions for the following reasons:
First, GM is assuming Americans will buy 14.0 million units in 2008-09. However, last month, the sales rate was 13.64 million units and dropping fast. With Fannie Mae and Freddie Mac being taken over by the government, is it realistic to assume sales are going to start increasing?
Second, GM assumes a market share of 21%. It's market share of trucks is higher than that, but its market share of cars is below 18%. It had a good bounce last month, but only because Toyota and Honda ran out of inventory. Two things are going to happen: the competition will readjust their supplies, and the truck market will continue to fall. When this happens, will GM have 21% of the market?
Third, GM assumes oil prices at $130 - $150 a year from now. The only way this happens is if the U.S. plunges into a recession and demand falls. But if this happens, demand for new vehicles will fall, too.
Is it time for Wagoner to take off the rosy glasses?