In today’s crisis news we are faced with the prospect that General Motors, Ford and Chrysler are on the brink of failure. One indicator of the speed at which these companies are about to fail is the cash burn rate. The cash burn rate is the speed the company is using its available cash or credit to stay alive. It has been estimated that General Motors is burning through $6.9 billion a month. It now appears that the government is about to grant another $25 billion bailout package to the auto industry. This would be in addition to the $25 billion granted to the auto industry on September 25, 2008.
The discussion of a company’s burn rate reminds me of the beginning of the end of the dot-com bubble with the cover article in Barron’s titled “Burning Up” published on March 20, 2000. It was this article that pointed out the cash burn rate of many internet companies. After the article came out the dot-com bubble burst and it is reflected in the chart of the NASDAQ Index below. The NASDAQ fell 75.40% from the high in March 2000 to the low in September 2002. The NASDAQ has not fully recovered from the previous decline and is currently only 32% above the September 2002 low.
The discussion of a company’s burn rate reminds me of the beginning of the end of the dot-com bubble with the cover article in Barron’s titled “Burning Up” published on March 20, 2000. It was this article that pointed out the cash burn rate of many internet companies. After the article came out the dot-com bubble burst and it is reflected in the chart of the NASDAQ Index below. The NASDAQ fell 75.40% from the high in March 2000 to the low in September 2002. The NASDAQ has not fully recovered from the previous decline and is currently only 32% above the September 2002 low.
Are we headed down the same road as the dot-coms with the American auto industry? Is it true that “what is good for GM is good for the nation?” In my previous articles I have pointed out the fact that the government was setting up to bailout Cerberus Capital Management and that all forms of bailouts will eventually fail. Now with the news of General Motors’ burn rate of cash exceeding prior estimates we can only expect that the auto industry will first get bailed out (again) then collapse of it’s own weight. Touc.
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