Over the end of last week, General Motors announced that it lost $2.5Bn in the 3d Quarter and in the same period burned through $6.9BN in cash. Ford similarly announced that it lost $2.7Bn in the 3d Quarter and in the same period burned through $7.7BN in cash. While Ford claims in the same news reports that it is comfortable with its liquidity position, GM has sounded the alarm bell and has said that it will not have the liquidity to sustain normal operations come 2009. Here is the GM press release statement:
“GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business... Looking into the first two quarters of 2009, even with its planned actions, the company’s estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve.”This is bleak; however, not unexpected.
In my blog on Sept 23rd, I talked about the impending bailout package of $25BN that the US House of Representatives had just passed for funding to the Big 3 primarily. Well, now that bailout has been approved and is in process, and yet this latest warning from GM has come together with a fresh call for another $25BN in federal aid for the automakers. The requested aid is not even clear as to whether GM and its competitors expect it to be in the form of another loan at Treasury rates or perhaps something even more lenient.
And what of Ford's most recent statement on its liquidity? In my blog on July 24, I tallied how Ford had burned from $34BN+ in its final cash war chest to $27BN by the end of the first half of the year, and now it appears that it is down to $19BN in cash as of the end of September. That is $15BN+ in 6months. Even at the pre-financial meltdown rate, that would put Ford out of cash and out of options somewhere around the First or perhaps middle of Second Quarter of 2009 that is 5-7 months away! And those losses and predictions were before the blackest month of October, in which month GM and Ford have now announced that they posted 45% and 30% record drops in total sales, respectively. Should we now expect Ford to start a death rattle even earlier.
Don't misunderstand my posting about this issue, this is NOT something that I relish. I am deeply saddened for our automotive industry, for the jobs it entails, and for the wastage that Congressional packages have already created, but we must NOT let such sadness entice us to send good money after bad.
GM argues to Congress as I type that to not bailout the industry would come at a huge cost to jobs and American productivity. I agree on the jobs point, but it is time that we took a long hard look at whether they have the argument backward on the productivity issue. Perhaps we would in fact be advancing the cause of American productivity if our Congress said "No" to any more financing. I would argue that drawing the line here is not only the right course, but the imperative.
Our next President would have an opportunity to make his case for Change and to show himself insightful on this issue if he were to deny support for such additional waste. I am doubtful President-elect Obama would take such a brave stand as it will cost more jobs and good favor in the core constituency that took him into office, but I do remain completely hopeful that he will, and that our Congress will follow his lead.
Here, however are some quotes from an October 30th article detailing an interview on that same day of then Senator Obama by Brian William's during NBC Nightly News:
"My hope is if I'm elected, that I'm immediately meeting with heads of the Big Three automakers, as well with the United Auto Workers," Obama told Williams. "And to sit down and craft a strategy that puts us on a path for an auto industry that can compete with anybody in the world."
Obama has called for doubling of the $25 billion loan package for the industry that Congress passed in September, and for the Bush administration to speed up delivery of the first $25 billion. Jason Furman, Obama's top economic adviser, has said Obama would not dismiss any option that could help the domestic carmakers.
In Thursday's interview, Williams asked Obama, "Does America need American car companies?"
"I think we do need American cars," Obama answered. "We started the auto industry. We revolutionized the auto industry again and again and again. And it built our middle class. It was the core of our manufacturing base for decades. The notion that we can't compete in an industry that we created I think is you know, unacceptable."
Obama also cited the heavy economic toll the industry's decline has had on the industrial Midwest.
"You've got an entire Midwest, Ohio, Michigan, big chunks of Indiana, parts of my home state of Illinois, that the entire fabric of those states' economies are built around the auto industry," Obama said. "So we can't just say we're gonna wash our hands of the industry."
The Local Motors' reaction:
We can compete!
We should never wash our hands of this industry!
The loss of jobs is regrettable.
Just because we created the industry does not mean that the auto-companies don't own responsibility for their performance.
More Federal money to stem their liquidity crisis is the wrong thing.
Giving them money to reconstruct by having the government dictate the terms of that reconstruction is especially the wrong thing.
The free market is alive and well, and there are companies working hard to reinvent this industry. Those are the people the President and Congress should be talking to.