General Motors is a death spiral. Shares down more than 90% at multi-year lows, huge losses, job cuts — nothing seems to stabilise the situation.

Perhaps we should call it the deleveraging death spiral. That’s when high flying companies get crunched by the growing realisation that too much debt means too little cash, few profits and no value: shares plunge, despite lots of talk and assurances from boards. Centro, Babcock & Brown, Allco, and Asciano have all been hit here by the most deadly force known to finance.

In the US we are now watching GM get ravaged by the same destructive forces that brought down Bear Stearns, Lehman Brothers, Merrill Lynch, Fannie Mae and Freddie Mac, Washington Mutual, Wachovia and AIG. It ruined shareholders, creditors and the government purse in doing so.

GM is continuing to slash and burn as its shares fell. The shares closed down 15% at $US2.92, the first time they have been under $US3 in 65 years: it’s also a 65 year low. They traded down to $US2.75 during the day and at the close the company was valued at less than $US1.8 billion. Ford also hit a new low of $US1.80, down more than 6% on the day. It was valued at around $US4.1 billion.

GM shares have fallen more than 90% so far this year. It was at these levels that Bear Stearns and others were rescued or failed or failed and were taken over. Big industrial companies are a bit different to banks, who depend heavily on trust and confidence, but not that much different.

GM in reality is a huge piece of debt. It’s a financial problem of too much debt and not enough cash to sustain a declining industrial giant and it could very well be the financial problem that forces the Government’s hand.

GM said it would put a further 1,900 hourly workers, who build engines, transmission systems and body parts, into “indefinite layoff” in the March quarter of next year, on top of the 3,600 assembly line workers due to be laid off this Friday and last week’s 10% cut in white collar staff in the US, Canada and Europe. The company said that in the year to September, its US employee count shrank 14% to 123,000. Since then 3,400 salaried staff have signed up for redundancy packages, and now there’s several thousand more people to go over the next few months.

The Financial Times reported that GM’s Korean arm will put the five car plants (formerly owned by Daewoo) there for at least two weeks in December to try and cut stocks.

GM is going to be very different. After the shocks from the Lehman Brothers collapse and the rescues of Fannie Mae and Freddie Mac, not to mention the collapse of Washington Mutual, US regulators will keep GM afloat and out of Government hands to prevent the company’s debt from defaulting, which would trigger another almighty run on the credit default swaps market, which would in turn shake the just re-rescued AIG and its $US440 billion of CDSs to the bottom of its balance sheet and more.

AIG is believed to have written tens of billions of CDSs against the car industry’s debts, especially GM.

On top of that there are millions of jobs exposed across the industry and among suppliers and affiliates in the US and across the world. Ford and Chrysler would find it impossible to remain out of bankruptcy if some sort of “event” was to happen at GM. The company specific death spiral would turn into an industry spiral, and drag the US economy very quickly into a recession much deeper than the one now being experienced.

On Monday GM had warned in a regulatory filing with the US SEC that the financial crisis gripping the company might mean Delphi, its biggest parts supplier, may not be able to emerge from bankruptcy protection and that ResCap, the mortgage lender owned by 49% affiliate, was facing an uncertain future.

A Deutsche Bank analyst said in a report that GM’s shares were worthless and that the carmaker had few options beyond government intervention (Those sorts of commentaries are a classic part of the death spiral).

General Motors: snapshot of a global giant (Compiled by Thomas Hunter)

  • GM was founded in New Jersey on 16 September, 1908, and became General Motors Corporation on 13 October, 1916.
  • General Motors’ sales for its first full fiscal year ending September 31, 1909, totaled 25,000 cars and trucks.
  • In 2007, 9.37 million GM cars were sold globally
  • GM boasts that it has been the annual global industry sales leader for 77 years.
  • According to the GM website, it currently employs 266,000 people.
  • GM has General Motors has operations in 41 countries outside North America and accounts for about 17% of the vehicles sold in the world’s competitive markets.
  • GM products (of all types) are sold in 170 countries around the world.
  • GM manufactures and sells cars wearing the following badges: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab, Saturn, Vauxhall and Wuling.
  • In its own history, GM reports: “By 1920, in the midst of a nationwide economic crisis, GM was on the verge of financial collapse. The crisis marked the turning point in General Motors’ history. New men were asked to assume leadership of the corporation. A new concept of management was forged and a new concept of product emerged.”

Peter Fray

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