GM could follow Chrysler into bankruptcy: analysts

[Americanhero1]

DETROIT, Michigan (AFP) – General Motors could soon follow Chrysler into bankruptcy protection and the process is unlikely to be simple or swift for either troubled automaker, analysts warned.

"Bankruptcy may indeed be the last, best option to restructure General Motors because of the multitude of challenges the company faces and its deeply entrenched stakeholders," said Doug Bernstein, head of Plunkett Cooney's banking, bankruptcy and creditors' rights law practice group.

"But it's unrealistic to expect that the process will go smoothly and quickly," Bernstein said.

"The company is massive, its operations are complex, and it has thousands of potential claimants and interested parties."

In announcing Chrysler's bankruptcy Thursday, President Barack Obama insisted that "Chrysler and GM are going to come back" and said a restructuring under court protection, along with a partnership with Italy's Fiat, would give Chrysler "a new lease on life."

While Obama said his team would continue to work with GM to develop a long-term viability plan ahead of a June 1 deadline he also warned that "we simply cannot keep this company or any company afloat on an endless supply of tax dollars."

Canadian Prime Minister Stephen Harper warned that both the US and Canadian governments "will insist that all of the stakeholders make the sacrifices necessary to ensure the long-run viability" of General Motors.

"If they do not, governments will not participate in the restructuring," he said after announcing that the Canadian government would allocate 2.4 billion US dollars to help Chrysler emerge from bankruptcy.

A smattering of bondholders were blamed for blocking a deal to restructure Chrysler out of court and GM's bondholders seem equally intransigent.

A committee representing those bondholders went public hours before Chrysler's bankruptcy was formally announced Thursday with demands for a significantly larger equity stake than has been offered by the Obama administration.

The debt for equity exchange at GM also dwarfs that at Chrysler, which had fewer than 100 principal financial creditors.

At GM, any exchange must involve more than 120 major financial institutions, ranging from banks to pension funds, and about 100,000 individual investors.

Another stumbling block to a GM deal is a plan to eliminate the Pontiac brand and selling off Hummer, Saab and Saturn, said Jay Gleischman, managing partner of 4Gen Consulting in Troy, Michigan.

"Everybody knows Treasury is playing hardball," he said.

"But it's going to be for different reasons than Chrysler. It's going to be to sever its relations with dealers."

GM has said it wants to eliminate 42 percent of existing dealerships, reducing the number from 6,246 in 2008 to 3,605 by the end of 2010.

The plan has met resistance from the National Automobile Dealers Association, which has asked dealers to contribute to a legal defense fund.

A further complication is the impact the Chrysler bankruptcy and plant idling at both automakers will have on the already-stressed supply base.

David Allardice, an economist at Walsh College outside Detroit, said suppliers are already bracing for the worst.

"Regarding General Motors, others took the view that they could 'see the train coming' with the announcement of nine weeks of plant shutdowns," Allardice said.

Brad Coulter of O'Keefe & Associates said GM suppliers ought to pay close attention to what happens at Chrysler.

"If certain suppliers are not deemed critical in the Chrysler bankruptcy, then I would expect those same types of suppliers would be very wary of continuing to supply GM without getting paid on prior debts or going to cash in advance," he said.
http://news.yahoo.com/s/afp/usautocompanychryslergmbankruptcy

[cjd]

I really can't see how Chrysler will ever emerge from bankruptcy and go on to be a viable company. The shvartza Administration is in a dream world if he thinks that a company with so many dysfunctional groups calling the shots will in any way get their act together enough to produce any sort of product worth buying. Fiat is a joke in the car business they make their money building trucks. The thought that they could possible bring anything to the Chrysler nameplate shows how dumb the people who cooked this arrangement up really are. Comparing a possible GM bankruptcy to  Chrysler's is almost like comparing a little kids lemonade stand to the Tropicana  Orange Juice Company. GM is a massive company in respect to Chrysler and the pitfalls would be magnified 100 times. The way I see it is both companies are more or less D.O.A as we speak what the government is trying to revive may not be worth the effort.

