GM in the Barrel, Again

Here we go again. With truck sales in an out-and-out freefall, we once again have talk that General Motors will lose another sales crown. This one would be trailing Toyota not just in the global markets, but here at home in the US of A. Some media reports have hinted that GM’s 0% finance offers are targeted toward keeping Toyota off GM’s tail.

I don’t buy it. And hopefully, GM Chairman and CEO Rick Wagoner and President and COO Fritz Henderson aren’t thinking that way, either. I doubt they are. Sales crowns mean nothing when a company is fighting for survival. More likely, GM is trying to squeeze every last sale in this weakest of car markets to keep cash rolling in the door. When I wrote about GM’s cash problems several weeks ago, Wall Street analysts variously estimated that GM would run down to—or close to—its bare minimum of cash of about $10 billion by the end of next year. And that was before June sales started sinking like a Hummer dropped in the Detroit River. It was also before Standard & Poor’s put the Detroit carmakers on watch for a possible downgrade deeper into junk territory. As Gimme Credit analyst Shelly Lombard put it, everyone sees GM burning a lot of cash, but there’s a lot of uncertainty over where the truck market bottoms out.

So here we are in summer 2008 and GM is back to where the company was in its dark 2005, only worse in some ways. Market share fell below 20% in May. It was 26% at the end of 2005. The drop in truck sales has GM once again buying out another round of workers. About 19,000 will head off into early retirement or take some kind of buyout deal. GM bought out 34,500 of them with a deal done in 2005. Like 2005, cash is burning and only overseas operations are making any money.

The good news is that GM has already done some of the restructuring it needs. It has a labor deal which will help in the next two years. And its newest passenger cars and crossover suvs are selling. The company is even boosting production at its car plants. Those new vehicles, like the Chevy Malibu sedan and Buick Enclave crossover suv, sell at much higher prices than their weak predecessors. That makes once thinly-profitable cars ( or money losers) look a little better on the income and cash flow statements.

The problem is that those bright signs only mitigate the greater damage that comes from the drop in pickup truck and suv sales. As evidence, GM will build 170,000 fewer trucks in the second half of the year and only 47,000 more cars. And those cars don’t generate as much cash as the trucks once did. GM had almost $24 billion in cash at the end of March. The company has said that it needs $18 billion to $20 billion to last an ugly downturn. The company will likely have to raise cash. Hopefully for GM’s sake, it has planned for a downturn that is as ugly as the one we're seeing today.