A Going Concern…

Or is it really a concern that GM is going, going, gone?

General Motor’s auditors are on the fence when it comes to defining the company as a “going concern”. While technically it is now, it’s on the tipping point, and even a small negative change could send the company irretrievably into the abyss. Given the current state of the economy, it appears to be a given that the company cannot survive in its present state.

Although GM has proposed eliminating nonperforming brands, the plan has several flaws: The reality is that there is no real buyer for Hummer. It’s not a separate product that can be easily sold. Except for the H1 (the original one), which is merely a marketing agreement for a vehicle produced by AM General, LLC, the line is actually just a rebranding of Chevrolet/GMC light trucks. Thus, a potential buyer would need to reengineer the vehicles so that they could be produced without proprietary GM parts. In today's market, especially for SUVs, that’s highly unlikely. The same goes for Saturn. When the brand started, it was a line of unique vehicles. Now it is a rebranding of other domestic GM products and GM’s German subsidiary Opel. So again, there’s nothing to sell. Saab has always been a niche brand. Today it is a mix of its own products and rebranded GM products. Thus, of all the lines proposed to be sold off, it at least has some own unique vehicles and manufacturing facilities. But in today’s economy, would anyone be interested in a niche brand?

Thus, it should be clear to those in Washington that granting them their request of more taxpayer funds is throwing more good money after bad. The solution, of course, is a “packaged Chapter 11” proceeding where debtor in possession financing (most likely from banks that took TARP bailouts and guaranteed by the government) and a guarantee regarding warranties are worked out in advance. That will allow the company to renegotiate its crushing labor situation, pare its over-large dealer network, and come to real terms with its product mix.

Wishin’ and Hopin’

Transparency is good, but is there actually something there?

I’ve been quiet lately, absorbing the new administration's proposals and trying to understand what they plan to do. However, like many, I’m flummoxed. What’s been laid lout sounds good in principle, but there are no details. I’m not the only one to notice- the financial markets are reacting negatively. So, what is the proposal?

It appears that the administration is also flummoxed. They are continuing in the footsteps of the previous administration, throwing the “idea du jour” against the wall and hoping that something sticks. That’s likely why the details are absent. They haven't really thought it all out, which should make us all very nervous. Not only is there likely no plan, but there’s probably no “Plan B,” either.

From the latest missal, the current “bank plan” is that all banks will be inspected to determine their viability, including “stress tests” for the major ones. Reading between the lines, it would appear that those that fail will be force-merged into healthy institutions, sort of a preemptive strike, instead of picking up the pieces. That could be a good idea, if it is what the Feds plan. It might save the FDIC money in the long run. But, will it actually work? It’s likely that in today’s financial climate, many (or possibly most) banks won’t pass muster. Putting a “good” bank together with a “bad” one may not be the answer. It certainly hasn’t helped Bank of America’s situation.

I’m waiting to hear something real, that has a likelihood of working. Let’s hope that it comes soon, and isn’t just a wish.