Legacy Automakers Are A Ponzi

Legacy auto is a complete scam. They are pulling the wool over everyone’s eyes in real time, being loaded up with debt and acting as if their assets outweigh their debt. They are pretending to have a strong balance sheet that can support the debt and some have the gall to actually issue a dividend. Hence, ponzi.

At a glance of their balance sheets, Assets > Liabilities. But it does not take a very deep dive to see that very little if any of their assets are cash or cash equivalents and the vast, vast majority of “assets” are things like property, plant, and equipment. It is objectively true that nearly every legacy auto company has a negative net cash position.

Even if this was the accounting of legitimate assets, it would still give me great concern to have billions in debt and all of my assets pledged as collateral against that debt. But what is happening with legacy auto is much much worse. The writing is on the wall that electric vehicles are the future & virtually none of their current day property plant and equipment are for making electric vehicles. So by definition, all of that property plant & equipment making internal combustion engine vehicles has essentially flipped to become a liability

Now look at legacy automakers balance sheets with literally no net cash & billions in actual debt. It is a horrible financial position to have just with those items, but then we add billions in liabilities for plants that are producing antiquated, undesired items. My guess is many of these plants will be shut down and written off the books.

How do legacy automakers continue to service their massive amounts of debt while unloading or retrofitting worthless factories, yet still keeping the lights on? How do they keep paying a dividend to their shareholders? My prediction: most of them won’t. My prediction is that most legacy auto companies will either go bankrupt or be bought out by an actual successful company for pennies on the dollar.


2 thoughts on “Legacy Automakers Are A Ponzi

  1. Well researched article,

    You have definitely spent a lot of time researching the subject and pointed out that the inherent quality of the underlying debt is less than stellar, you could have pointed out that a lot of the debt emitted by legacy automakers present in ESG collateralized debt obligations (CDOs) present in a host of ESG debt instruments present all around the financial markets.

    Legacy automakers are at the moment expecting bailouts that would enable them to have sufficient cash positions to help with the transition of their production lines, IMHO that will not fail to materialize, the auto industries over the last 40 years has been through numerous bailout cycles, so far none of the legacy has been allowed to fail.

    Liked by 1 person

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