GM loses money yet again.

GM just reported a loss of $9.6 Billion while burning through $6.2 Billion of cash. Now that is a spectacular captial destruction on par with the banking industry. So what is the GM's solution to their problem? Well, we all know they want more "loans" from the government, so that's not a surprise, but what if they were seriously thinking that they consider them to be grants? Let's look at the scenario closely. The Treasury department has announced that they are converting their preferred shares into common shares, which is a grant of capital for theoretically they do not need to be repaid or inccur dividend ( in another word interest on the principal). With this precedence, there is a good chance that the auto industry is looking for a similar deal.

This is a total capital destruction. The banks at least have some chance of buying back the shares when their portfolio recovers as economy stablilizes and the portfolio becomes liquid again. However, I don't see any viability for GM and Chrysler who has been eeking out profit at their heyday from SUV sales and rampant auto loans. Now that the consumer preference for vehicles shifted towards smaller vehicles (where US auto industry has a small share in and it is less profitable than SUVs), but also the new financial regulations after this financial meltdown will considerably limit the amount of capital available for auto loans. This is a double loss limiting auto industry's ability to earn money from interest and contraining it's ability to move inventories by low interest loans. To add to that, their debt level is beyond repair. With 170B in liabilities, interest alone will eat away most of the profit if they even manage to make some money. Then how is the US government to regain any of it's "investment"?

First Post!

The blog really isn't for anyone in particular. If anything it is here to organize my thoughts!