General Motors Playing Chicken

Initiating what seems like a game of chicken with Congress, General Motors (NYSE: GM  ) has announced that it intends to draw down the remaining $3.5 billion on its revolving $4.5 billion credit line to boost its liquidity. While tapping the funds will provide the company with necessary capital for short-term needs, it also ensures that the carmaker has few if any places to turn to once that well runs dry. In other words, it might just be CEO Richard Wagoner's way of telling Congress: Give me money or give me death!

Along with Ford (NYSE: F  ) and Chrysler, the automaker has been pressing its case hard for a $25 billion bailout from taxpayers, and in light of the bailouts for other ailing businesses, it might have a point: Why not us, too?

For a moment, the Lehman Brothers (NYSE: LEH  ) twist in the wind seemed to dramatically diminish the probability that automakers would get a handout. Taxpayers' purse strings were drawing tight. I'm sure Wagoner and Ford CEO Alan Mulally were feeling bleak.

That display of backbone lasted all of about a day, when the government decided it wanted to be in the insurance business and seized American International Group (NYSE: AIG  ) , in effect nationalizing the insurer. Of course, that created the impression that the sky was falling, and the markets all turned south in a hurry, leading to the equally dramatic pronouncements heading into the weekend that a major bailout was in the works. You could almost hear the automakers' engines purring.

GM will use the money from its credit facility to retire some $750 million in debt coming due in October, as well as to assist parts supplier Delphi with its $1.2 billion reorganization. Right before the credit markets turned topsy-turvy, GM had agreed to help Delphi get its act together and emerge from bankruptcy protection. Both may now engage in a drag race to the finish line of solvency.

Back in June, GM had said that drawing down its credit line might send the wrong message to investors. Now that it is tapping every last bit of credit left to its name, it may also be trying to send Congress a not-so-subtle message: When you're done handing out the big bucks to banks, don't forget the pittance the automakers are asking for. General Motors might also have just set itself on a collision course with oblivion.

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Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (5)

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  • Report this Comment On September 22, 2008, at 11:19 AM, JrRelic wrote:

    I have no simpathy for GM, it needs to sell more attractive, more efficient and reliable vehicles.

    I own a 2004 Aveo, the only reason I bought it is because I needed a new car and it was the only one I could get with me credit at the time, and I held onto it because of fuel prices and being upside down in my loan.

    The way I was treated by the dealer I got warranty work done was inexcusable. They completely missed the problem I came in for and then accused me of trying to scam the warranty system to get free repairs.

    Thanks to them and the way GM it's self handled my claim I will never by an other vehicle from GM again. From a business standpoint it would have been better to spend the $2,000. and keep a customer who would spend about $20K every few years than not and loose the possible hundreds of thousands of dollars over the next 40 years.

  • Report this Comment On September 22, 2008, at 11:52 AM, Brettze wrote:

    Jrreclic

    What kind of warranty work did you take your Aveo to your dealer?? Did your engine light come on? Or was your paint job stratched ?

  • Report this Comment On September 22, 2008, at 11:58 AM, Brettze wrote:

    GM is stretching dollars simply because UAW agreed with GM to reduce benefits and stuff beginning in 2010 ... Why not now? Maybe UAW knew enough to wait as long as possible. There is no sense of urgency on UAW behalf. UAW pension fund is over $100 billion for GM workers and UAW pension fund can lend back to GM interest free. GM has plenty of resources well hidden. Several years later, you will feel dumb for not buying GM stock at $12....You are the chicken and I am driving over you for a roadkill!

  • Report this Comment On September 22, 2008, at 11:59 AM, Brettze wrote:

    GM is just saying " Oh, chicken poop!"

  • Report this Comment On September 22, 2008, at 12:51 PM, UH2L wrote:

    Given the amount of cash that the Fed has to come up with to buy up all the bad mortgage debt, I'm not so sure anymore that the Detroit 3 will get the cash they need. I support it because having a heavy industrial base is critical to our economy and our national security.

    As for JrRelic's issues with his Aveo, what makes him think that any other brand's dealer would treat him better? I hear service horror stories from every brand except for some of the high end luxury brands that can afford to be more lenient because they make a lot more money on each vehicle sale.

    UH2L

    http://www.thingsivenoticed.com

  • Report this Comment On September 22, 2008, at 2:12 PM, richardnogginn wrote:

    One of the things I always do is go to http://www-odi.nhtsa.dot.gov/ and see if there are any recalls on the car I'm looking at. I also go to http://www-odi.nhtsa.dot.gov/complaints/ and check to see what kind of complaints are for the car I'm looking at to see how bad or good other customers think it is. Then I take what I find (if anything) and go talk to the dealer. Sales folks get a little skittish when they try to steer folks to a problem car and find out the customer has done his homework. As far as troubleshooting and repairs go, I go to a mechanic or shop I trust. No matter what the tv ad's say, dealer mechanics are not well paid, and often inexperienced.

  • Report this Comment On September 22, 2008, at 6:09 PM, Brettze wrote:

    richard

    thanks for the useful link to the phony complaints filed by consumers... I was always curious what the grumblings was all about!!

  • Report this Comment On November 28, 2008, at 7:05 PM, Shar54 wrote:

    I have been looking for recent comments on GM because I have made $1000 on 500 shares I bought last week and I am hoping someone else thinks its still a good stock to have. I just couldn't resist since our gvmt is bailing everyone else out and the stock was so low already. The only way I think I could lose is if they don't bail them out (SHORTTERM) or if they do bail them out and mgt continues to run it into the ground (longterm). I was a little disturbed today when FOX news was grumbling about the union's obligations to the annuitants and how GM should just take away their benefits that are better than most Americans have. I don't agree with this. They were promised those benefits and they worked for them. I will sell if something like that happens period.

  • Report this Comment On April 29, 2009, at 1:10 AM, PaydayL0an wrote:

    Very distressing..That makes up the field of business complete. Before engaging into any venture, one must be flexible enough to conquer the challenges along the way. Ever since they went to Congress to request emergency funding, a lot of people have feared a GM shutdown. A GM shutdown is now more of a certainty than a possibility, as General Motors is coming short on a $1 billion debt payment, and they are forecasting a shutdown of all activity for at least 9 weeks. This is obviously a case beyond the scope of payday loans, as the auto maker is close to $30 billion in debt. The idea is to shut down production in order to reduce the backlog of vehicles left on lots, and the government has guaranteed warranties on all GM vehicles. Installment loans may not be able to stave off a GM shutdown.

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