What’s Killing General Motors?

Friday, November 25, 2005
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Its balance sheet.

Toyota is catching up to General Motors in terms of sheer size, but has passed up the sadsack from Detroit in many respects.

The proof of looming disaster is in the balance sheet. Here is GM’s balance sheet, full of bullet holes. Here is Toyota’s balance sheet, which is bulletproof. Focus on a few items, like long-term debt and equity. Note that General Motors has a $480 billion balance sheet, and only $28 billion of equity. (Balance sheets as of Dec 2004)

Toyota has a $142 billion balance sheet, with $84 billion in equity. And it has one-sixth of the debt load as GM does.

Rumor has long been that Toyota will/may acquire the GM behemoth. That is unlikely to happen in any straight sort of business sense. Perhaps GM has two options for survival: a bailout by the Feds, which Leviathan likely couldn’t afford, or, an acquisition by a foreign company such as Toyota. But why would Toyota, with its masterful financial outlook and its vastly different culture, want to acquire an inefficient, union-laden abnormality with $300 billion in debt? It wouldn’t, unless of course, the acquisition was bankrolled by the US government, which would be far less costly than a total bailout. Bankruptcy is one way in which Big Guv could subsidize a merger/acquisition.

Despite turning cash flow-negative, GM has cash, and a lot of it, and that is its only ace-in-the-hole. Right now, GM’s cash comes from its GMAC financing arm, its VEBA (pre-funded retiree account), and large-sum bank lines. GM may soon have to hold back dividends to keep ahold of its cash.

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