General Motors on the Brink of Bankruptcy

Strategic Insights -

General Motors, the largest carmaker in the world and the backbone of American industry, is on the verge of bankruptcy, threatening the livelihoods of millions of Americans and posing a significant psychological blow to the United States. Despite the company's plans to reduce costs and improve its profitability, its market share has been steadily declining, and its financial situation has become increasingly dire. The company's market capitalization has plummeted to $12bn, while its losses have reached almost $4bn this year.

Key Takeaways:

  • General Motors' market share in the US has fallen to 25.6% from 28.5% a year ago, amid intensifying competition from Asia.
  • The company has lost almost $4bn so far this year, with a market capitalization of $12bn, compared to Wal-Mart's $204bn and Google's $112bn.
  • GM's biggest difficulty is the soaring cost of pension and healthcare liabilities for workers and retirees in the US, which add $3,500 to the price of each vehicle.
  • Unions fear that under bankruptcy, GM could cancel worker contracts to sharply reduce its liabilities, erasing decades of hard-won gains.
  • Delphi Corporation, a key supplier spun out of GM in 1999, has filed for bankruptcy, and GM could be liable for up to $12bn of the pensions and healthcare of Delphi workers.
  • GM's cash pile is shrinking alarmingly fast, from $24bn a year ago to $19bn today, with a strike at Delphi potentially burning through reserves even faster.
  • A three-month strike could use up $13bn of GM's cash, according to a note from Deutsche Bank.
  • GM is exploring the sale of a controlling stake in its finance arm, which could generate $12bn and reduce the burden of its poor credit rating.

Statistics:

  • General Motors' losses in the US have totaled $1.6bn in the most recent quarter.
  • GM's market share in the US has fallen to 25.6% from 28.5% a year ago.
  • The company has lost almost $4bn so far this year.
  • GM's cash pile has shrunk from $24bn a year ago to $19bn today.
  • A three-month strike could use up $13bn of GM's cash, according to a note from Deutsche Bank.
  • GM's debt rating has been downgraded to junk status.
  • GM has a deal with unions to reduce healthcare liabilities by $1bn a year.

Sources:

  • Bank of America (the odds of GM filing for bankruptcy in the next two years have increased to 40%).
  • Deutsche Bank (a three-month strike could use up $13bn of GM's cash).
  • Argus Research (analyst Kevin Tynan believes that GM's market share decline could lead to a shake-up in the company's leadership).
  • T Rowe Price (motoring analyst Brian Ropp remains sanguine about GM's future, citing the company's further credit facilities and lack of debt maturing in the next two years).