Can New G.M. Pay for the Old G.M.?

Can New G.M. Pay for the Old G.M.? http://tinyurl.com/m6ol74
By ANTONY CURRIE and ROB COX
American taxpayers are about to become the majority owners of General
Motors. So it is only fair for them to ask how, or whether, they will ever recoup their investment. Unfortunately, the odds of the government receiving anything close to the sums it will wind up shoveling into the struggling carmaker arenít high.
Uncle Sam is already on the hook for some $20 billion and plans to transfer half of that to a restructured General Motors balance sheet in the form of debt. Add the rest to the debtor-in-possession financing Washington is to provide, and taxpayers will be owed at least another $50 billion.
In return for that commitment, the Treasury expects to wind up owning 72.5 percent of G.M.ís equity when it emerges from Chapter 11, a process that might take just a couple of months. The remainder goes to the United Automobile Workers union and to G.M.ís existing unsecured creditors, mostly bondholders. These creditors will also receive warrants that can give them up to another 15 percent of the equity as the companyís value increases.
In crude mathematical terms, for the value of the governmentís stake to match the $50 billion in sunk loans, G.M.ís total equity after bankruptcy would have to be worth at least $69 billion and possibly more, assuming bondholders exercise their warrants. This calculation also does not factor in the time value of money, which would add another $1 billion or more annually that taxpayers would need to receive as compensation for the opportunity cost of tying up their cash.
G.M.ís market capitalization reached around $60 billion back in its heyday in 2000, when the Motown manufacturer reported about $21 billion of earnings before interest, tax, depreciation and amortization, a proxy for operating cash flow. That was a heady time, when low gas prices fuelled sales of the companyís most profitable S.U.V. models. G.M. had eight brands then, and a huge captive financing business, GMAC, which brought in a third of earnings.
New G.M., as the government is calling it, will only own a sliver of its financing arm, which is also in the process of being propped up by a government capital injection. It will have ditched the Pontiac, Saturn, Saab and Hummer brands. And the New G.M. is expected to lose control of both its European arm, which had sales of $34 billion last year, and perhaps its Latin American businesses.
So for taxpayers to be made whole, the new mini-G.M. would have to produce earnings sufficient to support an enterprise value of at least $95 billion, the sum of a $69 billion market cap and its $26 billion of debt and preferred stock under the restructuring plan. Using market valuation multiples of five times that means New G.M. must generate operating cash flow somewhere in the order of $19 billion annually.
That would require both increasing annual sales to some $150 billion, almost 50 percent more than the entire company, shorn of its various financial and international businesses, is expected to generate this year, and matching the whopping 14 percent operating cash flow margin that Toyota achieved in its best year ever. It requires a vast leap of faith to believe that can happen.
Of course, the United States government is not a professional money manager: It isnít solely motivated by profits, or even by the avoidance of losses. The decision it faced was not whether to invest either in G.M. or in another business that would generate an acceptable return. Both the current president and his predecessor, who first agreed to fund G.M., had to weigh two unpalatable choices.
They either could throw taxpayersí money into G.M. in the hope an expedited trip through Chapter 11 would produce a slimmed-down and successful carmaker. Or they could deny G.M. and risk having to mop up a bigger mess if its liquidation brought the entire American car sector down with it.
Taxpayers may be happy with this choice, and with subsidizing G.M. back to life. But theyíd better hope to get some of their money back, because if they donít, it would mean the G.M. revamp had failed.
For more independent financial commentary and analysis, visit www.breakingviews.com.
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Civis Romanus Sum

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Short answer, nope. New Government Motors is not going to be able to pay for old General Motors without a lot of blood sucking and loan forgiveness by the governments. Basically Obama's plan shifts the debt to the taxpayers.
GMs stated debt is $177B not including GMAC which is at least another $35B. Delco extra. Basically just for GM, over a $200B blood suck. Bet Carlyle will do well.

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