Monopoly Money
| August 1st, 2008 by Robert | Word Count: 897 | Reading Time 3:33 | 2,330 views |
Today, General Motors (GM) and Ford released disheartening news regarding their vehicle manufacturing operations. GM reported a net loss of $15.5 Billion for the second quarter of this year. Ford followed that with a report stating their overall United States vehicle sales dropped 14.9% in July. Even Toyota joined the crowd reporting a drop of 12% compared to a year earlier. The auto industry is in very bad shape. Sales are down overall even with slight increases in car and higher MPG vehicles sales. The overall decrease in consumer excess cash will only continue to affect new vehicle sales, of ANY kind. If society does not have the money, they will not buy a new car regardless of MPG or “special promotion.”
What exactly is $15.5 Billion? How can we possibly contemplate that amount of money? Sure, we hear the government talking about Billions here, Billions there, but really, how can we put any significance to how much money that really is? Currently, according the census clock, our country is around 300 million people. That accounts for every man, woman, and child in this country. $15.5 Billion is the equivalent of EVERY SINGLE ONE of us having $50 in our pocket. That is an absolute ton of money. It ventures into the Monopoly money realm actually. GM LOST that amount in 3 MONTHS! How can this be remotely possible? To be fair and I say this pretty facetiously, GM actually only lost $6.3 Billion on operations during the 3 month period. The other $9 Billion includes onetime charges and losses due to restructuring/etc.
Still, absolutely insane. This report comes on the heels of Exxon reporting a PROFIT of almost $11.7 Billion for the second quarter of 2008. To put that in perspective, that equates to about $40 in every single person’s pocket. Again, how is that possible! In one single three month span, GM lost the equivalent of a top 100 country’s Gross Domestic Product (GDP) for an ENTIRE YEAR! It simply boggles my mind. I can’t even fathom such numbers. It’s almost equivalent to pondering the existence of eternity. Our human mind just cannot function with rational limitations about such limitless thoughts. How can you explain forever, eternity, or never ending? Our minds cannot fully solve that question because we are finite beings living with finite limitations.
This limitless problem exists for me when thinking about the true ineptness displayed by some of our businesses. If a company can “afford” to LOSE $15 Billion, what exactly are they worth? Where is the wealth behind these companies that can sustain such losses? Are they real? Or, are they Monopoly companies? I just took a quick look at the stock market and GM’s Market Value is around $6 Billion. Simply put, they lost more than twice what they were worth in three months based upon today’s stock value. How are you doing on that end rationalizing these facts? I can imagine you are in the same situation I am, staring at the numbers and facts in disbelief.
Paper money, paper companies, and paper notes. What exactly is keeping these companies operating? Sure, they are of utmost importance to our economies that they do stay afloat and produce, but at what cost? Who are the losers here? You may say the stockholders. Yes, they are the predominant losers in this situation, but every single consumer is also. Eventually, the car makers will have to reverse their losses and begin making money again. Who is going to foot that bill? Right, the consumer will. We all know there is a ton of markup in new vehicle sales as it is, do you think the new and improved car manufacturers of the future are going to pass along the savings to Joe Schmoe public? That is highly unlikely when their boards have felt the intense pain of losing billions of dollars.
Somewhere along the line, GM will need to earn back the $15 Billion in losses or their business plan doesn’t make much sense. That may just be the case though. Their business plan doesn’t make sense. That is the exact reason they and the other car manufacturers are in such dire straits. They misread the markets and failed to make the appropriate changes as the economic times changed. They continued to produce low MPG vehicles with little effort to expanding the gas saving vehicle lines. Toyota was basically the only company focused upon moving forward with energy saving cars NOW, not 5-10 years from now. Even Toyota is feeling the pressures from the market though. Money is fast becoming scarce. People cannot afford a $20,000 vehicle rolled off the lot which immediately becomes worth $10,000 in your driveway. Leases don’t even make much sense anymore.
Can it be fixed? Sure. But the hard times are here and they are going to be for some time. There will likely be more layoffs and plant closings for every manufacturer aimed at putting an immediate stop to the bloodletting. After things stabilize, then, and only then, car manufacturers can return to profitability. There is no short term fix here. There will be more pain and more numbers reported like those above. It seems incomprehensible, to the point where we are working with Monopoly money. However, the dice they are rolling seems to continually land them on a Hotel on Boardwalk.
Citation: http://money.cnn.com
on August 9th, 2008 at 10:13 am:
I think all this talk about losing this amount of money is akin to the politicians. Nothing, or very little, is real, maybe this money they say they lost was never real company money in the first place, just money they would have made if a business plan failed to produce. Just like the stock markets. I would have made x amount of dollars but the bottom fell out. Woe is me, I lost millions of dollars, when in fact, I never had the money in the 1st place. I was only going to make it if things went as I planned.
on August 9th, 2008 at 12:52 pm:
I’m pretty sure in the case of GM, they actually lost real dollars. But yes, what you have mentioned does happen and in the board room and at work, the “coulda/woulda” money shows up and sometimes costs people their jobs. But GM actually lost the money in this article on their stated balance sheet, real dollars and cents. Scary isn’t it? It doesn’t seem real, but it is.