GM’s CFO says that if debt-holders take a bigger haircut they can have a viable balance sheet within the 60 days.
Well color me skeptical. The problem for GM isn’t debt, it’s product. For years they’ve shed market share to higher-quality competitors. To subsidize bloated costs they pushed high-margin trucks and ramped up sales to rental fleets. But when gas prices tripled and everyone switched to hybrids, they were toast. No volume, no margin, and no more money.
How to make them profitable? Do what every sinking ship does: put out the life-boats. Spin off all the divisions as separate entities. Allocate costs and debt. Break up GM like the old Ma Bell. Let competition work its magic.
The alternative is to issue a bunch of stock to the Union and say, “It’s yours, fellas.” Kind of like handing the keys to the repo man. That’s essentially what Wagoner did when he cut his overly generous deal with the UAW five or so years ago. The company’s been run on behalf of the union ever since. One thing’s for certain: the old dynasty is gone. It’s time for a new play-book.
Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!
Follow me on Twitter @GlobalMarketUpd