As part of its obligations under its bailout, GM (GM) has forced to quickly reorganize its balance sheet and show a positive net-present value. Can it be done without resorting to unusually creative accounting? Probably not.
Breakingviews runs down the maths
- Even if it swaps two thirds of its unsecured debt for equity, the company will have $12 billion of unsecured and $6 billion of secured debt remaining.
- Add in the $13.4 billion loan from the treasury, and you’re up to $31.4 billion.
- The company owes another $10 billion to the UAW for member healthcare benefits.
- Unfinanced non-UAW healthcare obligations total $8 billion.
- With the stock market having been slammed, the GM general pension is almost certainly underfunded against. One estimate has the shortfall at $23 billion, though Breakingviews uses $10 billion to be conservative.
So these liabilities add up to about $60 billion. How does GM get there?
- $15 billion cash from the government.
- $5 billion stake in GMAC (maybe)
- $5 billion stakes in Asian partners.
The final asset, of course, is the car business. Is it worth $35 billion? Probably not.
…if one takes this relatively charitable view of G.M.’s sales and earnings power, it implies about $4 billion in operating earnings. Once taxed and put on a multiple of 10 — which is basically an assumption that the income stream neither grows nor shrinks over time — G.M.’s car business would be worth about $28 billion.
Note, that’s a charitable interpretation. The earnings picture could be a lot worse if sales keep falling and they can’t scale down fast enough.
So what’s the answer? First, creative accounting. Second, Obama, please save us by renegotiating our deal!
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