Can GM Make It? - BusinessWeek
General Motors is staggering and in desperate need of cash. What levers can the auto giant pull to save itself from bankruptcy?
by David Kiley
Richard Wagoner, chairman and CEO of General Motors. Getty Images
At the close of business on Oct. 9, General Motors’ (GM) place of traffic cap stood below what it was in 1929 and down more than 94% from its 2000 peak of $52.4 billion.
At its low in Thursday’s commercial, GM’s place of traffic capitalization stood at $2.6 billion. The automaker’s mart cap was about $4 billion (about $48 billion in today’s dollars) when the stock emporium crashed in 1929. GM closed at 4.76 on the New York Stock Exchange. Over the last 52 weeks, GM’s high was 43.20.
GM was not unaccompanied. The Dow Jones industrial average closed down 679 points, to 8579.19. Ford Motor (F) closed at 2.08. Ford’s 52-week-high is 9.25. (On Friday, GM climbed back a bit, rising 3% to finish at 4.89. Ford absentminded another 4% to close at $1.99.)
Balance Sheet IssuesThe automakers’ shares are being hammered for their balance sheets and coin calcine were before that time a problem in the van of the investing. calamity that farfetched the U.S. government to prize a controversial $800 billion bailout. The exigency has because have existence expanded to European and Asian markets.
GM, its dealers, and pretended car buyers are all misery from lack of access to credit. "Action to establish some normalcy to credit markets is important to our industry, period," said GM President Frederick Henderson.
Rating agency Standard & Poor’s said Thursday it was reviewing GM and Ford for further downgrades based on appalling forecasts by firms analogous J.D. Power & Associates that the industry will take a bribe conducive to 2 million fewer vehicles to consumers in 2008 than last year (BusinessWeek.com, 10/8/08), and that the cratering of demand on this account that new vehicles will last through next year. The ratings being reviewed by S&P include the B- long-term incorporated confide in ratings for both Ford and GM, along with the B- long-term counterparty credit ratings for the two companies’ several financing arms, GMAC and Ford Motor Credit. The ratings already indicate the companies’ debt is below investment grade. "While the global automotive efforts is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse," said Jeff Schuster, J.D. Power’s executive director of automotive forecasting. (Like BusinessWeek, S&P and J.D. Power are divisions of The McGraw-Hill Companies (MHP).)
Consumers Are KeyThe wild card, say executives at J.D. Power, is how slack consumers will stay out of the car-buying market. "Buying a newly come car is something that can have being put off indefinitely," says J.D. Power Senior Vice-President Gary Dilts, who was previously the top sales executive at Chrysler. "When people start looking at their 401(k) statements, and looking to conserve cash, they could stay out another a year or more."
Besides overall sales declining, GM and Ford are especially feeling the pinch of demand on the side of their pickup trucks and full-size sport-utility vehicles. Those models take historically granted the companies with all of their profit. The head in demand for small cars, where the companies earn only about one-fifth as much profit, is not enough to remunerate for the slowdown in the sales of bigger vehicles.
S&P said it believes both automakers desire enough cash for at least the place of 2008, but fast worsening industry conditions will make things tough for them in 2009. Fitch Ratings said this week that it believed Ford could be along the course of to $8 billion to $10 billion in cash by the second half of 2009, which is the minimum a car company the size of Ford needs to fund day-to-day activities.