[arksis]

I really can't see how Chrysler will ever emerge from bankruptcy and go on to be a viable company. The shvartza Administration is in a dream world if he thinks that a company with so many dysfunctional groups calling the shots will in any way get their act together enough to produce any sort of product worth buying. Fiat is a joke in the car business they make their money building trucks. The thought that they could possible bring anything to the Chrysler nameplate shows how dumb the people who cooked this arrangement up really are. Comparing a possible GM bankruptcy to  Chrysler's is almost like comparing a little kids lemonade stand to the Tropicana  Orange Juice Company. GM is a massive company in respect to Chrysler and the pitfalls would be magnified 100 times. The way I see it is both companies are more or less D.O.A as we speak what the government is trying to revive may not be worth the effort.

I could not agree more with you cjd, what a sad sad time for the Big 3. 

[Yonah]

I've been shorting GM stock, Ford too.

I'm almost surprised that Obama would have the audacity to think that Chrysler's secured creditors would trade away their interests for one third of what they're worth.

The treasury's plan has been to give the farm to the pigs (UAW). If GM fails to restructure in accordance with the wishes of the Fuhrer, then it'll head to bankruptcy court, and if the judge decides to apply the law and not the whims the Obomintion, it'll mean the end of the union.

The simultaneous closure of GM and Chrysler (or GM alone, for that matter) would probably cause a cascading chain of bankruptcies, destroying part suppliers in the United States and Japan. This is why I've been shorting Ford as well.

General Motors has been run by idiots, who bowed to union demands, who wasted money on cars that people didn't want instead of improving cars people wanted, who financed costly projects only to cancel them as soon as they began to yield important technological developments. They need to clone Sloan and bring him back.

[cjd]

They had Wagner which was about as close to Sloan as you might get in today's world. People like Alfred P.Sloan only come about now and then besides he could never succeed under all the government scrutiny in place today. Wagner was really in an impossible position GM needed to do substantial belt tightening about 5 to 10 years ago. By the time he was calling the shots GM was already in hot water. I think he may have had a chance of slowly getting GM on the right course if the bottom of the economy didn't fall out last spring. Ford started its belt tightening early by selling off most of its non core business interests and cutting labor costs as quick as it could. It used a good part of the money to position the company so it could get several lines of credit that might carry it through to better times. For now they seem to be on the right track . I heard a report that they  out sold Toyota at some point in the past year.

[Yonah]

They outsold Toyota for a quarter, which is very impressive.

Ultimately though, unless they can ditch the UAW, they're in for more trouble.

[briann]

They had Wagner which was about as close to Sloan as you might get in today's world. People like Alfred P.Sloan only come about now and then besides he could never succeed under all the government scrutiny in place today. Wagner was really in an impossible position GM needed to do substantial belt tightening about 5 to 10 years ago. By the time he was calling the shots GM was already in hot water. I think he may have had a chance of slowly getting GM on the right course if the bottom of the economy didn't fall out last spring. Ford started its belt tightening early by selling off most of its non core business interests and cutting labor costs as quick as it could. It used a good part of the money to position the company so it could get several lines of credit that might carry it through to better times. For now they seem to be on the right track . I heard a report that they  out sold Toyota at some point in the past year.

Wagner found it impossible to make any profit...without the financial arm of GM.  The car industry has a profit margin that is razor thin, and when you factor in the union's policies... it becomes an impossible business model.  These are factors that Obama could never understand, and when I hear Obama say 'good ridance' to a CEO that has 100x better understanding of the industry and the real world than Obama ever could.. it makes my blood boil.

[zachor_ve_kavod]

I said from the beginning that the bailouts were obscene for many reasons, not the least of which is that they won't make the least bit of difference (in terms of keeping these companies afloat).  Bailouts only delay the inevitable.