GM’s latest earnings report is ugly. They burned through $6.9 billion in Q3 and have $16.2 billion left. According to the release, they need at least $11 billion to keep operating. If true, that gives them only a couple more months before they’ll be forced into bankruptcy. (Not sure what status is on the $25 billion loan for all three automakers that has already passed Congress.)
How ’bout this quote from the earnings release:
Even if GM implements the planned operating actions that are substantially within its control, GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company’s estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing.
Normally earnings releases try to put a happy face on bad news. Not so with GM, which is trying to scare Congress and the President(s) into handing them more cash. If we don’t, GM will file for bankruptcy and hundreds of thousands of jobs will be lost.
It would be remarkably courageous to let GM go bankrupt. But that seems like the best option. Clearly U.S. automakers are no longer viable businesses in which to invest capital. Is it a good idea to borrow billions at the federal level to try to save GM? Government borrowing is going to push up interest rates, which will depress the economy, and make it more difficult to get a loan to buy a car.
Taxpayers have one incentive to bail out the company: federal pension insurance already has us on the hook for tens of billions to cover retirement obligations for GM’s unionized work force.
But if GM is going to fail anyway, better to skip the bailout so that we have some dry powder to pay the company’s pension liabilities. By the end of next year, my bet is that “PBGC” will have replaced FDIC in dinner table conversations around the country.
By the way, does anyone want to guess how the CDS market will be impacted by a GM bankruptcy filing?