As we’ve been writing about for years, GM is now headed into bankruptcy.  It owes a lot more than it’s worth.  Our problem internally is that we severely underestimated how much GM owes because we had no idea that the US government would pony up $20 billion BEFORE the bankruptcy and agree to be on the hook for at least $50 billion during/after.  Wow.  That’s a lot.

Now consider that GM is worth less than $1 billion today.  It loses money every month.  Its costs (even with a restructuring) are out of whack and will not make it profitable.  In order to “make money”, the company would need to sell a lot more cars than it is.  And now there aren’t those other business lines like GMAC to add to the bottom line.  Or excess earnings from the pension fund that were swept into general profits.  So we are left with a company that is worth less that $1 billion, going nowhere fast, but the US government is giving it another $50 billion.

In total, we will be “into” GM for $70 billion and the US government will own 72% of the company.  At today’s most likely inflated valuation of just under $1 billion, that means we as taxpayers are consciously trading $70 billion for $700 million, or an immediate loss of 99%.

Let’s hope we can make it up on volume.