There comes a moment when a company is being calm and reasonable and trying to put a positive spin on things that it suddenly strikes you: there isn’t a Plan B.
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So it was with General Motors. Like Ford it has been downsizing faster than the Weightwatchers class champion, but the faster it goes the faster it needs to go.
The latest release of initiatives shows just how close to empty is the locker of shots: take materials out of the buffer stocks at assembly plants because it no longer matters if there are production hold-ups. Take inventory out of the dealer stocks because that variety of choice no longer matters. What matters desperately is getting liquidity. Only cash can prevent Chapter 11 or the final chapter. More than $4.8bn of cash was burned in the third quarter alone and somehow, anyhow, the burning has to stop.
GM announced that it has stopped talking about merger to Chrysler. Why? Not because it was a bad idea – there were some synergy benefits and the benefit of taking competition out of the market. But it was simply a distraction. “We decided to apply our energy to liquidity and that is what we are going to do to the exclusion of all else.”
Where is the US government in all of this: the what’s-good-for-GM-is-good-for-America old-school type of thinking? Well it’s not too close at hand. GM just got this week the terms and conditions on the government’s $25bn cash put-aside for CO2-related engineering research. Fritz Henderson, GM COO, explained the detail of the Section 136 grant aid:
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By GlobalData“We are still studying the terms. It is $25bn to last from 2009 to 2020. This is not cash in advance and it is not retrospective. We can’t charge what we have spent in 2005 to 2008. And we have to submit a claim for what we spend in 2009 retrospectively.”
All the US automakers were looking for terms more flexible than that and are therefore now building a new case for soft loans of $20bn or so. The Bush administration ducked it. Obama will have to demonstrate his attitude towards his national auto industry on day one.
The brave voice of GM on the webcast Q&A was to retain dignity. There is NO good news. GM sales in October were down 45%. A trend like that is unsupportable by one-offs like taking out inventories and new car stocks and selling Hummer and AC Delco – the latest names on the fire-sale list.
CFO Ray Young was asked if nothing else worked whether he could see GM “sell itself to avoid bankruptcy.”
“We would have to reset. We would look at every possible idea. We are going to get very creative.” That’s what you say when there is no Plan B.
There was a time when a slow collapse of GM looked both unavoidable and fully justified. Now it looks plain terrifying. The system just cannot take the knock-on of unemployment and a further decline in consumer spending power. The auto industry globally and the 10% of world GDP that it represents, needs a quick fix, Mr President. How it looks to other wealth-creating enterprises in need of reflation, is a problem to face when we get there.
Rob Golding
See also: US: General Motors Q3 net loss $2.5bn; liquidity worries, Chrysler off
US: GM announces liquidity boost measures
Dave’s blog: Hindsight is a wonderful thing
US: The doomsday view: 3m jobs go, automaking stops
GOLDING’S TAKE: The Ford duet is getting squeakier
