GM on the fast road to Chapter 11

gm GM vehemently denies any bankruptcy rumors.  And that’s just what they’re supposed to do.  If the public thinks they’re going bankrupt, investors will begin selling in droves, their share price will tank, and the public will be even more hesitant to buy GM cars and trucks.  Wagoner and Lutz will lie with a straight face right up until the day they actually break down and declare Chapter 11 bankruptcy.  The fact is, it’s as unavoidable as you or I paying taxes or dying.  It’s not a matter of if GM file BK11, but rather when, and how badly it ends.

But GM can’t go bankrupt

Well, according to the balance sheet shown on Google Finance, the company is already insolvent.  Tallying up all cash and assets vs debts and other liabilities, GM is a cool $41 billion in the red.  Their balance sheet does show a seemingly impressive $21 billion in cash, however.  Considering that GM posted a $38 billion loss all of last year, you can see how that $21 billion looks much smaller.

Last quarter GM managed to lose “just” $3.2 billion – an improvement of sorts.  However, Q2 doesn’t look as rosy, and Q3 isn’t starting out well either.  Sure, they just announced a bunch of job cuts.  Sure, they’re cutting back on truck production.  Sure, the Volt is in the pipeline ( 2010 at the earliest ? ).  Sure, they suspended the long-running dividend to preserve cash.  And you know what?  None of it matters. 

The core problem

GM has many problems.  But the 800 lb gorilla is this – people don’t want to buy their cars.  Two classes of cars are running the show these days – subcompact and compact cars.  The Aveo and Cobalt are awful vehicles – awful looking, poorly built, unreliable.  Who in their right mind would choose an Aveo over a Fit?  How about a Cobalt vs a Civic? 

The Malibu is a huge step forward, and it’s selling relatively well.  But GM has a well-deserved stigma of poor quality to overcome, and it isn’t going to happen overnight.  The first step is building more cars that people want to buy.  The Malibu cannot carry GM alone – it’s not that good.  GM will file bankruptcy.  They can get through it, and survive as a smaller company.  That is, if they play their hand right.  Based on their history of fucking up even the simplest things, I have my doubts.

Published on July 18, 2008 in GM

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