no third solution

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Will General Motors Go Bankrupt?

November 7th, 2008

At this point, there is probably nothing that can be done to salvage General Motors as we know it.

Two months ago, GM’s market cap was something like $6.5 Billion. Today it is less than $3B. General Motors is now spending, on a monthly basis, about as much money as GM’s total market valuation. General Motors now burning through $2.3 Billion, every month.

Let’s put it in perspective: General Motors has about 8 months of cash reserves left. In order to ultimately stave off bankruptcy.

GM would need to sell something like 5 million new cars over that period of time, in order to generate that sort of positive cash flow (assuming an average car payment of $400/month). That would potentially buy them three to four years, before those notes expired and the company would find itself in a very similar position, again.

No, really, let’s put it in perspective. General Motors sold just over 2.1 million vehicles in 3Q2008. They would need to literally double their sales over the next eight months to stay solvent, which would probably require that they double their capacity. This is inconceivable.

Although the merger talks with Chrysler are temporarily on hold, but GM (actually all of the Big 3) is still pandering for a bailout in the neighborhood of $25-50 Billion. A bailout is the only thing that could possibly keep General Motors in business, and for that reason alone, it is objectionable. In the event of a bailout, a handful of insiders are going to make a bunch of money that was taken from the rest of us, and the company is going to go under, anyways.

There is simply no good reason to force the rest of us to finance GM’s life-support, only delaying what is in all likelihood a foregone conclusion. General Motors will die, whether we keep it alive for a few more months (or years) is beside the point. There’s no justification for society’s productive members to be forced to pay higher taxes, and enjoy all the benefits of a reduced standard of living, just so a company that has failed so objectively and so perfectly can continue to make cars that nobody wants to buy.

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no third solution

Blogging about liberty, anarchy, economics and politics