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Ok Class, Let's Review Why GM is Going Bankrupt  
by Charles Zentay
Bull! Not bull Guest Author
thinkinvest.blogspot.com

May 31, 2007

Has anyone looked at their balance sheet lately???

Ok class. Let's review.

As of March 31st, they had cash of around $21 billion. They had receivables of around $10 billion. BUT they had accounts payable of $30 billion and accrued expenses of $34.5 billion. OUCH!!!!

They have some other current assets (inventories, equipment on lease) but when you add up all the current assets it's still over $5 billion LESS than the current liabilities.

In addition, they have $33 billion in long-term debt, $49 billion in post-retirement benefits, and $11 billion in pension liabilities.

One of the only things this organization seems to have as a positive asset is deferred income taxes (a total of over $44 billion). But even with that, they still have a NEGATIVE SHAREHOLDER EQUITY of over $4 billion!!!!

GM has just issued a secured loan against one of their last unleveraged assets (their equity in GMAC).

It may take a year. It may take two or three.

But as far as I'm concerned they are already bankrupt. Just read their balance sheet, and weep.

GM has spent the last two decades selling anything that made money: Hughes, EDS, GMAC.  Yet they have emerged from this sales process with even more debt.

Now all that remains is their car business which is losing market share and probably has further to fall.  

Don't get me wrong.  There are many positives to GM.  It is expanding internationally, it benefits from a weak dollar, Bob Lutz is unleasing creative talent, and GM may achieve success in its negotiations with the UAW later this year.

However, all these positives are too little too late.  This bureaucratic, old-school company has not moved fast enough, and now it cannot escape that juggernaut, that reality: its balance sheet.

On the negative side, GM faces more write-downs from Delphi, possible further restructuring costs and losses, and its expenses and payables coming due.  Furthermore, there is increasing likelihood the U.S. economy could remain slow or even contract a little.  This situation is likely to force GM to seek even more debt financing, but given that they are out of assets to secure, who will lend more money to this Frankenstein monster?  I doubt any banks will step in.

Chrysler, which had some unsecured assets left, was essentially given away to Cerberus.  GM, on the other hand, still has $17 billion in market cap at today's stock price of $30 a share.  GM has had a nice bounce up, but it seems like a dead man's bounce.  I doubt even private equity can save GM now.

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See also:
The Fourth Turning - Part I
The Fourth Turning - Part II
Video: Peak Oil, Smoke and Mirrors

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