U.S. automakers are currently panhandling through Washington's halls of power, seeking a mere $50 billion for a cup of coffee and potential financial solvency. The economy, along with decades of inept adaption to changing auto sale business models, are making GM, Chrysler and Ford shake with need. GM's stock closed at a 59-year low last week, and they recently walked away from merger talks with Chrysler. GM's current market value is $1.9 billion. Last quarter profits for Toyota were $1.4 billion. Is there something below "junk" status?
Since automakers' debt has been devalued, the companies are forced to borrow money at double-digit interest rates from banks. That's if they can find anyone with the cash and nigh-beatific optimism to throw in with a failing industry. The government already gave the automakers $25 billion in low-cost loans over a month ago (ostensibly to aid the development of fuel-efficient vehicles), after Ford and GM ran through over $16 billion in cash reserves the third quarter. How does a company spend more than three times its total value in a single quarter?
This article appears in Nov 12-18, 2008.