Is GM Headed Back to Bankruptcy?

Political Calculations ^ | 08/30/2012

[SeekAndFind]

Given recent speculation, Republican vice-presidential candidate Paul Ryan's mention of the company in his acceptance speech last evening and the news that General Motors (NYSE: GM) will shut down production for its troubled Chevy Volt vehicle for the second time this year, that question has become immediately relevant today.

To answer the question, we'll be turning once again to our preferred tool for predicting a company's bankruptcy, the Altman Z-Score.

Here, using data published by the company in its financial reports, we'll measure how distressed GM's situation has become.

This is an exercise we've done with GM's data before. Here, when we first introduced our tool for predicting bankruptcy back in March 2006, we found that GM's Altman Z-score was 0.01.

That value indicates a very financially distressed company, where an Altman Z-score for a manufacturing company like GM would have to be above 2.67 to be considered healthy, and between 1.81 and 2.67 to be considered to be at neutral risk for declaring bankruptcy in the future. Any score below 1.81 indicates that a company is in the danger zone for going through bankruptcy proceedings in the future.

While that Altman Z-score of 0.01 indicated a highly distressed company, it was nothing compared to what we found when we revisited GM's deteriorating financial situation in June 2008, when GM's Altman Z-score fell through the floor and reached -1.35, as its future bankruptcy became inevitable.

From here, we'll pick up the story following what happened after President Obama intervened in what would otherwise have been normal bankruptcy proceedings on the behalf of his political interests and orchestrated the bailout and reorganization of GM using U.S. taxpayer dollars to support them.

Tapping Yahoo! Finance's records of GM's Income and Balance Sheet statements from 2009 through 2011, we calculated GM's Altman-Z score for the bailout year of 2009 and the post-bailout years of 2010 and 2011. Here's what we found:

• In the bailout year of 2009, GM's Altman Z-score jumped to 2.69, with the U.S. government's infusion of more than 100 billion dollars of taxpayer money putting the company immediately into the "healthy" range for manufacturing companies.
• In the following year, without the ongoing infusion of taxpayer cash to keep the company in the healthy zone, GM's Altman Z-score plummeted to 0.54, back into the danger zone, as the reorganized GM failed to generate the sales to needed to support even its greatly reduced size and liabilities.
• In 2011, GM's financial situation improved somewhat as its Altman Z-score rose to 0.66, which still places it deep within the danger zone for risk of future bankruptcy.

We next decided to go the extra mile and update GM's Z-Score through its four most recent quarters, which will indicate the company's relative financial health as of 30 June 2012.

[DarthVader]

Yes.

[The_Media_never_lie]

Does Obama not have the reverse Midas touch, or what?

[DarthVader]

He is cursed by God.

[outofsalt]

And our nations Altman Z Score is..?

[mazda77]

When they do go belly up and file, wouldn’t it be funny if Bain bought it and the turn-around began immediately with the opening of the Janesville plant for the new SUV that runs on natural gas?

[Gaffer]

While it may not be in technical bankruptcy within the meaning of the law, it IS bankrupt, both financially and ideologically.

They haven’t paid back all the loans they got when Obama gave the company to the Unions and stiffing the bond holders. They use financial gimmickery and obfuscation about loans, paybacks and other revenue.

I would hate to have been one of the people that have actually bought their stock at the offering price.

[SERKIT]

Were there any lawsuits brought from the dealerships that were forced to shut down, only to have their territoty given to cronies? Were there any lawsuits brought by the bond-holders who had their wealth trasnferred to the unions?

[MarkL]

In the following year, without the ongoing infusion of taxpayer cash to keep the company in the healthy zone,

Isn't it true that the federal government has waived corporate taxes on GM? Wouldn't THAT count as an "infusion of taxpayer cash?" Yet they're still in a position where they may need to go through "bankruptcy" again... The reason for the quote was what happened the last time, was no a "bankruptcy" in the normal, legal sense. More of an illegal taking of property, and transferring those ill-gotten gains to the political allies of the Obama regime. If they do it again, the question is who else will they be able to steal from?

Mark

[coloradomomba]

Thanks for the info...I have been arguing this point with my car-loving, happy about the GM bailout, misinformed son-in-law for months.

[Astronaut]

Yes, and GM should go bankrupt. Ford never took a dime of government money and they have the best selling car in the world (Ford Focus). GM took billions and they cant give away the Chevy Volt. But hey, the Kenyan Caliph’s union thug buddies got paid well!

Its time for GM to go. No more bailouts. Let the free market work as it should, and everything will be fine. The world will not end if GM goes under. In fact, once the market corrects, the world will be better.

[PGR88]

If President, Romney will bail-out GM again.

[nascarnation]

So should we short it or buy puts?
This sounds like a slam dunk road to riches, right?

[King Moonracer]

How do you know that Romney won’t sell of the assets or split the company up? That is what Bain would do.

[VaRepublican]

Which is what should have happened. sorry, but thats my thought on it.

[King Moonracer]

If I wasn’t clear, I agree with you. GM should should be sold off in pieces to the highest bidder. But I also don’t think Romney and RYAN will be bailout kings... I miss Cain....

[VaRepublican]

It's my uneducated opinion that most of those plants would have been bought up by non unionized folks and put back in operation for still a fair working wage for it's employees. I'm sorry folks lost all those excellent benefits but if you can't afford a prime rib dinner anymore then no more prime ribs dinners. Government should not be in the business of ensuring you get prime rib dinners.