Conclusion, Restructuring, and Goals

I read an article yesterday dealing with GM’s corporate restructuring plans in liu of the pending government loan program. According to GM President and Chief Operating Officer Fritz Henderson, the loans wouldn’t alter their current plans to restructure the company. The statement is noteworthy in that it brings up a point of argument that I see a lot on the message boards these days: will GM file Chapter 11?

While this site is not specifically intended to be a numbers site, by design, GM is a large company with over $136 billion dollars in assets. They are a Fortune Global 500 company and are ranked 5 on the short list: Fortune 500. That said, this company brings in a lot of money.

As it sits right now, GM has been restructuring the company for the last three years, with white collar layoffs, plant closings and downsizing, new product development initiatives, improved public relations strategy, foreign market expansion, and with the bid to sell Hummer, a $51 billion dollars loss leader in the last three years, they are showing a strong business sense and a forward looking plan.

Further, in the last year and a half, the company has made a great show of its efforts to open its books and establish greater consistency in its accounting practices. Specifically with the discontinuation of its Employee Discount Program, which made GM’s accounting standards less than stellar in the past. Steps such as these show them as a company of good faith, as well as highlight their attempts to get their house in order.

With the current industrial downtrend, they are losing over $4 billion dollars a quarter in operating costs; a lot of money. Compare that to 1.6 billion a quarter the year before and you see the difference.

A company this size, however, with multiple subsidiaries, has a lot of leeway in when and how they restructure. Assets can be moved around or sold. Processes can be consolidated. Loans can be taken out as well…though the recent failure of banks makes this more difficult.

The government loan program that is mentioned above is also a strong option. With the original intent of the loans being to incentive manufacturers to increase the fuel efficiency of their vehicles 40% by the year 2020. The loans themselves were authorized in last year’s energy bill for $25 billion, but have not been funded yet. To that end, these loans will be available to all car companies as long as they meet certain stipulations, GM included, and should go a long way toward helping car companies navigate a difficult depression in the market.

Though, even without these loans, GM insists it has the liquidity to continue to finance it’s operations well into 2009.

That said, the purpose of Chapter 11 is to avoid paying creditors and to give the company some leeway to restructure their operations. If they’ve done their job correctly, and up till this point it looks like they have been, they should be able to continue their rebuilding process well into the end of 2009; just in time for the Chevy Cruze to be released in the US, some new technology, and hopefully a turnaround in the economy.

With management making better decisions and beginning to show results with their restructuring plan, it behooves investors to cut them some slack and give GM the time it requires to turn itself back to profitability in the next two to three years.

In conclusion, I’ll leave you with one last article to round out this series.

GM unveils Volt on company’s 100th anniversary

The fine print on GM these days says “We’re getting better; wait and see.”