Automotive News - November 17, 2008 - (Page 23) NOVEMBER 17, 2008 • 23 TA L K F R O M T H E T O P For GM, solid future requires liquidity now G enerating liquidity is Rick Wagoner’s No. 1 priority. Between June 30 and Sept. 30, General Motors burned through $6.9 billion in cash, leaving it only $16.2 billion. Given that GM needs $11 billion to $14 billion to operate, that means the company is just months away from running short of money unless the company receives federal assistance. Wagoner, GM’s CEO, has given liquidity top priority. Products are being delayed, and the future of GM’s brands remains in flux. Just three days after GM filed its third-quarter financial report, Wagoner sat down with Editorial Director Peter Brown, Editor David Sedgwick and Staff Reporter Jamie LaReau to discuss the company’s future. Absent a bailout, when will GM have a cash-flow crisis? You’re burning through $2 billion a month right now. Clearly, that’s not supportable. Q3 cash burn was elevated versus the first two quarters of the year. We expect in the fourth quarter for it to go back more like the first two quarters. But clearly, if cash burn continues, we’re going to be tight. So that’s why we think it’s a serious issue now and why we’ve been so proactive with our colleagues in the industry in talking to the government. Under these extraordinary circumstances, we do need funding support, and we need to move now. Troy Clarke, the president of GM North America, has said the next 100 days are crucial. Do you agree? I do, because this industry wasn’t set up to run at 11 million units, obviously. It’s putting a huge amount of pressure on the entire value chain in the auto industry. And I just don’t see what’s gained by waiting to address that. Rick Wagoner So you’re hoping for a decision on federal aid during the lame-duck Congress? That would be terrific, yeah. I think action this year is critical. PAUL SANCYA/AP/WIDE WORLD PHOTO autonews.com/wagoner2008talk Go to our Web site to see video excerpts from Rick Wagoner’s interview. about an orderly prepackaged bankruptcy. I say: “Yeah, they’re academics. This place is living it.” I think the risk profile would be unbelievably high. It just starts out with a huge loss of revenue by anybody that filed. If you lose a significant amount of revenue base, then there is no possibility to reorganize. Then the whole system begins to collapse upon itself. Three years ago, GM didn’t like the idea of an alliance with Nissan-Renault. Now that the proposed merger with Chrysler is on ice, would you reconsider that? The attribution of the merger to Chrysler was yours, not mine. Look, we’re not talking to anyone else now about anything. I wouldn’t rule anything out, but I’d say the priority for us and for the industry now is focusing on liquidity and getting through the current crisis. You’re looking at selling or closing Hummer. But what about other brands like Saab or even Saturn? Does GM in these tough times really need seven brands? Don’t you need to trim even more? We identified Hummer, I think for obvious reasons. And we’ve really just got that out, so that’s our focus right now. It’s fair to say most of the business and the opportunity that we have for Saab is in Europe. And the way we run Saab here is that it has to be a profit opportunity for us and the dealers. They’ve had to back up quite a bit on their leasing volume, and so it’s cost them some volume. But it’s a decision that will be driven primarily out of European opportunities. Can you be patient enough to let the Saturn brand catch up to its excellent product portfolio? To be completely fair, over the last year the market environment’s been very tough. But these are fair questions. Our focus right now, though, goes back to current liquidity. I think that there’s really nothing you would do on brands that would generate a lot of liquidity today. How does $63 oil and $2 gasoline affect your view of trucks versus cars? It was an easy call a few months ago. Yeah, it was, it was. It hasn’t affected our future product planning to any significant degree because our view continues to be that just as $147 a barrel was an overshoot on the upside for that moment in time, it is probably fair to say that 60 bucks is an overshoot on the downside. Would you consider selling assets like GM China or Opel to raise money? I haven’t been approached on either, and I guess at this point it’s sort of a little bit different. China’s so important to the future of the business. That’s got to be a tough call to make. That’d be one of the last things you’d do. For either Opel or GM China? Right, right. Opel’s a little different thing because Opel is kind of in the middle of our global system. Their International Technical Development Center is integral to global product development. It plays a huge role. Are you finding that your customers can find credit? Can your dealers, some of whom are on the verge of being left high and dry? I think — not a 100 percent answer to that — some are able to. Obviously there are financing sources, and part of our advertising campaign now is to help consumers find ways to finance. For dealers, I think the issue so far for them, with the exception of a small group, has been the cost of credit from GMAC. We are fortunate that the floorplan size has run down quite a bit over the last year. But I think going forward that this whole issue of whether GMAC can continue to give adequate wholesale credit is one of the things we are concerned about. If I’m the government and I have $25 billion that I can lend you or take in equity, I can solve your short-term liquidity problem. But based on what’s going on now, I’ve solved it for two years, then you’re going to be back borrowing. How do you respond to that? Well, in two ways. First of all, there is a pretty good track record of continuing to improve cost competitively. That is something I can show you where it will be in two years. In that regard, that is going to help a lot. The problem has been your revenue has been going down faster than the cost-cutting. Right, and I think that’s the second part. I think if you assume that the industry is going to stay at 12 million or 13 million, then I do think as a part of that we would have to do, as an industry, significantly more restructuring. I think most people don’t think that’s likely to be the case. But I think there is a fair debate as to whether the industry is going to go back up to 15 million units rather than 17 million or 18 million units. If it goes up to 15 million units, our position, we think, will be pretty good under that scenario. Now there has been talk from The Wall Street Journal and others that perhaps you might be asked to step down in return for government assistance. Would you consider that? Well, no one’s asked us that, and I think, to be honest, that it would be counterproductive. What the industry needs now is the most competent, most experienced, most capable leadership team they can have at each of the companies. I think we have a great team at GM, so our approach is to keep working to make the business successful in the future and try to have the best people to do it. c What are you willing to offer in return for government aid? First and foremost, there’s been a lot of requests from the people we talked with in Washington about our commitment to advanced technology. So we need to keep spending on these new technologies and improvements in fuel economy. Second thing, we’ve studied the — taxpayer protections, I think, is the term they use in Washington — that have been employed with the financial sector support payments. And those seem to be reasonable expectations if we were to get similar support. So whether that’s stock warrants, restrictions on executive compensation and golden parachutes, we’ve said we’re very willing to accept those. I understand the rationale that says Chapter 11 reorganization is not an option. But does that make Chapter 7 liquidation the option if a bailout doesn’t occur? I think what happens is if Chapter 11 doesn’t work, it becomes over time Chapter 7. And I think the issue in play is the impact on the supply base would be sudden. And so you light that stick of dynamite. I’ve read some of the so-called experts talking http://www.autonews.com/wagoner2008talk
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