If GM FAILS

[jwanck11]

Regarding the P&L tool statement, for small companies that is true some of the time. Very very very few companies cover expenses with sales at start up (which can last years depending on the model and access to credit.) For large companies, it is not even close. What is the stock market for again? What are investment banks for again? What are basically all investment vehicles for again? Lets look at the extreme: perhaps we'd gander no further than sirius/xm???

This is a bad time. The auto giants made hand over fist and now they are not NB: although Ford has a good depth of cash. It seems inappropriate to point the finger... most of this is speculative activity where it is up to a few people at the top to basically guess right (strategy). Although pointing the finger sure is the easy thing to do.

I am an economist, not an accountant. I think there are merits to each viewpoint that has been expressed especially those regarding this being a global economy that will continue to hapen come hell or high water...

Again, I don't deny that there are major issues, and I hate paying for it, but it is a necessary evil IMHO.

[Surfdad]

Starup references and other ancillary concepts aside, I am a CPA by profession and know that the bottom line is what must motivate decisions when a company is looking at insolvency. Principally if I say to you I will pay you $5 a day to work for me and you notice that it costs you $6 a day to ride the bus to get to my office, you'll say - gee thanks for the kind offer, but I think I'll find work that is more profitable, regardless of the myriad concerns or opportunites, especially when in the previous year you lost almost 50 billion dollars. It's just TOO easy to find work that pays more than it costs to get to work. GM said - YES! to the ridiculous offer 4.3 billion times.

Agreed - many MANY issues that need to be addressed, thankfully not any of which I am directly responsible for!

[illiniboarder88]

The problem is these companies never look ahead. They assume the good times will just keep on rolling. As such, they spend, spend spend. Both labor and management are responsible for this. Execs took lots of money out of the companies and frankly did not pay enough attention to curbing excessive spending. Labor saw the profits and wanted their slice, which was fair when times were good. The problem is, as things evolved, neither side wanted to cut back.

[jwanck11]

Starup references and other ancillary concepts aside, I am a CPA by profession and know that the bottom line is what must motivate decisions when a company is looking at insolvency. Principally if I say to you I will pay you $5 a day to work for me and you notice that it costs you $6 a day to ride the bus to get to my office, you'll say - gee thanks for the kind offer, but I think I'll find work that is more profitable, regardless of the myriad concerns or opportunites, especially when in the previous year you lost almost 50 billion dollars. It's just TOO easy to find work that pays more than it costs to get to work. GM said - YES! to the ridiculous offer 4.3 billion times.

Agreed - many MANY issues that need to be addressed, thankfully not any of which I am directly responsible for!

The thing is that points posed above are not ancillary concepts. Large companies operate way outside of their sales figures - it is a fact. They have and will continue to do so on and on. That is what investment is all about. Investment brings innovation or in other cases, where necessary, the ability to float above water. That is the entire basis behind why there are credit markets.

The automakers were making hand over fist when their product base was selling like hotcakes (SUVs and Trucks). They have fallen from grace because those sales largely dried up.

There is a need to fix their business and organizational model and likely manufacturing and and and ... but to point the finger at all of the various arms of a corporation is to chase ones tail without making real progress. There is no silver bullet that will be found solely by looking at a balance sheet.

Two underlying principles have changed:
1) consumption dried up and there was no replacement product to take up the slack
2) Globalization

Looking only at the bottom line leaves out what will ultimately drive a business to success and/or failure.

In the mean time, we are acting as a bridge. I believe it is a necessary bridge. I think that bankruptcy would have such massive ill effects on the economy it would be simply stifling. From a big picture (read as looking at the plethora of ancillary impacts) and not a general picture (looking at this in a microscope with perhaps some peripheral vision), I fear the outcome of letting these companies fail.

[SPBFAN]

One time when I was looking at a Dodge pickup (new) I drove the vehicle and informed the salesperson that the A/C was weak. He asked how much gas was in the tank. I said almost nothing. He said that is why the A/C was weak. When the gas gets low the A/C does not work as well. He was absolutely serious. My friend that was with me had to leave the showroom because he could not control his laughter. I followed shortly.

This made me laugh thank you I needed to laugh. I would have had to leave the show room also like your friend.

I really think it is time for the big three to take the hit. I will be job less if they do because we are Dependant on them buying there tools and diagnostic equipment from us to repair the vehicles. The last number I heard is that the big three owe my company 100 million. Cut backs are taking place in my job. Thank goodness I survived so far.

The Unions need to just go away in my opinion. Bankruptcy will do that for sure. If the big three are smart they will never allow the unions back. There are a ton of people out there looking for work that would be more than willing to work for less than what the union workers are working for. I would bet we could trim 20% of each car price if there were no unions. Just my thoughts. Nothing factual in what I am saying. It is just my thoughts.

[FacePlant]

A lot of interesting points in this thread. I do agree that the big 3 need to de-unionize. I definitely do not blame the unions for everything, because I believe the fish rots from the head down, but I work for VZ and we have the same issue with unions....they fleece a company from the inside out.

[SPBFAN]

A lot of interesting points in this thread. I do agree that the big 3 need to de-unionize. I definitely do not blame the unions for everything, because I believe the fish rots from the head down, but I work for VZ and we have the same issue with unions....they fleece a company from the inside out.

Well said I agree.

[SPBFAN]

My family has 6 dealerships, so i've done a little research on this. GM half tons have 5.3s, and best mpg for half ton market. The Tundras 5.7 gets really bad mpg (don't remember number), and pull less than almost everything that i've looked at. Be skeptical of the Toyotas advertising, they tend to stretch the truth. Example, the commercial with the Tundra demonstrating stopping power with trailer, the trailer has trailer brakes.

