Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Apply This Technique to Stop Rushing into Trades - 10th May 21
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Liquidate General Motors

Companies / US Auto's Apr 29, 2009 - 09:01 AM GMT

By: LewRockwell


Best Financial Markets Analysis ArticleGeneral Motors and the U.S. government have several characteristics in common. Both are unwieldy behemoths which have become debt-laden, wealth-destruction machines. Their workers are overpaid and under-productive (for Federal employees, counterproductive is a more apt description). Foolish creditors have kept these monstrosities afloat and will eventually end up regretting ever having lent these debt addicts a dime. Yet, each one is a public-relations machine preaching to the citizenry that it is indispensable.

The Federal government, accordingly, is working with General Motors on a rescue plan which entails exchanging debt and other liabilities for equity. If this exchange offer is successful, President Obama will be hailed, by the mainstream media, as a visionary leader with the good sense to override the impersonal phenomenon known as the free market. Isn’t it true, after all, that what is good for General Motors is good for the country? Not anymore.

What is good for the United States is an unhampered free market. In a free market, successfully anticipating and meeting the needs of consumers are rewarded with profits and wealth creation. Conversely, when a business consistently loses money it must either adjust its business model in order to compete more effectively (before its financial condition becomes too weak), or face liquidation. Failure is not the end of the world as the resources tied up in a failed company can be freed up for entrepreneurs to use in other productive ventures.

In all my years as a financial analyst, I have never seen a company as grossly mismanaged as General Motors. This automaker’s financial destitution indicates GM’s management team, laborers, and related union executives may be the most incompetent in U.S. history. It is abundantly clear Americans love automobiles. Hence, it is a no-brainer that the U.S. is a market where a company could become hugely successful and wealthy by manufacturing and selling cars. Since GM’s founding in 1908, it has managed to accumulate – as of fiscal year-end December 31, 2008 – a deficit working capital position of $32.7 billion and a deficit equity position of $86.2 billion. So in the course of 100 years, General Motors has sold millions upon millions of automobiles and has managed to become profoundly insolvent. The Three Stooges could have done a better job of running an automaker.

Within a free market, a company with such shockingly poor financial indices could never be reorganized – it is plainly too far gone from a financial perspective. Thus, it would be liquidated with secured and unsecured creditors doing whatever they can to recover a percentage of the monies they are owed. Common shareholders would be wiped out.

In looking over the details of the above-mentioned exchange offer, I have no doubt this is merely a stop-gap measure as GM would remain deeply insolvent. Here are key points of the exchange offer:

  • Common stock plus accrued interest in cash offered for $27 billion of outstanding public debt
  • Successful exchange to result in at least $44 billion reduction in total liabilities from bondholders, U.S. Treasury, and VEBA
  • Bondholders to own 10 percent of GM after successful exchange offer
  • Exchange contingent on VEBA modifications and U.S. Treasury debt conversion conditions resulting in at least $20 billion reduction in liabilities
  • Expect to seek bankruptcy relief if the exchange offers are not consummated

What if the exchange offer is successful and total liabilities are reduced by $44 billion? This would still leave GM with an equity position of negative $42 billion. No company can continue to operate when it is so incredibly broke. To be sure, this implies GM would remain a ward of the state and the U.S. Treasury would continue to lend it money; thereby perpetuating this wealth-destruction machine.

To further drive home the point, as to how broke GM is, let’s do a quick thought experiment. If Supreme Commander Obama decided to simply give GM a "gift" of $100 billion, would all be well at General Motors? Undoubtedly, you know the answer is "no." Even with such a generous gift, GM would still be a precariously leveraged company with a total liabilities-to-equity ratio of nearly 13 to 1 – using GM’s 12/31/08 balance sheet as the basis for this analysis. It should be obvious, therefore, that the aforementioned exchange offer is merely placing a bandage on a mortally wounded company.

This is why I cringe when I hear politicians and financial reporters mention any kind of reorganization for General Motors (including Chapter 11 Bankruptcy reorganization). Any such reorganization would automatically imply massive Federal guarantees that will come at enormous taxpayer expense; which also indicates that productive citizens are viewed, in Washington, D.C., as mere abstractions born to serve the needs of America’s political elites.

The marketplace has spoken; GM has failed and it should be liquidated. New entrepreneurial and wealth-creating opportunities most likely will emerge from such a liquidation. To continue down the present path assures more wealth will be destroyed by the financial black hole known as General Motors.

April 29, 2009

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website.

    © 2009 Copyright - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


29 Apr 09, 20:01
Liquidate Wall street

GM is in this position because they were run by "financial analysts" and bean counters. If they had listened to engineers and consumers, all would be fine and dandy. Wall street is the one that needs to be liquidated. That would solve most if not all the problems that plague this country

Post Comment

Only logged in users are allowed to post comments. Register/ Log in