Dead automaker walking

Megan McArdle says GM is finished, at least in its current form:

After today’s annual report, I don’t think there’s any question of GM’s staying out of bankruptcy. The company’s revenue fell from $180 billion in 2007 to $149 billion in 2008, with the worst crash in the fourth quarter. Car sales have continued to plunge into the new year. The company’s current asset position continues to deteriorate by about $2 billion a quarter even with massive Federal injections of cash. With cash & equivalents now down to just over $14 billion, they can’t go on this way for much longer. Though no one knows exactly how much working capital the company needs on hand at any time, the estimates tend to fall around $10 billion. Dip below that, and they’ll rapidly be catapulted into insolvency.
But don’t take my word for it–listen to their auditors…
GM has burned through $13.4 billion in less than six months. What will $30 billion buy us? Another year, at best, with no signs of a turnaround in the market for cars. Autos, like other big consumer durables, are especially sensitive to downturns like this. There’s only so much food you can cut out of the budget, but you can certainly drive the 2001 Grand Caravan for another year.
It’s time to stop talking about keeping GM out of bankruptcy, and start talking about what measures might be necessary to keep GM as a (smaller) going concern rather than outright liquidation. One thing to look at is warranties: consumers are understandably worried about buying a car where the warranty may not be good in a year. There may be a government role in guaranteeing that coverage

Damian P.

2 thoughts on “Dead automaker walking

  1. gord tulk says:

    I think liquidation is the best option as this will purge the unions and bad manangement. Creative destruction is the key aspect of capitalism.

  2. Fred says:

    Bankruptcy was always the only option that would lead to a successful outcome. The bailouts just flushed money away and bought a bit of time, but left the same Management/Union morons that created the problems still running the show.
    Take the bitter medicine and start healing.

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