Will GM file for bankruptcy? |
News - Hugh's Views | |||
Written by Hugh McManus | |||
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Will GM file for bankruptcy? Almost certainly yes. GM is facing legions of problems, problems that are, for the short term, out of the company's control. Problems that will continue to trigger losses in the auto giant; GM is slowly moving towards the inevitable: reorganization under bankruptcy laws. GM has problems with revenues. The automaker has, for many years, focused on high-end, large, gas-guzzling vehicles that have been extremely profitable for the company. As the price of oil rises, consumers have focused on hybrid and smaller vehicles. Sales in trucks, SUVs and larger vehicles has declined by over 30% year over year. GM's most profitable vehicles aren't selling and, unlike many Japanese competitors, the company doesn't yet offer smaller, profitable vehicles to fill the void. Even if the price of oil were to drop dramatically, it's unlikely that consumers would change their new buying habits and change back to the old habit of buying larger vehicles. In any event, even if this behavior did change, GM has started closing down production plants that make these larger vehicles. Revenue problems trigger cash flow issues. GM is burning through its hoard of $30 billion cash. With its problems in selling vehicles, GM is running at a loss and is burning through cash at over $1 billion each month. GM has, or will soon have, liquidity problems. The economy is slowing and prices are rising, so the margins at GM (and at its competitors for that matter) are being squeezed, further compounding the problems for the company. In the tightening economy, the company will face challenges in passing along price increases along to consumers. GM will continue to bleed cash for at least the next eighteen months to two years. GM's problems are serious and increasing. The company doesn't have a mix of vehicles that consumers want and its efforts to change to smaller cars will take time. The company is burning cash while it has reported reserves of $30 billion, it's unlikely that GM can become profitable before its cash is exhausted. In the next twelve to eighteen months, its unlikely that GM can avoid filing for bankruptcy protection.
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