Joined: 01 Dec 2007
Posts: 68
Location: Chicago, IL
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Deutch Bank announced today that they expect GM's stock price to hit $0. This notion has been around for almost a decade. It has been a common saying among the automotive analysts that GM and Ford's captive financing arms were the profit centers, and other manufacturing and marketing arms had negative valuations.
With the financial crisis, GM and Ford's financing arms are in trouble. If their financing arms used to be the only profit centers and if those are in trouble, then it would be natural to conclude that GM and Ford are sinking fast.
The opponents of this argument would suggest that the financing arms would have no business if the manufacturing and marketing arms were not in existence. A holistic approach of valuation may be more appropriate.
Holistic or not, GM and GMAC are in trouble. If they do not secure $5 to $10 billion in cash quickly, they may be forced to file bankruptcy within two operating quarters. GM is aggressively seeking Government's, or tax payers' help.
Some folks argue that the government should not bail out GM. Why pour water into a pitcher with a big hole at the bottom? They argue that GM's bankruptcy may be a cheaper bailout of Detroit in the long-term for the tax payers. GM will get a chance to restructure, reorganize and renegotiate. The immediate burden on the tax payers would be the financial and insurance costs associated with GM's businesses and its pension liabilities. In the long-term, the tax payers may get a more efficient GM that can actually compete against others without having to steadily lose market shares for a twenty-year period.
In reality, GM's bankruptcy would mean much more than the immediate impact. With the economy slowing down and car sales slowest in two decades, GM's downfall would have a domino effect. Many of GM's suppliers would go bankrupt, including tier 2 and 3 suppliers, and those already in bankruptcy, such as Delphi, would not be able to emerge any time soon. A majority of GM's franchised dealers would face bankruptcy, and bankruptcy for these medium to small businesses means closing down, not reorganization. Many of the suppliers to the dealers would downsize as well. The gardeners, building maintainers, computer suppliers, advertising promotion folks, accountants, etc., may lose jobs. The impact of GM's bankruptcy could be about one million jobs lost in the US.
GM should have sought protection three years ago. But the management, union, shareholders and the community could not have it. They have left the tax payers with almost no choice but to pour in billions of hard-earned dollars for the sake of saving jobs and the economy.
One thing is clear. Whether the government bailout happens or not, every citizen should demand some fundamental changes in Detroit. GM has kicked out two famous Directors - Ross Perot and Jerome York - for demanding too much change too fast.
GM started producing some very good looking cars with a lot of potential. GM now needs to focus on: one, implementing efficient production rather than having the attitude of dismissing the lessons they learned from exchanging ideas with Toyota in the 1980's; two, holding more contemporaneously realistic negotiations with UAW rather than passing down the financial burdens to the next management by bloating future benefits; three, bringing in real talents in automotive planning, designing, manufacturing and marketing, instead of keeping financial masterminds at the helm and its succession line.
President Clinton approved giving $7 billion to the Detroit companies for producing a new generation of fuel efficient vehicles. Without a fundamental change, however, those tax payers' dollars went down the drain. President-elect Obama may pour in even more money into Detroit for the same purpose. Perhaps the new President will stick to his ever effervescent campaign slogan of "fundamental change", and truly push to change the American automotive industry. Because we need it. |
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Everyone is an expert on their own cars. |
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