The B Word

The Detroit Free Press, the liberal leaning sister paper of the Detroit News, published a page 1 story about GM today with the word "bankruptcy" in the title.

GM is in danger, but I believe that this is premature, and a classic case of journalistic piling-on. One piece of evidence cited for GM's possible bankruptcy was the drastically diminished stock price--but in fact, the value of the stock has nothing to do with GM's profitability. Wall Street could sell GM down to $1 a share, it would not cause bankruptcy. No matter how many times The Freep, Wall Street analysts, or Robert Farrago warn of bankruptcy, it does not make it any closer.

Remember that GM is sitting on a huge pile of cash, about $20,000,000,000. Add to that the assets that GM could sell quickly, and you have about $45,000,o00,000. Even if GM lost $5 billion a year, it would take 4-10 years to become insolvent. And that $5 billion a year includes product development costs. All GM has to do is a little better than break-even, and it can operate nearly indefinitely. The stock analysts don't like that, since they are mostly focused on earnings growth.

GM's (and Ford's) job is to figure out how to be profitable businesses without gaining market share. This can be done. They need to reduce legacy costs by engaging the UAW, reduce product costs through platform sharing, and gain pricing power by building sexy cars. GM will never again have 60% of the U.S. market. And I agree with many pundits that huge changes at GM are necessary. But that doesn't mean GM is going away, either.

As the British conservative-writer-with-the-funny-name Theodore Dalyrimple wrote, "apocalypses have a habit of not happening". For all of its apparent mis-steps, a company as large as GM is not run by idiots. Guys like Rick "whipping boy" Wagoner and Bob "Uncle" Lutz did not get to the top of a multi-billion dollar company by being stupid. GM may change, but GM is not going away.