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GM to Draw Down $3.5 Billion In Credit Facility to Boost Liquidity

http://online.wsj.com/article/SB122186953006359023.html?mod=yahoo_hs&ru=yahoo

General Motors Corp. said it intends to draw down the remaining $3.5 billion of an existing $4.5 billion secured revolving credit facility to boost its liquidity amid uncertainty in the capital markets.

The move reflects increasing concern at GM about the effect closed credit markets are having on the company's cash cushion. GM's liquidity has been drained by falling sales in the U.S. and a litany of restructuring charges recorded in recent years.

The $4.5 billion secured revolving credit facility was put in place in July 2006 with a consortium of banks and provides liquidity that GM can draw on from time to time to fund working capital and other needs. Earlier this year, GM drew down about $1 billion from the line of credit, but it has in the past has avoided relying heavily on its credit lines as it typically enjoyed a relatively solid liquidity position.

In fact, GM executives said as recently as June that drawing down from the credit line may send a negative sign to investors.

GM also said Friday it completed a $322 million debt-to-equity exchange. The auto maker issued 28.3 million new shares of its common stock in exchange for $322 million principal amount of its 1.5% Series D Senior Convertible Debentures, which mature in June.

"Accessing the funds available to us is a prudent liquidity measure," GM Treasurer Walter Borst said in a statement. "Drawing on the revolver now improves our liquidity position at a time when the capital markets have become more challenging."

GM shares rose $3.15, or 31%, to $13.08 in 4 p.m. trading on the New York Stock Exchange. GM shares have rallied on wider optimism on Wall Street and hopes that the auto maker will receive billions in direct loans from the U.S. government.

In July, GM unveiled a $15 billion fundraising plan designed to keep the company afloat through the end of 2009. About $10 billion of that would be achieved through cost cuts, such as a dividend cut and capital expenditures reductions, while another $5 billion would be raised through asset sales and secured financing deals.

But GM, like many companies, has had difficulty tapping the credit markets this year. The auto industry has been particularly pressured as U.S. auto sales are currently at a 15-year low, and the profitable truck and SUV segments have collapsed under the weight of high gasoline prices.

As GM in recent months has sought new financing, it has found the costs of the loans to be prohibitive. It currently is lobbying Washington to approve funding for $25 billion in direct loans. Without those loans or a loosening of the credit markets, many analysts and investors fear that GM will run into a cash crunch that could lead to an inability to meet its day-to-day funding needs.

A tough economy and falling market share have led GM to post a string of financial losses and spend billions on a restructuring of its North American operations and assisting Delphi Corp. -- its top parts supplier -- through a three-year bankruptcy process. GM has recently been burning $1 billion in cash on a monthly basis, and had $20.5 billion in cash at the end of the second quarter.

Its credit lines were not counted in the $20.5 billion number.

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it is interesting that with 20 billion on hand they would tap the line of credit.
I wonder if they were close to losing it unless they used it.
 

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Makes sense with all that is going on both at GM and in this credit crunch to have as much cash on hand as possible.
 

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I think this is a smart move, as whichever company GM has made this credit deal with might not be around in a month. For example what if the deal had been with Lehman Brothers.. Lehman may have wanted to honor its credit line deals, but the company went down in the meantime.
 

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more debt is not good, but these guys are like alcoholics, they won't stop the idiotic marketing which is causing the losses, which in turn continues to bury us further. it will only stop when there is no more access to capital and that point is very close.
 

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What puzzles me is that GM has not fundamentally changed how it does business. It still clings to brands that aren't volume producers or profit producers. It still feels a compulsion to slap a new badge on a product with minimal effort to give a brand a model it doesn't have in a segment it doesn't compete within.

While I recognize that GM products are a heck of a lot better since the days of the GM-10's, the problem is GM has so much it has to improve that it is stretched thin - it waters down its attempts to excel because it hasn't the resources to be best in class anywhere.

GM has for decades realigned itself but the results are always the same - mediocrity at some level whether in design, product execution, or timing of product releases. It is as if GM has never had a "gotcha moment" in which it knows what it is and how it should execute its plans.