HMMM!!! I have to disagree with you greatly. I owned a GMC 1500 it struggled to pull my boat and I mean struggled and the best gas mileage I ever got from it was 14 MPG I average 8 when towing. I do have to day it did not have displacement on demand though like the new ones do. although it was good for hunting as long as I did not load it down. The 5.3 engine has a few issues I will not go into cause I don't care to spend the time going into it.

On that note I replaced it with a Nissan Titan. Great truck and pulled really good just like my TIGE' . When it came time to replace that truck do to work contacts for vehicle allowances I check the GMC once again. They still fell short. So I did not spend a lot of time looking. I went straight to Toyota. I can tell you that truck pulls my boat with great ease. I should mention I have forgot to unlock the trailer brakes the last two trips to the lake. I did not know until I got the lake and saw the locking mechanism in the trailer still in place. The brakes work like they say and are twice the size of the GMC brakes. Not to start and argument Spenchy that is not what I want to do but looking at these trucks side by side from a technical point of view the TOYOTA TUNDRA hands down beats the GMC in the same class rating of trucks. Also pulling my boat back from Las Vegas to California in October I got 16.5 MPG. I don't think that is two bad of gas mileage. I average around 16.5 in town and when not pulling the boat on the freeway I average around 18-19 depends on the terrain and traffic I am in.

[Surfdad]

Looking only at the bottom line leaves out what will ultimately drive a business to success and/or failure.

Conversly, completeing ignoring the bottom line to manage capital markets is a death nell.

To me, and I am admittedly prejudiced in favor of strict
and accurate accounting, you can't minimize the need for accounting
to the exclusion of all else. Back in GM '06 was losing money. The
company posted a loss of $323 million for the first quarter.

But the great thing about GM is that if you don’t like a number on
their income statement, you’re perfectly free to choose another.
Go ahead. In fact you can just fill in your own! That’s exactly what
GM did, and they settled on a “positive” number.

Eighteen days after reporting a loss, GM then said that it really
made $445 million for the first quarter. A 768 million dollar mistatement.
OOPS! Where did I put that 3/4 of a billion! Why the change? Accounting,
silly! Or GM accounting or maybe better still LACK of accounting.

The health-care agreement between GM and the United Auto Workers union
requires the automaker to set aside $1 billion annually in 2006, 2007
and 2011 to offset increased health-costs to retired workers, according
to a U.S. regulatory filing on March 31 in that year. Union retirees
would pay premiums for the first time. It was part of an agreement to
get a pretax health-care savings of about $3 billion a year from union
workers.

GM had initially reported a first-quarter cost of $681 million, or
$1.20 a share, for the first $1 billion payment to establish the health
-care fund. GM Chief Financial Officer Fritz Henderson said at the time
that the automaker was still talking to the SEC about how it should
account for the payment.

The company had said the health-care accord will help it reduce structural
costs by an annualized rate of $7 billion by the end of that year, with
$4 billion in savings in 2006. The automaker then increased the savings
to $4.5 billion based on the accounting ruling.

One analyst, I can't remember who now, said “The SEC backed off.” This,
of course, has zero effect on the company’s operations, however the stock
rallyed on the news.

When accounting is relegated to "unimportant", it creates opportunities
to massage numbers so drastically that it obscures the reality of operations.

Had the creativity been removed from GM's accounting and MORE emphasis
been focused on the bottom line back when the troubles started in '05,
my guess is that the current operational issues/lack of liquidity would
have been averted.

Ahhhh...arguing online only causes folks to become more entrenched in their position. As might be expected I am staunch supporter of paying attention to the bottom-line - and of determining that in a fair and accurate way. I respectfully disagree with any and all opinions that would diminish a
healthy need for accurate and fair accounting.

CPA's rule!

[turbonine]

CPA's rule!

X2

[FacePlant]

I respectfully disagree with any and all opinions that would diminish a
healthy need for accurate and fair accounting.

CPA's rule!

Have to agree here. Honest and accurate accounting should be a law.......oh wait....

[jwanck11]

My statement was: "Looking only at the bottom line...."

I agree with a lot of what you and indeed several people have had to say. I disagree with the position that what is in/on accounting tools and templates alone are what ought to drive business decisions and such important activities like turn-arounds. In doing so, companies are equally likely (I'd think) to cut off their nose despite their face. Accounting numbers are not the end all be all... they are an element to business operations.

Numbers can be and constantly are "played with" even in "fair accounting practices." This is because of, amongst other things" elements that can only be traced to best guess estimating factors.

I find it interesting that there was no recognition of the reality that companies such as xm/sirius operate all of their life in the red. There are many many more companies that are in a similar position (not to the magnitude perhaps). Most and I would even guess that nearly all companies deal with at least a period of thier lives where the balance sheet is bleeding red for a spell. It is also interesting that there was no recognition of spending more than they take in via investment vehicles.

PS. This is a scary statement and the basis of my point: "Had the creativity been removed from GM's accounting and MORE emphasis been focused on the bottom line back when the troubles started in '05, my guess is that the current operational issues/lack of liquidity would have been averted."

Yes, but, No No NO! (in part anyway) Had GM foreseen the drop off in their fat wallet SUV sales and concentrated on strategizing how to produce economical high quality appealing cars, they would not be in this position today even with the all of the outlays they have traditionally dealt with.

I certainly agree that companies ought to be stating their financial positions in the fairest manner possible!

[jwanck11]

Btw. FMC is doing well largely cause of the Focus - it sells units by the masses on a global scale.

[chpthril]

Btw. FMC is doing well largely cause of the Focus - it sells units by the masses on a global scale.

I wouldn't say Ford is doing well, they're just not sucking as bad

[dogbert]

I wouldn't say Ford is doing well, they're just not sucking as bad

Well, they are not in need of a cash infusion, so they are doing better than most, including companies like Toyota.