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August 7, 2008
GM Losing $1 Billion a Month
GM is losing $1 billion a month and the board reaffirmed its support for the CEO Robert Stempel. That's a pretty low bar. The company is running on its considerable cash reserves and will do so until it turns a profit or uses up all its cash. I am banking on the latter. At some point the board should consider, in the best interests of its shareholders dissolution. The board has a duty to consider whether dissolution will return more money to shareholders than running the cash dry and returning to shareholders --- zero.
August 7, 2008 | Permalink
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Comments
Could GM make cash available to shareholders by ceasing operations? This isn't clear.
It has many long term bonds, leases, and labor union agreements that create huge immediate obligations upon default or termination. This default contingent liability appears on the books as a liability in the case of the bonds. It is an off books contingent liability in the case of the leases and labor agreements. The liability to the PBGC would be another off the books contingent liability upon a termination of operations.
Also, were it not a going concern, much of the company's plant and equipment assets would devalue, and many of the state tax breaks it receives would expire.
Existing obligations to retirees relative to current operations as a result of declining market share are also a major burden upon the company that helps make it uncompetitive.
In short, it isn't at all obvious that one time expenses associated with a shutdown would leave any cash for shareholders, even though the company is nominally solvent.
This is reflected in the fact that GM, according to MSN Money, has a $5.7 billion market capitalization, a negative book value (assets $149B; liabilities $186B), and has actually been losing more money than you suggest over the last year (about $5 billion a month), despite closing last year with $25 billion of cash on hand.
Hardly a ringing endorsement for the CEO, but for shareholders, "success is the only option, failure's not."
Posted by: ohwilleke | Aug 8, 2008 2:20:33 PM
