Since 2007, GM has lost 90% of its total value and it dropped by 25% alone just yesterday (Nov 10 08) and it is now trading at its lowest price ever and edging closer to $0. As part of GM’s aggregate cost savings plan to try stay in business, it has terminated 3,600 jobs effective immediately and has halted R&D expenditure completely. In addition, it has also stopped contributions to pension funds. Implicit costs at GM are now also skyrocketing. GM is inefficiently utilizing resources to maintain the company, including by paying fees to attorneys and lobbyists, instead of using resources towards the effort of further developing the company. GM is continuing to burn cash, it can’t get credit as a direct result of the credit crisis, and I would expect it to run out of cash completely by March 09 assuming it doesn’t get bailed out.
GM needs to cut costs and move vehicles, but the question now is: why would you consider buying a GM vehicle? No rational buyer should buy a GM car right now. The company is too volatile and it is no longer an innovator because it has discontinued R&D expenditure therefore quality will further diminish. Also, how will a company that goes under service your vehicle?
However, the problem is GM is too big to fail. It can’t fail. People argue that if companies make bad investment decisions, they should be held accountable (and I agree), but people don’t realize GM is just too big to fail. If it does, everyone will suffer. If GM now goes under completely, the consequences will be profound as it employees close to 266,000 people and about 1,000,000 people would be directly affected with their jobs. And lets not forget the ripple effects where suppliers and other stakeholders would also lose business and also layoff yet more people. Where will all these people find work, what about pension beneficiaries? The costs are just too great for GM to fail.
The government needs to bail GM out, and I think it’s going to happen. The Obama camp hinted it would give GM money during the campaign, though there is no other indication as of yet. If GM acquired Chrysler about a week ago, at least, it would have gave GM more time (about a year) to reorganize as Chrysler has $11 billion in cash. Some would argue that would just be avoiding the inevitable because GM still wouldn’t produce quality vehicles and cut costs. However, a GM/Chrysler merger just isn’t likely anymore and the truth is that GM needs $11 billion in new working capital now otherwise it will run out of cash completely by March 09 and it will go under where we would all be adversely affected. If GM gets this money, I hope it learns its lesson and restructures management, cuts costs, and produces quality vehicles, than maybe, it can get out of this mess.
So, what do you think? If GM was bailed out, could it survive? Will it change? Is it too late, or do they simply not desrve to be bailed out? Do you think its just too big to fail?