A quick read of the General Motors Chapter 11 Bankruptcy petition gives some fun facts about the collosal disaster that is GM.
Total Assets: $82.3 Billion
Total Debts: $172.8 Billion. That’s 217% of assets, $90.52 billion in net debt and bigger than the GDP of New Zealand.
- How did it get this far?
The biggest trade debt ($121.5m) is to advertising agency Starcom. (They are the 6th biggest unsecured creditor, after big bond holders and employees). Meanwhile Publicis Groupe went for $25.3m, Interpublic for $16m and McCann Erickson for $4.6m. That’s $167.4m in total advertising agency debt.
- If your biggest supplier is an advertising agency, wouldn’t you begin to suspect that there is a disconnect between your advertised messages and your products?
- How did you measure the impact of your advertising spend?
Meanwhile metal suppliers US Steel, Arcelor Mittal and AK Steel Holding Group all managed to keep their debt under $10m.
- How come they were so smart and Starcom et. al so dumb to be left holding the bag? Starcom in particular is looking pretty stupid.
GM owed Enterprise Rent a Car $33m, Avis $12m, Hertz $8.7m – for a total of $53.7m.
- Was GM really paying rental car companies to take their cars?
- Why did rental car companies give their customers crappy GM cars that have higher maintenance costs and lower lives (versus say Toyota’s)? Was that doing the right thing or taking the money and damn the customer?
Bottom of the list of top 50 unsecured creditors are consultants Cap Gemini – with $4.4m in trade debt.
- How much did they save GM for that $4.4m consideration?
- If they are such good consultants, then how come they didn’t get their money up front?
- What other consultants were used in the last, say, 10 years? How much did that cost, and what did they make/save for GM?
I’m glad GM is in Chapter 11 (refinance and trade out) – it’s the right thing to do, though I do feel that a full blown Chapter 7 (close it down and divide the pieces) is the better option. GM has become to bloated, is crippled with legacy staff and pension issues and makes vehicles which are amusingly ugly, woefully inefficient and mired in the past.
Of course, companies like US Steel and Mittal do have an entire corporate finance/corporate risk department whose job it is to make sure they are not overexposed to counterparty risk.
Probably, all of GM’s trade partners have been working real hard to reduce their outstanding trade balances with GM in recent months, and so perhaps what this really tells us is just that Starcom was last off the rack to get it sorted.
With total EBIT expenditures per year (not counting interest and debt etc) in the region of $10,000 mil (and topline revenues around 180,000 mil – FY07 at least) the outstanding debt of $121 mil trade debt to Starcom is perhaps reasonably viewed as more of a drop in the bucket than something for the GM execs to be excercized about.
What they *have* been worrying about is negotiations with the unions (UAW) and their bond holders to do something about the thousands of millions of dollars in outstanding pension payments, interest and other debts (which I guess were primarily all ‘off balance sheet’ as far as GM itself goes, and parked in GMAC, the wholly owned finance company)
A case in point of what makes reading these public company accounts so dang annoying, even if you put the time in to try and read them.
Transparent it is not.
Hahaha – amusingly ugly.
Those are great observations, and amusingly put. Thanks for digging into the detail.
Do I detect a little McKinsey bias against Cap Gemini?
As for paying the rental companies. It may be buy-back agreements after lease or something similar? If GM agreed to repurchase old cars and onsell them, then that’d be a liability no?
I would have made the same comment regardless of the consultant. Actually – I would not be surprised if there were lenty of other consultants in the list, nor even if some of them were indeed paid up front/in a secured way.
You could well be right about hte buy-back agreement – but it’s still a subsidy as resale values are likely to be much lower. Moreover I wonder whether a lease arrangement would have been GMAC? L
Just now I listend to a quote from a CreditSights analyst (Louise Purtle) that sounds relevant to this..
“Inventory production declines have outpaced even the dramatic sales declines..
..for example GM was looking to ramp down hard ahead of what at the time was a potential bankruptcy filing to mitigate the threat such a step would have on its supplier chain. The auto company was even paying its suppliers on an accelerated basis ahead of a potential filing, everything was geared towards shrinking working capital and inventory across suppliers and OEMS”
So I guess that may help explain why so little of the outstanding debts were to the type of suppliers you would expect a car company to have – ie US Steel – as opposed to, say, media companies.
On the ugliness…
Today’s ugly GM cars aren’t ugly because GM made ugly cars. GM made some pretty appealing cars in its day, one of which I personally glimpsed recently–a 1969 Cadillac DeVille convertible–I was knocked over by how fabulous it was and haven’t felt the same about this company since. Some of the lines and designs of the OLD GM and Ford cars are quite distinctive and dare I say, beautiful. Pictures like these (not the best but indicative) help explain why
“Cadillac” was once an adjective–and I’ve never owned an American car. I WOULD however buy either one of these:
BUT, once quality/gas efficiency came along in foreign cars and once GM started trying to LOOK foreign rather than BE foreign in its quality/gas efficiency, the ugly happened. An American car trying to LOOK like a Nissan IS ugly (to me personally) though even some of those sold well: Ford Taurus for one. I don’t think any cars are uglier than the Japanese ones that are so popular. They have NEVER been beautiful. Nor have non luxury German ones. Lexus is a complete and unmitigated rolling bunch of drab. BMWs aren’t beautiful either–never were. It was never their claim to fame. Auto beauty has always been either British, German (Mercedez), Italian or yes, OLD American.
Enterprie Rent-A-Car and GM have an agreement where after the vehciles have been used by the rental side of ERAC, GM is set to buy back a certain amount. These vehciles that have been repurchased by GM are used as used vehilces to be sold at dealerships, they are also sold as certified used vehciles, after inspection.
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