Making GM Worth Nothing

When the Big 3 CEOs flew into Washington the first time to beg bailout monies, it was apparent from the GM CEO, Wagoner, he thought the monies were a gimme and his plan was to suck government money until the economy recovered. Washington sent them home to come up with a plan, which gave GM executives a working weekend before driving back for their gimme.

Flying or not was some kind of PR stunt forced on them by grandstanding congressmen. As a pastime, we had at one time calculated the cost to Chrysler of Lee Iacocca taking a 15-minute dump. It was an amazing $17,000, showing that having a bathroom adjoining Iacocca’s office was indeed an excellent investment of Chrysler funds—much less flying Iacocca anywhere he thought he needed to go. Taking an extra 8 to 12 hours to drive to Washington DC would have been unthinkable.

Another difference between the Chrysler bailout of 1980 and the GM bailout of today, is that Iacocca had a plan. The problem at that time was one of cash flow, and Iacocca merely wanted loan guarantees, not real money. Further, the book value of Chrysler was over three times the loan guarantees, meaning the government could hardly lose should the loans not be repaid.

As well as not having a plan, GM has a previous-quarter book value of negative $98 per share outstanding. Multiplied by the shares outstanding, shows it would take $61-billion investment to make GM worth nothing. From what I hear GM’s position hasn’t improved over the last quarter.

GM has a further problem, I think. After owning several GM products, none of which got over 100K miles, GM plans for me buying future products had best include reincarnation.

Perhaps with these impediments, GM’s only viable plan is to take government money and wait until the economy recovers.
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While writing this, I heard the news of Ford and the UAW renegotiating their contract, including UAW concessions to take Ford stock in lieu of some retirement benefits. I applaud UAW aligning fortunes with that of their company. It provides at least the potential for Ford to provide goods and services in the best interest of its customers, stockholders, and employees. If management also makes this concession, a step forward is realized.

I’ve admired Ford their stance of refusing government bailout funds, and their financial foresight in being positioned to do so. Should one wish to purchase stock in a company likely to survive this downturn, and then thrive in the subsequent recovery, Ford would be preferred over the other two remnants of the Big Three.
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GM has updated their stats for the latest quarter. Book value is now negative $141.12 per share, times 610.5-million shares outstanding, equals $86.154 billion to make GM worth nothing. That's going down faster than the bailout monies coming in.