Fortune: "GM: Better off bankrupt"
10-15-2008 | 11:37 AM
#1
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Fortune: "GM: Better off bankrupt"
If you're a Detroit pessimist (currently known as a "realist"), this is just the mainstream catching up to you. If you're accustomed to the BS typically printed by the business press, then you might treat this as a contrary indicator. Either way, it's not a particularly pleasant read:
GM: Better off bankrupt
The biggest problem I see with this is that it'd wipe out most of the US automotive suppliers. Bosch, Denso, and Continential could survive due to their size and diversification, but a lot of smaller domestic suppliers would instantly be insolvent due to the huge amount of accounts-payable cash that GM withholds from suppliers as a way to keep its own ship afloat 
GM: Better off bankrupt
GM certainly is keeping a close eye on its cash these days.
One supplier reports he is now getting paid 60 days after he presents an invoice - not the 30 days he was used to. Worse, the clock doesn't start ticking until after the bills get approved in Detroit - and then sent to Arizona for processing.
Next thing you know, GM will be inflating its float by cutting supplier checks on banks in Fiji that will take weeks to clear.
It is a measure of GM's desperation that it is reported to be considering a linkup with Chrysler to get access to Chrysler's cash so it can remain in business. The idea has provoked nearly universal skepticism among analysts and GM watchers.
One supplier reports he is now getting paid 60 days after he presents an invoice - not the 30 days he was used to. Worse, the clock doesn't start ticking until after the bills get approved in Detroit - and then sent to Arizona for processing.
Next thing you know, GM will be inflating its float by cutting supplier checks on banks in Fiji that will take weeks to clear.
It is a measure of GM's desperation that it is reported to be considering a linkup with Chrysler to get access to Chrysler's cash so it can remain in business. The idea has provoked nearly universal skepticism among analysts and GM watchers.
Bankruptcy would give GM a chance to negotiate further cost reductions with its union workers, work out its obligations with those suppliers that are still solvent, and help speed the rationalization of its dealer body.
Would GM then be stigmatized as the only bankrupt auto company? No way. Ford (F, Fortune 500) and Chrysler would immediately find that they have been made uncompetitive by GM's actions and quickly follow it into Chapter 11.
Flying one bankrupt airline felt a little awkward, but by the time half a dozen were in the same condition, it seemed perfectly natural. That would apply to the Detroit Three. There is still an appetite out there in America's heartland for Detroit iron, and in the end bankruptcy may be the best way to continue to satisfy it.
Would GM then be stigmatized as the only bankrupt auto company? No way. Ford (F, Fortune 500) and Chrysler would immediately find that they have been made uncompetitive by GM's actions and quickly follow it into Chapter 11.
Flying one bankrupt airline felt a little awkward, but by the time half a dozen were in the same condition, it seemed perfectly natural. That would apply to the Detroit Three. There is still an appetite out there in America's heartland for Detroit iron, and in the end bankruptcy may be the best way to continue to satisfy it.
10-15-2008 | 12:16 PM
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GM would have to take care of the smaller suppliers if they want to continue producing vehicles under bankruptcy. Once bankruptcy is declared and the UAW contract is deemed void, Ford and Chrysler would have to also declare BK once they see the savings available to GM.
10-15-2008 | 12:32 PM
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). If GM goes into bankruptcy, that $67B of accounts payable (the number as of Jun 2008; it's probably more now that GM is stretching out the payment terms for more suppliers) goes *poof*. That'll take down a huge chunk of the supply base overnight.
10-15-2008 | 12:44 PM
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knowing that their customer has switched to 60 days and is this close to death or ch11, I am amazed suppliers are still sending them product knowing that they are playing roulette with getting paid :-(
Though bankruptcy with cash on hand now would be much better than bankrupt with nothing later...
Though bankruptcy with cash on hand now would be much better than bankrupt with nothing later...
10-15-2008 | 12:52 PM
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If GM goes to longer-yet payment terms, expect that a filing is getting closer. I wouldn't be surprised to see Net 120 terms at some point. The last step is suppliers requiring COD payment for shipments. Then the filing is right around the corner.
Though bankruptcy with cash on hand now would be much better than bankrupt with nothing later...
10-15-2008 | 02:56 PM
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If GM went to chapter 11 this very day, I wonder if they'd be in anywhere near a strong enough position to really take advantage of it, and its only going to get worse.
I wonder where GM is globally - different markets and groups perhaps not doing *quite* as badly as GMNA...
Here's food for thought - If GM declares ch11 with cash in hand, thats less the govt might give them for a bail out. If GM declares ch11 after the election, they might be in a better position to get money from the new administration versus the current one. In that point, maybe GM wants to burn through its money while appearing like they're really trying- simply waiting till the day after the election to finally declare ch11 and turn to a new president to "save us from collapse!"
If it was inevitable to go into ch11, wouldnt GM want to make their bail out package as big as it could be?
10-15-2008 | 04:44 PM
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Who said anything about a merger?
http://www.businessweek.com/bwdaily/...14_588977.htm?
Then I supposed GM would sell off portions of the old GM and Chrysler and keep what it projects it needs to move forward and (hopefully) grow into a stronger combined company.
http://www.businessweek.com/bwdaily/...14_588977.htm?
One scenario has GM giving Cerberus its 49% stake in lender GMAC Financial Services (GMAC) in exchange for Chrysler and $3 billion. JPMorgan (JPM) analyst Himanshu Patel says GM, which has $21 billion in cash but is burning it at a rate of $1 billion a month, could take the $3 billion and Chrysler's $10 billion in cash and come away with the car company and $13 billion. From there, GM needs to figure out if that's enough money to make Chrysler a worthy business while also wrestling with its own problems. Risky indeed.
10-15-2008 | 08:17 PM
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My reason is that if Oil falls too $40.......
The ecomony and world will not be useing
much oil and the world economy will be pretty broke....
Only makes sense if Oil is that low that the economy is falling apart.
Look at the price today and the fall of the market....\
I would think if the price drops under $40 a barrel who would ship it??????
You will not be able to get a Tanker ship for under 5 million dollars aday
And what will they do witha empty ship returning without cargo?????
Ship owners are not shipping steel because they cannot get what they want
per day
Plus $1.00 plus per ton to me the broker to fix the ship.
But then again I am not up to date on tankers,I am in dry cargo
The ecomony and world will not be useing
much oil and the world economy will be pretty broke....
Only makes sense if Oil is that low that the economy is falling apart.
Look at the price today and the fall of the market....\
I would think if the price drops under $40 a barrel who would ship it??????
You will not be able to get a Tanker ship for under 5 million dollars aday
And what will they do witha empty ship returning without cargo?????
Ship owners are not shipping steel because they cannot get what they want
per day
Plus $1.00 plus per ton to me the broker to fix the ship.
But then again I am not up to date on tankers,I am in dry cargo
Last edited by JohnnyTuinals; 10-15-2008 at 08:29 PM.
10-15-2008 | 08:31 PM
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Who said anything about a merger?
http://www.businessweek.com/bwdaily/...14_588977.htm?
Then I supposed GM would sell off portions of the old GM and Chrysler and keep what it projects it needs to move forward and (hopefully) grow into a stronger combined company.
http://www.businessweek.com/bwdaily/...14_588977.htm?
Then I supposed GM would sell off portions of the old GM and Chrysler and keep what it projects it needs to move forward and (hopefully) grow into a stronger combined company.
I still wonder what GM intends to do with SAAB?
I've read reports that Ford are considering selling Mazda. Mazda is their jewel in the crown atm... and Volvo is another lucrative option for them. But what does GM have left to sell (besides Hummer)?