Tuesday, July 15, 2008

General Motors opts for corporal punishment

GM plans for survival:
GM is opting to raise another $15bln in cash to prepare itself for harsh market conditions. But its plan seems to save about $8bln out of operating reductions $4 bln from asset sales and $3bln possibly in new secured market borrowing against over $20bln in unencumbered assets.

Vision? SURVIVAL, not success!
None of this is about what its vision is for the future except that it is planning to cut four truck assembly plants. So in some sense this plan is about survival and what GM plans not to be.

Where the monies come from:
In terms of operating savings, the $8bln list looks like this:

$2.5bln in structural costs cots and plant closings
$1.5bln in white collar layoffs and cost cutting
$1.5bln in reduced capital spending
$1.7bln by withholding a payment to its health fund taken over by the UAW
$0.8bln due to dividend suspension though 2009.

GM shares did rise but only slightly on the day. GM credit default swaps remained expensive. One potential problem is that analysts are not fully convinced that GM can raise this amount of money. For one, when you cut staff it saves money but usually has some large upfront costs.Shutting plants also has attendant expenses.

On balance GM is trying to dispel the talk of bankruptcy by becoming very liquid. But it still does not have a plan for success. Some doubt the extent of its plan for survival. The markets today gave GM a feeble vote of approval

1 comment:


General motors is inferior to ford.