More Gloom In GM's Future, Bailout Or Not
http://www.dj.com/
November 13, 2008: 11:42 AM EST
SAN FRANCISCO (Dow Jones) -- While the federal government appears to be on the verge of extending a financial lifeline to General Motors Corp., a cash infusion is looking more and more like a short-term fix to a long-term problem, analysts said Thursday.
J.P. Morgan analyst Himanshu Patel cut his rating on GM's (GM) stock to neutral from overweight, saying the automaker needs something "immediately" to make it past December 2008 and at least $15 billion to get through 2009.
"But we doubt the federal package currently discussed, reliant primarily on a liquidity injection to bridge to 2010, is likely to succeed -- the best approach for taxpayers may be to make sure the Detroit 3 do not come back for more, which we think is likely, particularly for GM, by year-end 2009, under the current plan," he said.
Patel explained that a package should include near-term liquidity relief coupled with a comprehensive "re-cut" of GM's operations and financial cost burdens -- measures he said that only the current economic crisis offers the ability to address.
He added that the government could also stimulate new car sales across the country by taking measures such as allowing a tax deduction for auto loan interest.
And there's no doubt that sales need a kick start. GM posted a massive 45% drop in October U.S. sales earlier this month, leading a barrage of brutal results that added up to the industry's worst monthly tally in 25 years.
Later that week, the situation in Detroit took on a heightened sense of urgency as GM and Ford Motor Co. (F) reported that together they burned through more than $14 billion in cash during the third quarter. The quickening pace of their cash-burn rate sounded bankruptcy alarms, particularly for GM, which warned it could run out of enough money to fund its operations within months barring some intervention.
S&P automotive equity analyst Efraim Levy said bankruptcy is one road GM does not want to go down because it would potentially put the company out of business.
"Consumers would flee to competitors, mostly foreign brands, rather than make purchases from a company they fear might not be able to financially support its products," he said. "After all, we are not talking about a $200 airplane ticket."
Levy said he sees government aid as the only solution to GM's woes, but even with a minimum of $25 billion needed for 2009, a real turnaround won't come easily.
In a best-case scenario, the government frees up cash for GM and the others, they make it through 2009 and the economy improves in 2010, allowing for pent-up demand to drive profitable sales, he explained. Cost savings from health-care cuts would also kick in at that point, providing a boost to the bottom line.
http://money.cnn.com/news/newsfeeds/articles/djf500/200811131142DOWJONESDJONLINE000700_FORTUNE5.htm
Nov 13th 2008 11:30AM by
Peter Cohan
....
Despite the claims that
2.5 million jobs will be put at risk, I think the U.S. would be better off not throwing away billions of dollars by giving it to the executives who have overseen a 95% drop in GM's value since 2000. Perhaps we can convince better run global competitors to purchase GM's factories and work with its suppliers. For those who do not get jobs with a new owner, we can provide funds to retrain them for other industries -- such as making wind turbines.
http://www.bloggingstocks.com/2008/11/13/why-we-should-not-invest-in-gm/