GM’s survival plan

Banking chief executives are shouting themselves hoarse with the cry “we promise we’re well capitalised” to little discernible effect. Over in Detroit, Rick Wagoner injected a heavy dose of realism into his latest response to concerns about General Motors’ viability.

Like his counterparts on Wall Street, Mr Wagoner is telling shareholders – who these days sit on all of $5.6bn of equity value – that he recognises GM faces a crisis and is pulling out the stops to survive it. So bang goes the dividend, executive cash bonuses, truck plants and more white-collar jobs. Retirees are losing healthcare benefits, bought off with some of the pension fund surplus. GM will also defer payments into its employee benefit trust, sell off more bits and raise new debt on the back of $20bn-odd of unencumbered assets.

Citigroup was estimating “excess” liquidity, beyond what is needed to run the business, of $3.8bn at the end of 2009. GM’s plan would boost that to almost $19bn – not great but not in the danger zone either. GM’s stock bounced 6 per cent, largely because the much-feared equity raising did not materialise – nor is it likely to when the shares are languishing around $10. Some two-thirds of the projected extra liquidity is expected to be generated internally, rather than via the frozen financial markets, which should impart some stability to GM’s stock.

Mere survival, however, while useful, is never the most appealing of investment propositions. GM is cutting back and focusing more on smaller cars, where it will face stiffer competition from a growing band of foreign rivals. If GM can deliver, then the near-term looks a bit safer. Its long-term competitiveness is another matter.

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