Tim O'Brien | Feb 18, 2009

GM US’s restructuring plan, posted on the US Treasury website, will make unpalatable reading for the US Administration and long-suffering US tax-payers (those still in jobs and paying tax that is).

In it, GM outlines plans to cut costs and to reduce its global workforce by 47,000, including yet more cuts to its US workforce with another 20,000 out the door by 2012. It also warned it would run out of cash by March – that’s ‘stone motherless broke’ friends - without immediate additional Federal funding.

The clincher though, and perhaps the deal-breaker, is that GM now claims to need USD$30 billion in US Government aid if it is to avoid collapse.

GM logoThose following this astonishing tale will be aware that GM has received USD$13.4 billion in US Treasury loans since the start of the year. It had estimated in December that it would need $18 billion in funding, but its sales ledgers have since turned from stink-ridden to completely rotten.

Ominously for Holden, but worse for Saab and Opel/Vauxhall, GM said that its restructuring plan “would take aim at loss-making overseas units as well”. (Reuters)

So, what chance a further $30 billion for GM from the US Government?

Perhaps if you were in the seat, you might think it was time to lower the boom and let Darwin’s law determine the outcome. GM’s last year of profit was 2004 when it recorded a $2.9 billion profit on sales of $193 billion. It lost $10.4 billion in 2005, lost a further $2.0 billion in 2006, then lost an astonishing $38.7 billion in 2007.

While yet to report its FY result for 2008, the giant automaker’s quarterly results read like a horror script... a second-quarter net loss of $15.5 billion; then down another $4.2 billion and chewing through no less than $6.9 billion in cash reserves in the third quarter.

And here’s an interesting aside: proving that the US financial and banking systems have had wombats at the tiller for at least the past decade, Merrill Lynch advised clients in 2006 to buy GM stock. Good advice, great... (glad we didn’t put the house on that one). What balance sheet can they have been reading?

Also back a year or two, in 2007 GM Chief Operating Officer Fritz Henderson said, “We need to get all the structural costs down. We need to step on the gas in terms of how we’re performing in the market as well.”

Right. So which gas did GM step on? The Volt? Was that planned to be GM’s saviour in the market? Even assuming it runs ok – and that’s a huge assumption – who is going to buy it and will GM make any money on it?

No, salvation will only be found with all GM’s model lines performing. And in the current dismal state of the US economy, that’s as likely as the tooth fairy riding in to lead the country out of the wilderness.

Chrysler logo

The whole sorry story is an astonishing tale of fools, damn fools, sacred cows and corporate ineptitude. Chrysler is in the same mess. Every day, an ‘orderly’ bankruptcy for GM looks increasingly likely. Chrysler, sooner or later, they will probably just let go.

Both these companies are classic cases of the latter-day adage: “the fish rots from the head.”