How Much Is GM (GM) Faking? The Balance Sheet Mind Game

With Republicans in the Senate thwarting an auto company bailout bill, GM (GM) has decided to play its trump card. It has hired bankruptcy counsel.

According to The Wall Street Journal, "GM (GM) management recently tapped bankruptcy veteran Harvey Miller of the New York law firm, Weil Gotshal & Manges LP, to handle what would be one of the largest and most controversial filings in U.S. history."

With the bill to send checks to The Big Three dead and in the process of being buried, getting advice for Chapter 11 is only prudent. GM should have done it weeks ago when the company’s cash was not so low. It would have made operating under court protection much easier.

But, GM may have that cash. According to its last available balance sheet, it had $16 billion in cash and almost $10 billion in receivables. That was offset by the $28 billion in payables it owes, but GM may have been stringing its suppliers along. Those suppliers could refuse to deliver parts, but, if the big car company makes it, they will have undermined their own opportunities to make sales and get paid for them.

It would not be accurate to say that GM is misleading Congress and the media about its finances. Stretching out payments is an age-old way to preserve capital. Following tradition does not necessarily make the people at GM evil. The need to stiff parts companies is part of the supply chain management process during a recession.

If GM has kept $15 million in cash and receivables, it may be able to make it to the middle of 2009 based on its claim of eating $1.5 billion in cash a month. That would allow time for the new administration to get into Washington. The new Congress may have a more sympathetic ear toward the need for a Big Three bailout.

If GM is faking it, good for them. Ethics should be secondary to shareholder and employee concerns.

Douglas A. McIntyre