Two of the big three automakers are worthless...

[randomness]

...at least by some estimates. A couple of weeks ago, the Detroit Free Press reported that Daimler AG, Chrysler's former partner, is now valuing its 19.9% share of Chrysler at $0:

As Daimler AG sees it, Chrysler is worth nothing.

The German automaker has depreciated its stake in Chrysler to zero from $268 million at the end of June, the company said Thursday. A little over a year ago, the company valued its 19.9% stake in Chrysler at $2.2 billion.

Since Chrysler became privately held and no longer required to make public its finances, it has disputed Daimler's quarterly reports saying how much the German automaker was losing on Chrysler.

As Daimler sees things, its loss of $528 million on its stake of Chrysler would indicate that Chrysler as a whole lost $2.6 billion under Daimler's accounting. Similarly, Daimler's stake of Chrysler lost $585 million during the first quarter, implying Chrysler as a whole lost $2.9 billion.

Now, Deutsche Bank analyst Rod Lache has concluded GM stock will be worthless in a year:

Deutsche Bank said publicly today what many detractors of General Motors Inc. have been thinking for some time — the company is worthless.

In a note, Rod Lache of Deutsche reduced his rating on the shares to sell (helpful) and put a price target of $0 on the automaker, saying the company has few options at this point beyond “external government intervention.”

They believe the company does not have the cash to fund its operations past December, though Mr. Lache believes the government will be “compelled to participate” in some kind of loan package for the company, for without it, “it would precipitate systemic risk that would be difficult to overcome for automakers, suppliers, retailers and sectors of the U.S. economy.”

They cite a Center for Automotive Research study that projects about 2.5 million in lost jobs and a $125 billion decline in U.S. personal income, which would reduce GDP by a full percentage point. Still, even with a loan, the company is on a tightrope due to its efficiency in burning through cash.

Again from the Detroit Free Press:

After burning through $6.9 billion in the third quarter, GM said Friday its cash could run low by the end of this year; the company has said it needs between $11 billion and $14 billion to simply keep its operations running. It has also warned that its outside auditors could question its status as a going concern at the end of the year, which would trip several triggers in debt agreements causing at least $6 billion in loans to come due immediately.

GM, Ford Motor Co., Chrysler LLC and the UAW have asked for $50 billion in aid for the industry -- $25 billion for general business use and $25 billion to put toward the UAW's trust fund for retiree health care.

They seem almost certain to get it.

Comments

[(Anonymous)]

Indeed!
A few days ago, I recall Jim Cramer mentioning one other point - GM's commercial paper is EVERYWHERE. If it suddenly goes to $0 by a GM failure, our economy basically dies, not to mention the effect on the US's general bond rating if a big manufacturing segment tanks and we become even less a country that *makes* anything.
Just my recollection of what he was saying but in any case it sounded extremely dire.

[drwex]

I despite the entire notion of "too big to fail" but the ripple effect from any one of the big three going down would be huge. Certainly tens and maybe hundreds of thousands of people would lose jobs, not to mention the effects on retirees who are dependent on those pensions and medical benefits.

[cerebralpaladin.livejournal.com]

I've been amazed that the auto industry woes haven't been bigger news for the past week or two. Sure, they've gotten some big headlines and such, but... We're facing an awful situation. If we let them fail, we're looking at gigantic effects-- poverty stricken retirees, sudden spikes in the unemployment rate, contagion from the value of the bonds plunging even further and thus wiping out assets of whoever owns the very large debt of the Big Three, etc. On the other hand, if we bail them out without having a view towards cutting jobs, cutting spending, and fixing the whole business model, we're embracing the most debilitating forms of socialism. (Perhaps the solution is to bail them through the worst of it, then kick them to the curb when the economy recovers to live or die on their own? But arguably that's what we did with Chrysler last time, and here we are again...) And there's serious dangers of regulatory capture-- we need an industry making more efficient cars, but if the goal is to save the billions put in Detroit, the fact that so far they've been bad at that and Toyota (esp.) and Honda have been good...

Very worrisome. I wish I knew what the right answer is.