2009 January 13 Tuesday
Analyst Sees GM Bankruptcy Unavoidable
General Motors can't avoid bankruptcy.
A leading Wall Street analyst said Jan. 13 that he doesn't think General Motors (GM) will be able to restructure its debt to the satisfaction of the U.S. Treasury, which is lending the company billions of dollars, without the help of a federal bankruptcy judge.
"The chances are greater than not that there will be bankruptcy, at least for GM," said Rod Lache, auto analyst for Deutsche Bank (DB), speaking in Detroit at a conference sponsored by the Society of Automotive Analysts during the North American International Auto Show. "But it won't be the disruptive, scary bankruptcy that suppliers fear."
Lache thinks some of GM's debt holders won't agree to a large enough cut in their holdings to make a restructuring work outside of bankruptcy court. But since the Obama Administration gets to decide whether GM has really proven its financial viability it could be that GM could do a smaller restructuring and still get more US government money. But that'll just delay the inevitable bankruptcy. Also, if the Obama Administration doesn't force the United Auto Workers union to make very big concessions this also means a bankruptcy later.
GM could also do more dealer network shrinking in bankruptcy.
"A leading Wall Street analyst..."
I'm confused, is that meant to add to or subtract from the guy's credibility?
If there is a catastrophic bankruptcy of GM and Chrysler, then this will be a once in a lifetime occasion for Obama to take advantage of the chaos (that will weaken the opposition by the special interest groups), to use modify these factories in emergency, to build pure electric cars without batteries. The battery size and plug, will be standardized, to let the battery companies compete among themselves to build the best batteries that will be both chargeable and/OR swappable. On that occasion, it is estimated that it will cost only $200 billion to put charging pods in every parking place in streets, and to build a reasonable number of battery swapping stations, all over the United States. This $200 billion figure just to build the battery charging and swapping infrastructure, is only a small fraction of the $1 trillion that we already lost in Iraq and Afghanistan.
I agree with Lache. In a world without government bailouts, GM would have already gone into bankruptcy. The incompetent executives and board members would have been fired, the union contracts would have been torn up, the excess dealers dumped, the superfluous brands would have been abandoned, and much of the debt would have been converted into equity in the new company. Remember that, even in recent years, when 15+ million cars were being sold in the US, GM still couldn't turn a profit. It was kept afloat with funds from its highly profitable foreign divisions and its GMAC financing arm. And GM almost went bankrupt in 1992. It's too bad, really. A new, leaner GM needs to start building more cars in non-union southern plants and selling them through a smaller dealer network. All the changes that need to occur can be made through the bankruptcy process. But the executives don't want to lose their jobs, the UAW doesn't want to give up its benefits, the dealers don't want to go out of business, the Michigan congressional delegation doesn't want to lose the auto industry, so they all work together to get the taxpayer to fork over some cash. Unfortunately, it's not going to work. GM and Chrysler are doomed.