GM Crisis – choose your metaphor

I reported on the GM auditor’s qualification last night and true to form, GM have issued a press release full of hubris on the issue.
First, an admonition for all of you who found this to be news:

Auditors are required to assess whether there is substantial doubt about an entity’s ability to continue as a going concern over the next year. Given GM’s public statements on our liquidity position dating back to the end of 2008 and more fully disclosed in our February 17 viability plan submission, the opinion rendered in our 10-K was not unexpected.

……then the comments:

That opinion is dependent on a number of factors including our ability to execute our viability plan, compliance with our U.S. Treasury loans, volume recovery of the industry, and access to additional funding from the U.S. and certain other governments. Once global automotive sales recover and GM’s restructuring actions generate the anticipated savings and benefits, the company is expected to again be able to fund its own operating requirements.

…..then the hubris:

The auditor’s opinion has no impact on the aggressive actions we are taking to restructure our business for long-term viability.

Fellas, if this has no impact on what you plan to do, then either you didn’t spell The Plan out clearly enough or you’re waaaaaaay overconfident.
The key is the middle section. Let’s look at that again with some highlighting:

That opinion is dependent on a number of factors including our ability to execute our viability plan, compliance with our U.S. Treasury loans, volume recovery of the industry, and access to additional funding from the U.S. and certain other governments. Once global automotive sales recover and GM’s restructuring actions generate the anticipated savings and benefits, the company is expected to again be able to fund its own operating requirements.

That’s one heck of a lot of different variables that have to be pulled together to succeed.
Here’s where you choose your metaphor.
Dominos%2002.jpg
house-of-cards.jpg
I don’t want to get all TTAC here, but I have my doubts about GM’s ability to juggle all these variables, especially when so many of them are out of GM’s control.


“….our ability to execute our viability plan”
There are a lot of people questioning GM’s ability to execute the basic of car company tasks – like managing a brand, or building a portfolio of desireable cars. Executing their viability plan requires the goodwill of a lot of different people, most of them being people who depend on GM to a certain extent, but who have lost both patience and faith in GM’s ability to carry the ball.
…..”volume recovery of the industry”
Sales volumes for the US market were initially predicted to fall to 10 or 11 million this year. That projection is now down as low as 9 million vehicles. GM have production facilities, they have some bright staff, they have experience. What can kill any business, even the best of them, is lack of cashflow.
All the plans in the world are pointless if you can’t pay your bills because your creditors will shut you down. GM are relying not only on a pickup in the industry as a whole, they’re also relying on a pickup in GM vehicle sales. I have a feeling that Toyota and Honda will see an uptake in sales numbers before GM will.
…..“access to additional funding from the U.S. and certain other governments”
I’m quite sure that the US government will stick it out with GM. If GM thought that other governments would be a pushover, however, then they’re in the middle of a rude awakening right now.
Sweden’s Maud Olofsson, whether we like her or not, kicked off a feeling that’s permeating all of GM’s European operations right now. EU folks are considering a meeting to plan a consolidated approach to the problem that GM has become. The German Chancellor has even come out and said that Opel don’t have to be saved if the price it too exhorbitant.
Politicians don’t like to lose votes, but they’re also nationalists and I don’t think they like the idea of GM holding a gun to their heads, either.
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And we haven’t even mentioned the jokers in the deck – the UAW and suppliers.
GM’s ability to execute its plans in the US depend a lot on co-operation from the UAW, who will be co-operative but only as long as it’s in members interests and doesn’t cost their rank and file too much.
The supplier situation is perhaps a little more precarious. Whilst GM are big enough to throw some weight around in the political corridors, suppliers generally aren’t. Most of them rely on regular work and regular payments and any delays are going to cause hardship, as they already have with one major supplier in Sweden:

Swedish autoparts supplier Plastal, which provides parts to both Volvo and Saab, announced on Thursday it had filed for bankruptcy.
The company employees 6,000 people throughout Europe, including about 500 in Sweden, and is 90 percent owned by the Nordic Capital investment fund.
“Efforts to avoid insolvency have failed. The Plastal board decided today to declare the company insolvent and to seek bankruptcy,” it said in a joint statement with Nordic Capital.

How many more suppliers are on the brink of the same fate?
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President Obama’s sending his automotive minions to Detroit to discuss all this with the car company chiefs.

The White House’s top auto advisers will travel to Detroit next week to meet with all three domestic carmakers, Obama administration and auto industry sources said Thursday.
The sources, who discussed the meetings on condition of anonymity, said Steve Rattner and Ronald Bloom will be in Detroit on Monday. Though their schedule remains unclear, they likely will meet with top executives of Ford Motor Co., Chrysler LLC and General Motors Corp.

GM intend to dazzle them with a magic show:

“All I can say is that we have extended an invitation to those folks to visit us and see our advanced technology,” GM Chief Financial Officer Ray Young told The Detroit News today.

And somehow, I think that’ll be almost enough.
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Whether you like dominos or card-houses, Saab are in the middle of both pictures. The sooner they can extricate themselves, the better.

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