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December 4, 2008
GM: Know What? That $12
Billion We Asked For? Let’s Just Make It $18 Billion
You know, come to think of it . . . that $12 billion bailout, er,
“bridge loan” we asked for? Yeah, why don’t we just make that $18
billion. K? Thanks.
says General Motors in its now-submitted report to Congress, explaining
that it actually needs $6 billion more than it indicated just two
weeks ago, but not to worry, because it’s really learned its lesson this
GM’s business plan would be lucky to earn a C at a respectable business
college. That might be better than sending your CEO to Washington on the
corporate jet and having him explain that you just really, really need
the money, but it’s still not good.
What’s more, what little substance the plan contains, GM is in no
position to deliver.
First, why is GM asking for $18 billion now, when it was only asking for
$12 billion in November? You have to remember, this is a company that
went from reporting a $1 billion-a-month cash burn to reporting a $5
billion-a-month cash burn in a matter of weeks, so this sort of thing is
hardly unprecedented. GM says it needs to borrow the original $12
billion by March, just to continue operating, but wants access to an
additional $6 billion line of credit, just in case the economy is bad.
Gee. You don’t think there’s a chance the economy will be bad, do you?
This is what happens when someone makes you go back, sit down, run the
numbers and come back with something resembling reality.
But even within GM’s attempt to grasp reality, we find significant
indulgence of typical auto-industry fantasy.
First, GM presumes that the auto industry, which is expected to see
sales fall to 12 million units in 2009, will bounce back to sell 15
million units by 2012. And what is the basis for this expectation? Who
Second, GM insists that it will have its labor costs “competitive” with
those of transplants like Toyota and Honda by 2012. Really. Aside from
belaboring the definition of “competitive” (equal to? no longer 200
percent of?), there is the sticky little fact that the United Auto
Workers has agreed to no such thing. Indeed, even as GM was submitting
its plan, UAW officials were hurriedly huddling in Detroit to consider
whether they would be willing to make further concessions (or
“givebacks” in Detroit labor movement parlance) to give GM a ghost of a
chance of keeping this pledge. The UAW agreed to delay, but not
forgo, the gigantic payment upcoming from GM to the newly formed
Voluntary Employee Benefits Association. Other concessions? They’ll
think about it.
UAW President Ron Gettelfinger said in November that the UAW has given
enough, which is perhaps why GM’s request from the taxpayers has risen
50 percent. Will the union reverse course? And if it does, what does
that do to the larger American labor movement, which would be
essentially admitting that it had demanded too much from the employers
it always portrayed rhetorically as greedy fat cats hording unlimited
reserves of cash?
Within the document, GM admits something onerous – something that should
raise a huge red flag for any thinking member of Congress. Up until
recently, GM had financed more than half its customers’ purchases
through its GMAC financing arm, and the vast majority of the customers
it financed had credit scores under 700. Now that the credit markets
have become stingy, GMAC can no longer finance those customers, and that
means it can now self-finance only 6 percent of all its sales.
This is crucial. GM reports its market share at 22 percent (oddly up
from 20.5 percent just weeks earlier), but it appears that some 44
percent of its sales were self-financed deals with customers who pose at
least some risk of default. Now that the credit markets are no longer
willing to take the risk of underwriting such madness, GM asks the
taxpayers to do so.
The rest of the document is typical political pandering and emotional
appeals about GM’s past, none of which make a bailout of the company
from this point forward a smart business move.
One thing the plan is missing is any actual profit projections, which is
perhaps the plan’s one bow to reality. But hey, they might as well have
pulled some fat profit numbers out of their butts and thrown them in
there. It would have been as feasible as anything else in the plan.
Congress really dense enough to use taxpayer money to prop up this
fiasco? GM claims it needs the first $4 billion by the end of this month
or it will collapse, so we will presumably find out very soon.
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