Letter Re: The Handwriting is on the Wall for the Big Three Auto Makers

Mr. Rawles,
Anyone who is paying attention would have seen the mess that America's "Big Three" auto makers are in. A smart Peak Oil [market] player would have shorted them a while ago. But consider this little fun fact - As of this last Friday, the market capitalization of General Motors (GM) was just over $5 billion. That's all. Toyota has about 25 times that. So are several other healthy auto makers and they all know that times are tough yet GM expects sales to pick up later this year? But consider that $5 billion. It's cheap yet no one is touching GM. No one wants to buy it, even to take it apart and shut it down. Why? Every single asset GM has is pledged multiple times as collateral for loans that it cannot repay while it is losing $41 billion per year.[JWR Adds: No to mention their huge pension fund obligations.]

Here's the final hint for anyone still in denial. As of June 30th, GM slipped beneath $20 billion in remaining cash assets but is burning $17 billion per year. In other words, GM probably has just 9 to15 months of life left, at the most. And if I were one of GM's creditors, I'd prepare to swoop in and call all my loans after Congress goes on holiday break shortly after the election. No one will be able to stop it and GM will be history. And the lenders will still only get pennies on the dollar for each dollar they loaned.
Ford and Chrysler are in similar situations. If the economic system implodes, the Big Three will cease to exist. Sincerely, - Dave R.