GM says it may run out of operating cash this year

November 7, 2008 by · Leave a Comment
Filed under: Stock Market News 

This has major implications, we have been speculating for months about how long GM could bleed money before it became a terminal problem.  With this bailout, this will set the stage for more companies that keep many people employed to line up for bailout assistance as well.  If we do decide to bail the “Big 3” automakers out, I would like to see some serious oversight during the restructuring period so they start making products that work for our current economic environment and will make them profitable again.  

This will be inflationary via the huge expansion of our monetary base and that is being counter-acted by the huge reduction in credit in the markets.  My thoughts are that we will see asset prices fall to a level that the current credit levels can support.  At that point I believe we will see inflation as the business confidence builds and we will still have limited resources for purchase that will be bid for with all this newly created money via the Fed.   The reason this should happen is because as commodity prices fall, producers are shutting down production when prices fall below a profitable level, that will create scarcity as the economy rebuilds. .02

News:

General Motors Corp., seeking federal aid to avoid collapse, said it may not have enough cash to keep operating this year and will fall “significantly short” of the amount needed by the end of June unless the auto market improves or it raises more capital.

 The largest U.S. automaker reported a $4.2 billion third- quarter operating loss and said its available cash fell to $16.2 billion on Sept. 30 from $21 billion at the end of June. Merger talks with Chrysler LLC were suspended.

“GM is making a pretty direct plea for help,” said Pete Hastings, a fixed-income analyst at Morgan Keegan Inc. in Memphis, Tennessee. “The message is, `we’ve done all the things we can do, and we need help.’ And if we don’t get help, fill in the blank.”

The drain on cash reflected the strain of GM’s dwindling U.S. sales, which slumped 21 percent in the quarter as the credit freeze deepened. Chief Executive Officer Rick Wagoner and the CEOs of Ford Motor Co. and Chrysler met yesterday with U.S. House and Senate leaders as the automakers seek $50 billion in new government aid, a person familiar with the proposal said.

GM’s use of $6.9 billion in cash last quarter pushed its reserves closer to the $11 billion minimum that the automaker says it needs to pay its bills.

Today’s outlook was the bleakest yet from the automaker, which has lost almost $73 billion since the end of 2004. As recently as Oct. 24, GM had said bankruptcy “is not an option.”

Source: Bloomberg

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