GM Circling the Drain?

This is a story that could have been written months ago. In fact, it was. When the Bush Administration was preparing to punt the problems with the automakers into the Obama Administration's open arms, they were going to provide billions to the automakers to tide them over into the 1Q 2009. Well, it's the 1Q 2009 and the automakers are still failing miserably to do anything that can turn their bleak situation around.

General Motors is a black hole for federal assistance, and yet they've received tens of billions. Now, we're told that it looks like bankruptcy is ever more likely? What happened to the billions that taxpayers provided? We're never going to see it back. Ever.

General Motors Corp.'s auditors have raised "substantial doubt" about the troubled automaker's ability to continue operations, and the company said it may have to seek bankruptcy protection if it can't execute a huge restructuring plan.
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The automaker revealed the concerns Thursday in an annual report filed with the U.S. Securities and Exchange Commission.

"The corporation's recurring losses from operations, stockholders' deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern," auditors for the accounting firm Deloitte & Touche LLP wrote in the report.

In pre-market trading, GM shares fell 14 percent from Wednesday's close, to $1.90.

GM has received $13.4 billion in federal loans as it tries to survive the worst auto sales climate in 27 years. It is seeking a total of $30 billion from the government. During the past three years it has piled up $82 billion in losses, including $30.9 billion in 2008.

There's no reason that the federal government should provide another dime to GM. It cannot restructure effectively because the unions refuse to make sufficient concessions that will reduce the per-vehicle costs to where they are competitive with other automakers. Instead of working to reduce the gold-plated benefits packages, the unions are much more receptive to massive layoffs. 47,000 jobs and the closure of five factories is among the plans being considered and yet I suspect that even those drastic measures wont be sufficient because the companies existing workers will still cost far too much per vehicle to keep the company afloat and turn around its bottom line.

Bankruptcy will be the only option, and the question for taxpayers is whether they want to send tens of billions more to the automaker now to watch it go bankrupt, or allow the company to proceed into reorganization without federal assistance and become a leaner and more competitive company without federal funds? I want the latter, but Congressional Democrats who carry water for the unions will not permit the latter to happen. Instead, they will do all they can to complain that it is the management of the company to blame for the situation.

At least Ford is doing something about their situation. They are looking to retire nearly $10.4 billion in debt. They're trying to get ahead of the game and restructuring certain costs, including health care benefits, without federal assistance.

US automakers aren't alone in looking to the government for assistance. Honda and Toyota are looking to the Japanese government for loans so that they can turn around and lend to prospective car buyers. I see that more as a function of tight credit and a need to lure buyers into showrooms, rather than fundamental problems with either of those companies.