General Motors Corporation US, in merger talks with Chrysler (and more about that in a moment), has now put its crippled Hummer brand on the front of the lot, packaged for sale.
The problem for GM of course, is that while next to nobody wants to put a Hummer in the drive, buyers for the brand may be a little thin on the ground. Sales of the eponymous big rigs have fallen by 47 percent this year (more than double GM's 18 percent fall), compounding a 22 percent fall in 2007.
So who would want it?
GM, hemorrhaging more than a billion dollars a month, needs cash - and lots of it - if it is to weather the credit crisis and the deepening recession in the US. While the US Government announced USD$25 billion in financial aid to local automakers last year, specifically to assist them in the development of more fuel-efficient vehicles, the spectre of bankruptcy hangs like a darkening cloud over these once-unassailable corporate giants.
The problem for each, besides stalled sales and negative profitability, is the lockdown in financial markets; debt financing (and re-financing) to corporates has all-but dried up. As we reported, GM President Fritz Henderson predicted credit markets will close to all borrowers except to those with the highest credit ratings. "In terms of raising capital, you've got pretty much closed debt markets for anything other than triple-A-rated companies," he said (Reuters).
GM, Ford and Chrysler stocks, of course, are completely unloved, bumping along at the very bottom of the ratings barrel.
There are four likely scenarios facing GM, Ford and Chrysler over the next critical twelve months: the first, that the freeze afflicting financial markets lifts sufficiently to provide them with the operational capital they need. That's unlikely. Second, the US Government, fearful of a titanic collapse, steps in with yet more financial support to keep them afloat. Possible. The third, that each sell off parts of their group ? in the US and globally - to prop up operations until things improve. Compulsory, you would have to think, provided they can find buyers. The fourth, that one, or even two, fall over. Certainly possible, perhaps probable.
In putting Hummer on the lot, GM is looking at the third scenario, if not for salvation, at least to allow it to buy time. And, as reported in Business Weekly, GM ``has had interest from a few parties," according to a GM spokesperson. The interested parties remain un-named (how many lunatics are there out there?) and GM has not set a date for sale.
While selling Hummer would not turn around GM's fortunes, it would help it towards its target goal of increasing liquidity by $15 billion, partly through asset sales, by the end of 2009.
This information may seem to sit at odds with GM's merger talks with Chrysler.
With GM up to its armpits in alligators, why would it consider a marriage with the terminally-ill and stink-ridden Chrysler? For four reasons: partly to allow it to rationalise plants and infrastructure (GM's restructuring effort is burning an enormous hole in its dwindling cash reserves). Partly to get to Chrysler's fast-disappearing $11.7 billion in cash. Partly, you would have to suspect, to do a Macquarie Bank on it ? to bust it up and hope that the sale of the bits realises more than the sum of the total. And lastly, because a combined company may get its hands on more of the $25 billion the US government has promised its struggling auto makers.
Of course, barring a miracle, Chrysler, owned by Cerberus Capital Management, has no way out beyond merger, or break-up and sale. Its sales sheet reads like a script from a horror movie. Sales of Chrysler brand products for September 2008 (compared to the same period last year) are down 40 percent; Jeep, down 43 percent, and Dodge down 25 percent.
These are fascinating, if slightly spooky times. If you're in the market for your own car company right now, best keep your eye on eBay?