Until GM finally accepts that badge-engineering is either its focus or is to be eliminated, it cannot keep saying it won't or dabbling in it to survive a crisis. Badge-engineering isn't a bad thing per se if the products are superb - but GM hasn't yet figured out how to roll out a complete product that is superb at all levels and then administer it to its brands completing weaknesses in its product portfolio effectively. The Malibu and Aura are nice attempts but both have significant weaknesses in rear seat accommodations and trunk space access - with the Aura that isn't fatal because it really isn't fighting a Camcord directly whereas the Malibu competes and looks silly when it barely can seat four in comfort and can't fit things through its trunk opening.

Perhaps GM needs to set benchmarks for each segment and build one vehicle to meet or to surpass that benchmark. Then if it feels compelled to spread the vehicle to other brands through slapping a new grill and tail light assembly on it or add a crease here or there, it can at least offer a compelling rebadge instead of a compromised one.

I think back to the 1960's when GM had the best mid-sized vehicle ever made - the Malibu, the Cutlass, the Skylark, and the Pontiac derivations. These products were very similar but executed so well that the differences were noticeable while the commonalities weren't so obvious. GM had a wonderful platform for that era and really did a tremendous job executing that for each brand. Even the 1975 era Nova which grew to near "intermediate" proportions, was a great product though more tepidly differentiated once it went to Buick and Pontiac and Oldsmobile. The product nonetheless was above the competition in most areas.

It is thus GM should just admit that it needs to build vehicles in volume and then should just have a solid platform in each class and build from there while not pretending it has given up badge-engineering. If the badge-engineering was actually executed correctly, you would get better materials on the inside of a Buick than you would in a Chevrolet or a better performance option availability in a Pontiac than you would in a Buick. Some options you wouldn't give Chevrolet but you would in a Buick. This would make a sensible differentiation of products than GM has now.

I say this in all due candor because GM refuses to remove three moribund brands and has no other alternative to succeed. What it is doing now is bleeding itself to death. Management is incompetent, short-sighted, ignorant, and fool-hardy. In five years GM could be turned around with compelling products. The fact that after 8 years of Wagoner and six with the Putz GM is still in a mess is all the information we need to conclude heads should roll and terminations should have already been made.
 

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Makes sense with all that is going on both at GM and in this credit crunch to have as much cash on hand as possible.
And to 'grab it' before it somehow - maybe 'disappears'.

I think this is a smart move, as whichever company GM has made this credit deal with might not be around in a month. For example what if the deal had been with Lehman Brothers.. Lehman may have wanted to honor its credit line deals, but the company went down in the meantime.
EXACTLY.
 

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more debt is not good, but these guys are like alcoholics, they won't stop the idiotic marketing which is causing the losses, which in turn continues to bury us further. it will only stop when there is no more access to capital and that point is very close.
Then the goverment bails them out and there are no consequences for the poor money management....
isn't that socialism?
 

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Band aid on a gunshot wound quite frankly. GM has become like the people who take cash advances on their Visa to pay their Mastercard bill.
 

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Then the goverment bails them out and there are no consequences for the poor money management....
isn't that socialism?
Agreed however the government is bailing out everyone right now to prevent a total financial collapse of the US market (and global too) so what's a few more low interest loans, right?? :clap:

Anyway, and more importantly, I love your car. Awesome.:drive:
 

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Agreed however the government is bailing out everyone right now to prevent a total financial collapse of the US market (and global too) so what's a few more low interest loans, right?? :clap:

Anyway, and more importantly, I love your car. Awesome.:drive:
Me too thanks..LOL!!:hyper:
:D

:cool:
 

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And to 'grab it' before it somehow - maybe 'disappears'.



EXACTLY.


Yes, definitely....get it while you can!! I thought of that afterwards; I'd want to draw on it just in case.
 

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grab the cash while you can 'cause you stupid $%^^&*(*( have absolutely zero idea how to earn it.
 
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