GM will not survive

[30ashopper]

General Motors Corp. said in a government filing Thursday that its accounting firm has found there is "substantial doubt" about the automaker's ability to survive.

The embattled automaker made the disclosure in a 480-page filing with the Securities & Exchange Commission.

GM has sustained large and continuing losses, while saying it needs additional federal loans to remain in business. Thursday's statement from the company's auditors presents another hurdle the automaker will have to clear as it makes the case that it deserve additional taxpayer support going forward.

The Obama administration, under the terms of the $13.4 billion in federal loans GM has already requested, must determine that the company's plans make it viable in the long run.

The government must determine that GM has a "positive net present value" or else demand repayment of the loans within 30 days - a development that would almost certainly plunge the company into bankruptcy and quite possibly force it out of business.

But the government has wide latitude in how it judges the company's net present value, based on assumptions it makes about future sales, car prices and costs for the company going forward. The administration clearly does not want to force the largest U.S. automaker into bankruptcy.

The GM filing disclosed that the Treasury already agreed to waive requirements that the automaker meet certain terms of the original loan agreement, including that it win agreement with creditors to convert two-thirds of its unsecured debt to equity by Feb. 17.

But even if the Obama administration continues to give support to GM (GM, Fortune 500) and rival Chrysler LLC, which has also received federal loans, Thursday's filing could create problems in its relations with suppliers and banks.

For example, concerns about GM's future could cause companies that supply it with parts start to demand cash on delivery from the cash-starved automaker, according to GM's filing.

While parts makers would be reluctant to damage their largest customer with such a demand, they may have no choice because of GM's filing. Those parts makers' own auditors and banks could use the doubts raised by GM's auditors to raise questions about their own future.

Privately held Chrysler does not have to file a year-end financial statement with the SEC. Last week,Ford Motor (F, Fortune 500) said its auditors have not substantial doubt about its future. Ford went into this auto crisis with a much stronger cash position than GM or Chrysler.

GM said Thursday auto sales, which have plunged more than 40% in recent months, must rebound by next year if it is to survive.

Meantime, GM also said it needs additional federal loans to stay in business.

GM received $13.4 billion so far, and it has asked for up to $16.6 billion more. In addition, it is seeking $7.7 billion in loans to convert production from light trucks to more fuel efficient cars under an Energy Department loan program.

GM says there is 'substantial doubt' about its viability - Mar. 5, 2009

One, Obama continues to quitly bail this company out and scale back the agreements that were originally made with the company back in January. Two, the company wants more money - another 7.7 billion just to stay afloat for a few more months, and three, auto sales (which have been chopped in half) are likely to continue to decline over the next few years, ultimately bottoming out around 75% below peaks and will stay there for quite some time to come. (A majority of cars purchased a few years back were purchased on credit by consumers, that credit and consumer's penchant for purchasing on debt has now completely dried up.)

GM is going under, but AFAICT Obama still seems to be shoveling our money through their doorway. :scratch: What's up with that?

 

[dgsevier]

The GM dinosaur still roams the planet, but the giant asteroid is within sight.

 

[Linda]

"Obama still seems to be shoveling our money through their doorway"
I heard someone say today that we would know when the bottom of the stock market had been reached when Obama has the courage to declare "No more Bailouts". I agree.

In regards to GM - Did anybody really think that throwing money at a failing company without addressing the reasons they were failing (i.e. unions) would really work?

 

[TooFarTampa]

Obama still seems to be shoveling our money through their doorway

I heard someone say today that we would know when the bottom of the stock market had been reached when Obama has the courage to declare "No more Bailouts". I agree.

In regards to GM - Did anybody really think that throwing money at a failing company without addressing the reasons they were failing (i.e. unions) would really work?

I agree that we should not be bailing them out unless they are willing to restructure or eliminate the power of the unions. The patient was sick long before the condition became critical.

But the housing crisis is just killing everything. Nobody is going to buy a car or truck right now unless they have to. What should we do? Should we allow them to fail? If GM and Chrysler fail, then what happens? Serious question. What dominoes start to fall? Detroit already is arguably in more serious condition than New Orleans.

I read the most remarkable story today. One in three of all mortgage holders in my metro area owe more on their home than it is worth. One in three! Guess what dominoes fall as a result? People stop spending and more lose their jobs, more foreclose, values fall further, more people are underwater. And the state budget falls to almost nothing -- thanks to fewer sales tax revenues, few doc stamps, increased unemployment. I know this is not "related" to the GM woes, but it is, peripherally. It is housing. And the only way to avoid utter disaster is to create or retain jobs.

Restructure GM, yes, but allow them to fail? I can't be so cavalier.

 

[traderx]

Early on, Obama talked about a structured bankruptcy for GM. It would be a Chapter 11 but the skids would be greased to move the case along quickly. That made so much sense. What happened to this plan?

 

[dgsevier]

Early on, Obama talked about a structured bankruptcy for GM. It would be a Chapter 11 but the skids would be greased to move the case along quickly. That made so much sense. What happened to this plan?

I agree. That was the most sensible option. I guess the stigma of bankruptcy made everyone too nervous. I'm curious as to whether that plan didn't receive enough union backing to be viable?

 

[traderx]

I agree. That was the most sensible option. I guess the stigma of bankruptcy made everyone too nervous. I'm curious as to whether that plan didn't receive enough union backing to be viable?

That would be my guess. The UAW is a huge voting block for the Dems. Surely those at senior leadership roles in the UAW can see the handwriting on the wall? Perhaps an Eastern Airlines historical film could be shown at the next UAW convention? Hopefully, Obama can get this issue front and center again.

 

[dgsevier]

I'd feel much better about the situation if I felt that American auto manufacturers could actually build a product that someone would buy. At least Eastern Airlines tried to get you to the destination that was printed on the ticket.

 

[Lynnie]

Huge advocate of BK for these guys. You have to wonder why Obama is still wanting the throw our money at them when all the variables support a company that will go under regardless.

GM specifically stated in the first round of Congressional Hearings that their fixed costs are $2B/mo. And, the union won't negotiate........they just need to close up shop. Sad, but they won't be the first American Corporation to close their doors and unfortunately they won't be the last either.

 

[30ashopper]

I agree that we should not be bailing them out unless they are willing to restructure or eliminate the power of the unions. The patient was sick long before the condition became critical.

But the housing crisis is just killing everything. Nobody is going to buy a car or truck right now unless they have to. What should we do? Should we allow them to fail? If GM and Chrysler fail, then what happens? Serious question. What dominoes start to fall? Detroit already is arguably in more serious condition than New Orleans.

I read the most remarkable story today. One in three of all mortgage holders in my metro area owe more on their home than it is worth. One in three! Guess what dominoes fall as a result? People stop spending and more lose their jobs, more foreclose, values fall further, more people are underwater. And the state budget falls to almost nothing -- thanks to fewer sales tax revenues, few doc stamps, increased unemployment. I know this is not "related" to the GM woes, but it is, peripherally. It is housing. And the only way to avoid utter disaster is to create or retain jobs.

Restructure GM, yes, but allow them to fail? I can't be so cavalier.

I'm not so much a proponent of letting them fail e.g. go completely out of business and close up shop. I am a proponent of forcing them to finally restructure in a way that results in a viable business. I'm not convinced that will happen with the democrats in charge of the issue.

I mean really, looking around, every decision coming out of Washington right now involves "propping up" some failed enterprise. My only hope is that markets ultimately overwhelm Washington's best efforts and force the issue regardless.