[ad#post_ad]General Motors reported today that it lost $1.2 billion in the period since exiting bankruptcy on July 10th, and also said it will begin to repay government loans early, starting next month.
Overall, there was not a lot to hang your hat on in this update if you consider yourself a defacto shareholder of ‘new’ GM, but if you were concerned that GM may not have deep enough pockets to someday see the Chevy Volt roll onto your driveway, today is a good day.
GM had a consolidated $42.6 billion in cash (including $17.4 billion in government escrow accounts) at the end of the quarter, leaving even the most unoptimistic of forecasters to come to the conclusion that GM is not going away anytime soon. So put your Volt deposits down with confidence, your Volt is coming. (Unless of course your local dealer is Maxton Chevrolet in Ohio, who is taking deposits and is not yet a approved retailer)
GM CEO Fritz Henderson had this to say about his company’s first 83 days of operation:
“We have significantly more work to do, but today’s results provide evidence of the solid foundation we’re building for the new GM. With a healthier balance sheet and a competitive cost structure, our focus is on driving top line performance. We’ll achieve that by winning customers over, one at a time, with vehicles that deliver performance and value.”
If you only want to hear good news, I would encourage you to stop reading at this point…or at least skip down to the last paragraph.
It is worth noting that this update is not a official filing, and with an understanding from the SEC to complete its Fresh Start reporting by March 31, 2010, this report leads out with the disclaimer that “the managerial financial statements do not comply with Generally Accepted Accounting Principles (GAAP)…” /yuck
Basically this means, ‘everything we say, you have to take with a grain of salt.’ Which also means, we are forced to dig a little deeper to understand the situation at GM. Namely the same two questions everyone always wants answered; how much cash do they have now, and how fast are they burning it?
So how much Cash Do they Really Have?
Looking closer, we find that the $42.6 billion was only a snapshot on Sept 30th, and that escrow account has nowhere near $17.4 billion of accessible cash at this moment. $2.8 billion has gone to Delphi, almost a billion to Canadian pensions, and another 8.1 billion is earmarked to repay UST (US Treasury) and EDC (Export Development Loans), which leaves only $5.6 billion unspoken for.
And yes, the money that GM is ‘repaying’ is coming out of that same government escrow account that was just set up. /beauty
Additional pressure already being felt on GM’s cash situation since this update is the forced repayment of the German government’s interim loan from the Opel ‘non-sale,’ of which about $700 million has been repaid since September, and another $600 million is due by month’s end. Operational shortfalls at Daewoo has also cost the mothership north of $400 million, and threatens to drain more.
Realistically, accessible cash on hand at this moment is more than likely around $28 billion…which is still a very high/adequate level. The biggest ongoing threat to this reserve is the cost associated with retaining Opel if GM can not receive more international aid. GM estimates the restructuring costs for Opel at around 3 billion euros ($4.4b)…some independent analysis puts that figure as high as €10B.
On the very last line of the press release, I think GM does a good job of assessing the situation, without giving any specific estimates, “…global cash balances at the end of 2009 are expected to be materially lower than third quarter levels of $42.6 billion.”
What is the Cash Burn Rate?
Short and sweet answer is we have no clue. Without a GAAP report and a couple historical statements under GM’s belt to make time comparisons, it is impossible to say.
According to GM, they report that “for the period July 10-Sept. 30, GM had positive managerial operating cash flow before special items of $3.3 billion, reflecting the favorable working capital impact from production start up, timing of supplier payments and lower capital spending.”
Which basically means, a perfect storm of things happened to overinflate this number. In the ‘looking ahead’ section of its report, GM admits it “expects to have negative net cash flows in the fourth quarter of 2009 due to a number of factors…” /they don’t know either
All things considered it was a pretty good first report, about as decent as it could be anyway. The plan to overproduce vehicles under the threat of bankruptcy (peaking at 872K units at end of 2008), then sell the bulk of them to increase liquidity post C11 (down to a low of 379K in August) was by far their best forward looking move in a long time.
While the sales since the bankruptcy have continued to be poor (as it has been throughout the industry…forgetting Hyundai for the moment), the ongoing operating losses may be a by-product of huge incentives on the hoods of GM cars, put there to reduce/monetize the massive stockpile of 2009 inventory they had produced. The remaining question is, will customers that have grown accustom to such deep discounts, still purchase GM cars in their absence?
Given that GM has achieved a 75% reduction in structural costs, a clean balance sheet, and now has a ample money supply coming out of C11, they have a once in a lifetime opportunity to right the ship…and because the success of the Volt, and possibly the future of domestic EV production itself lies with GM, I hope they succeed.
This entry was posted on Monday, November 16th, 2009 at 7:02 pm and is filed under Financial. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.