Airlines have taught companies a great lesson about Chapter 11. When a firm decides to seek court protection, it wants money on its balance sheet. If its contracts, debts, and labor obligations are eliminated, a little cash can go a long way. Don't wait. Go bankrupt with some dry powder.
GM (NYSE:GM) says it is low on funds, and it is. But as of September 30, according to its 10-Q, the car company has $16 billion in cash and over $9 billion in receivables. GM had payables of almost $28 billion, but it may not be paying suppliers so it can save capital.
The important question is whether GM still has $10 billion in cash and receivables. It says it is losing over $1 billion a month. If it has a cushion of half a year, a bankruptcy might give it time to wipe out enough in obligations to survive.
GM has said very little about whether it has been paying parts companies and other firms that supply its plants. If its CFO has any brains, he has not taking the calls from angry firms that GM owes big chunks of cash.
Did GM play its cards right? If so, it may not need a bailout. But, a lot of suppliers are going to get killed.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 2 of 2)
12-12-2008 @ 3:44PM
Bob said...
Doesn't anyone understand this simple thing. If, the car manufactures die, they will no longer have to pay the medical and big wages, to either the retirees or current workers. They can negotiate new contracts, lower wages, health and pensions.
If, we are going to have the businnesses get fiscally sound, isn't about time we had the Congress get rid of their large medical, and pension benefits, for all past and present Legislatures, stop all of their perks. (Bet that will happen, right)
12-12-2008 @ 4:57PM
Fred A said...
I have owned several companies. If they were fiscally sound they made a profit and stayed in business. If they could not make a profit after paying all costs and taxes I had to close them and let all the workers go. It was hard but the workers and I lived through it to work another day. The same is true for the auto companies. If they cannot earn enough to cover there expenses they cannot stay in business. I am a stockholder in GM and Ford but do not feel these companies should be treatede differently than any other company just because they are large.
12-12-2008 @ 5:12PM
JOHN said...
Geroge W Hoover caused this mess with the price of gas.....Why doesn t the US governement buy enough oil to supply the USA with OIL....sell the oil to the oil companies to refine it until an alternative fuel is developed.....
12-12-2008 @ 8:08PM
DORIS said...
I DONT BELIEVE THAT BAILING OUT A COMPANY THAT SHOULD HAVE BEEN MAKING $$ AND NOW SAY'S IT IS NOT IS A GOOD BARGAIN. CUT THE UNION . HOGS ARE ALL THEY ARE BUILDINGS ARE STILL THERE, MACHINERY IS STILL THERE WORKERS READY TO GO TO WORK. SOMEONE WILL BUY THEM AND START USING COMMON BUSINESS SENSE ( WITHOUT THE UNIONS,
12-16-2008 @ 12:32PM
LansingGal said...
Okay guys here are my thoughts on the matter at hand. Yes the UAW has overstepped the bounds of common sense.
Where else in the common sector can you find a job where if you are drunk at work you get “fired” or really just sent home because the union will have you back at work in a few days.
If your job no longer exists you get layed off, oh wait, layed off is when you have to go on unemployment and find another job right??? Well not for the auto workers they get a forty hour paycheck and have to go sit in a building(jobs bank) for eight hours a day. I know that there are people in the Jobs Bank that have been there 15 years!!!! Well what can you do with all that time? Well heck bring your laptop with you and start your own business which you can run from the jobs bank and have GM pay your wages as you do it!!
And speaking of pay, what makes the auto workers think that they are the only people that have to Work Hard for the wages they get?? I would like to see their wages cut to the same level as someone in the private sector makes for the same type of job. And yes there are jobs where the workers work as hard or harder than you do! Also who out there with a Real Job does not have to pay part of the cost of their healthcare and make less than half of what the auto workers make? They don’t!
I know that locally, that is Lansing Michigan, the average pay for auto workers is anywhere from $28. to $36. dollars an hour. And that is without adding the benefits package they get.
Now to start on G.M. itself. I watched as the last Grand Am rolled off the line. One of the top selling models I would like to add. And I listened to Wagner say that they were going to concentrate on making the bigger Caddies, SUVs and Hummers because they make more per unit on these vehicles!!??!! I mean who did they think was going to buy them? Now they are in trouble because they had their head up their behinds and want My tax dollars to bail them out!? I say No! Make the changes you need to make and make the concessions that are necessary and handle your own affairs! If the big three don’t have the money to make it till the end of the year then shut the plants. There are enough vehicles already out there to be sold that you should be able to reopen when they are sold. Oh wait that’s right No One Wants What You Have To Sell!! So sorry!
It is going to be hard on a lot of people including myself but I say as my momma said “ You made your bed, now you lay in it”! Pull your head out of your rear and file bankruptcy then pick up the pieces and start again, hopefully with better management!
One more thing I want to throw out there for you all. Does anyone but me realize Why the auto industry is the Last big manufacturer in the U.S.
China Free or Die!!
LansingGal
12-12-2008 @ 8:21PM
BURGER said...
DETROIT HAS NO CHANCE UNTIL THE UNDERSTAND THAT THEY HAVE TO BRING THEIR WAGES IN LINE WITH THE REST OF THE WORLD.
12-12-2008 @ 10:17PM
Tim said...
I work for one of the big 3. I want the big three to dissolve! I have a lot of debts, I'll declare chapter 7, so will thousands of my co-workers. We will all let our homes that we owe more than we can sell them for, go back to the bank. We will get out of upside down car loans, through chapter 7. We will be debt free. Thanks to our congress. I can start over. I am sick of working in a factory anyway. Maybe I can finish my degree, and get a job where I can complain about people that make more money than me, and dont deserve it.
I think the multiple thousands of personal chapter 7 filings, and forclosures is what the 70% of american auto worker haters deserve to pay for, for years. I wont be paying it for a while, because I plan on student finacial aid, welfare, wic, food stamps, etc...
We will get the last laugh, haters!
1-11-2009 @ 5:02PM
George said...
GM: Too many models from different companies that are the same. Bloated egos, poor quality cars, shoddy workmanship, inferior products, cars on the lot that no one wants to buy, lack of vision on hybrids and electric cars, arrogance and more. Wake up Detroit, build a better car like Toyota and Honda does.
12-13-2008 @ 11:41PM
Lynn said...
Well Bob you nailed it right on the head. Government wants the unions to take more cuts but ask the politians to do the same. Gee wait a minute oh that would not be fair. What is fair? To many fingers pointing in the wrong direction.