Well, I Read GM's Recovery Plan...
You know, come to think of it . . . that $12 billion bailout, er, “bridge loan” we asked for? Yeah, why don’t we just make that $18 billion. K? Thanks.
So says General Motors in its now-submitted report to Congress, explaining that it actually needs $6 billion more than it indicated just two weeks ago, but not to worry, because it’s really learned its lesson this time.
GM’s business plan would be lucky to earn a C at a respectable business college. That might be better than sending your CEO to Washington on the corporate jet and having him explain that you just really, really need the money, but it’s still not good.
What’s more, what little substance the plan contains, GM is in no position to deliver.
First, why is GM asking for $18 billion now, when it was only asking for $12 billion in November? You have to remember, this is a company that went from reporting a $1 billion-a-month cash burn to reporting a $5 billion-a-month cash burn in a matter of weeks, so this sort of thing is hardly unprecedented. GM says it needs to borrow the original $12 billion by March, just to continue operating, but wants access to an additional $6 billion line of credit, just in case the economy is bad.
Gee. You don’t think there’s a chance the economy will be bad, do you? This is what happens when someone makes you go back, sit down, run the numbers and come back with something resembling reality.
But even within GM’s attempt to grasp reality, we find significant indulgence of typical auto-industry fantasy.
First, GM presumes that the auto industry, which is expected to see sales fall to 12 million units in 2009, will bounce back to sell 15 million units by 2012. And what is the basis for this expectation? Who knows?
Second, GM insists that it will have its labor costs “competitive” with those of transplants like Toyota and Honda by 2012. Really. Aside from belaboring the definition of “competitive” (equal to? no longer 200 percent of?), there is the sticky little fact that the United Auto Workers has agreed to no such thing. Indeed, even as GM was submitting its plan, UAW officials were hurriedly huddling in Detroit to consider whether they would be willing to make further concessions (or “givebacks” in Detroit labor movement parlance) to give GM a ghost of a chance of keeping this pledge. The UAW agreed to delay, but not forgo, the gigantic payment upcoming from GM to the newly formed Voluntary Employee Benefits Association. Other concessions? They’ll think about it.
UAW President Ron Gettelfinger said in November that the UAW has given enough, which is perhaps why GM’s request from the taxpayers has risen 50 percent. Will the union reverse course? And if it does, what does that do to the larger American labor movement, which would be essentially admitting that it had demanded too much from the employers it always portrayed rhetorically as greedy fat cats hording unlimited reserves of cash?
Within the document, GM admits something onerous – something that should raise a huge red flag for any thinking member of Congress. Up until recently, GM had financed more than half its customers’ purchases through its GMAC financing arm, and the vast majority of the customers it financed had credit scores under 700. Now that the credit markets have become stingy, GMAC can no longer finance those customers, and that means it can now self-finance only 6 percent of all its sales.
This is crucial. GM reports its market share at 22 percent (oddly up from 20.5 percent just weeks earlier), but it appears that some 44 percent of its sales were self-financed deals with customers who pose at least some risk of default. Now that the credit markets are no longer willing to take the risk of underwriting such madness, GM asks the taxpayers to do so.
The rest of the document is typical political pandering and emotional appeals about GM’s past, none of which make a bailout of the company from this point forward a smart business move.
One thing the plan is missing is any actual profit projections, which is perhaps the plan’s one bow to reality. But hey, they might as well have pulled some fat profit numbers out of thin air and thrown them in there. It would have been as feasible as anything else in the plan.
Is Congress really dense enough to use taxpayer money to prop up this fiasco? GM claims it needs the first $4 billion by the end of this month or it will collapse, so we will presumably find out very soon.