Could the world’s largest car manufacturer be heading for bankruptcy? General Motors, in its 100 year history, has been one of the most powerful industrial houses the world has ever seen. In terms of volume, it’s held the top spot in global automotive sales for almost the last 80 years. In 2008, GM was 9th in the Fortune Global 500 rankings, which lists the top 500 corporations across industries from all over the world in terms of revenue. Toyota, by the way, was 5th.
GM lost almost $40 billion US dollars last year. At the moment, they’re burning money at the rate of $1 billion a month. Analysts say that their reserves will run out in 2009 unless the economic scenario improves. Ominously, most car manufacturers believe that 2009 will be an even tougher year for sales – so where does that leave GM?
Well, for starters, they’re looking to generate cash any way they can – since they’ve had no potential suitors for Hummer (not surprising given the current scenario), they may be looking to off-load the, originally Swedish, Saab brand. Their current liquidity situation has even forced them to put their Detroit headquarters up for sale. Meanwhile, they’re trying to make their current reserves last as long as possible – to the extent of even extending payment terms with non production suppliers. The cash crunch will also lead to a catch-22 situation, because they’ll be forced to delay the introduction of new models. For instance, the new Chevrolet Cruze, which was launched at the Paris Motor show in October (featured in this issue) will be available in Europe shortly, but not in the US till perhaps as late as 2011.
The latest reports suggest that GM and Chrysler maybe considering a merger. Chrysler may be in a worse position than GM in terms of falling market share, but they apparently have $11 billion dollars in reserves. A GM-Chrysler merger could theoretically help both manufacturers consolidate economies of scale, share R&D costs, etc. But you need only look at the Daimler-Chrysler merger, and subsequent de-merger, to see that these massive automotive unions are untenable. It’s speculated that what GM’s actually interested in is Chrysler’s cash, while Chrysler’s current owners, the private equity firm, Cerberus Capital, have gotten a lot more than they bargained for since they acquired an 80% stake in Chrysler last year. Daimler, meanwhile, has listed the book value of its remaining 20% stake in Chrysler as zero on its financials.
If anything, what a merger would do is help both automakers get aid from the American government. After all, parts suppliers to the Detroit-Three are also working on paper thin margins at the moment. In most cases, these suppliers are common to all three Detroit automakers. And if even one of the three were to fail, it could well mean that several component manufacturers could follow suit. This, in turn, would result in the loss of thousands of jobs, and have a massive impact on the economy as a whole.
All said and done, however, a visit to GMs stand at the Paris Motor show was quite encouraging. On display were a number of exciting cars, not least of which was the Chevrolet Volt (introduced at their centenary celebrations last month, and featured in the previous issue), the Cruze, which is a big step up for GM in its segment, the new Camaro, which looks brilliant, and the Corvette ZR1, which is a supercar killer like never before. Unfortunately, the same can’t be said for a visit to the Chrysler stand, which didn’t quite fill you with the same level of optimism.
So if GM can get through the very turbulent waters of the present, things should start to look up from 2010 onwards. How exactly they’re going to do that is the question. It’ll undoubtedly require some creativity, which they’ve already demonstrated they’re up for. The other problem, of course, is that every time it’s reported that GM could be considering bankruptcy, it makes a prospective customer think twice before putting his or her money down on one of their cars, and that could really be the final nail in the coffin at a time like this. Here’s hoping for better times ahead…
Looking closer to home, the image you see here is very far removed from the current
economic crisis – it’s from this years’ Raid-de-Himalaya, which is also featured
in this issue.
