GM's skid quickens as crunch raises bankruptcy threat

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General Motors Corp., burning cash as US sales slide, is being pushed closer to bankruptcy as it waits to learn whether the auto industry will win a new round of government loans.

Only federal aid can prevent a collapse by the largest US automaker, analysts including Buckingham Research Group's Joseph Amaturo said last week as the shares plunged to a 59-year low.

Reorganising in court protection also may not be possible, because the credit crunch has dried up financing.

"Strategic bankruptcy is not an option for GM,'' said Mark Oline, a credit analyst with Fitch Inc. in Chicago. "This is an issue of operating or not operating.''

The prospect of a forced liquidation raises the stakes for GM's quest for new federal borrowing after saying on Nov 7 it may run out of operating cash as soon as year's end. GM had $16.2bn on hand as of Sept 30, down from $21bn at the end of June, and needs $11bn to pay its monthly bills.

"A bankruptcy wouldn't address our immediate liquidity concerns,'' said Renee Rashid-Merem, a spokeswoman for Detroit-based GM. "It's not an option for GM because it creates more problems than it solves.''

GM's US sales, which fell 21 percent last quarter and 45 percent in October, "would be devastated'' by a bankruptcy filing, CEO Rick Wagoner said in a Nov 7 Bloomberg Television interview. The "unimaginable consequence'' of a bankruptcy "motivates us to really come up with cash in every way possible,'' he said.

Wagoner, 55, is cutting jobs and shutting plants after almost $73bn in losses since the end of 2004. He told trade publication Automotive News that GM needs an aid package before President-elect Barack Obama takes office in January.

Obama spoke with President George W Bush about the urgency for aid to US carmakers during discussions about the economy at a private White House meeting, aides to the president-elect said.

Investors may be concluding that GM won't succeed. The stock slid last week, chopping $600m from GM's market value, to about $2.05bn after Deutsche Bank AG said the shares may be worthless in a year.

GM, Ford Motor Co. and Chrysler LLC have asked for $50bn in aid to weather the worst auto market in 17 years, people familiar with the discussions said. That would be in addition to $25bn approved in September to help retool plants to build more fuel-efficient vehicles.

"There's growing support in Washington, in Congress, to give government assistance to GM and the other automakers,'' said Bruce Zirinsky, co-chairman of the financial restructuring department of Cadwalader, Wickersham & Taft LLP in New York.

"The question is going to be how that gets done and at what price to the shareholders and creditors.''

The White House has signaled its opposition to a proposal by House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada for Treasury Secretary Henry Paulson to tap the $700bn bank-rescue package to aid automakers.

Democratic lawmakers reject Paulson's arguments that he lacks authority to do so, Senator Carl Levin of Michigan said recently in an interview.

Should Paulson continue to resist using funds from the financial bailout approach, Congress would craft language to help the automakers and add it to the stimulus plan to be considered next week, Levin said. Treasury spokeswoman Brookly McLaughlin referred questions to the White House.

The failure of GM in an event where the company stops production would cost 2.5 million jobs in the US in the first year, according to a study by the Center for Automotive Research in Ann Arbor, Michigan.

That scenario is surfacing because of the shortage of financing to let companies keep operating in court protection, meaning GM might be unable to borrow and stay in business should it be forced to file for bankruptcy.

So-called debtor-in-possession loans to bankrupt companies have "all but shut down,'' CreditSights Inc. said last week in a report.

The loans, which are paid off when companies exit court protection, aren't being made as lenders become more averse to risk, wrote Chris Taggert, a New York-based analyst.

"In this world, you don't go Chapter 11 reorganisation,'' Maryann Keller, an independent auto analyst and consultant based in Greenwich, Connecticut, said in an interview. "You go Chapter 7 liquidation.''

This article is courtesy of Bloomberg.

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