GM Chapter 11 may still be necessary - analyst

General Motors Bankrupt

Deutsche Bank automotive analyst says GM may still need bankruptcy to survive

By Alex Ricciuti
January 14, 2009 1:32 PM
Filed Under: American, Corporate/Financial, General, Industry

GM may still need to file for bankruptcy in order to achieve the restructuring it needs to survive, says a Deutsche Bank automotive analyst.

Rod Lache, in a speech to the Society of Automotive Analysts, said that GM holds too much debt and won't get enough concessions from bondholders to conduct the kind of restructuring it needs. Only a bankruptcy could free GM to do what is required to survive in the long term, he said. Bondholders currently hold about 36 billion US dollars in GM debt.

"The probability is greater than not that there will be bankruptcy," Lache told the crowd.

Lache explained that GMAC, half of which is owned by GM, tried to swap most of its debt from bondholder's for equity as part of a deal for a government bailout which it received. But bondholders held out and didn't turn in as many bonds as had been sought by GMAC. As a result GM is still heavily burdened by debt with 60 billion US on the books and another 22 billion in government bailout loans from the US and Canadian governments. Lache thinks that GM cannot get all of its bondholders to agree to the concessions it needs in order to go on without a bankruptcy.

GM CEO Rick Wagoner still believes he can get that debt down by trying to convince bondholders to swap debt for equity in GM. But he conceded that it was a matter outside of GM's control. Wagoner, humbly, doesn't rule out bankruptcy but still says the chances of GM surviving are "very high".

Source: freep.com

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Comments

Xanavi23

January 14, 2009 5:21 PM

If i was a bondholder in GM, i would take equity. I don't see GM failing or dying because its just too important to the American government and economy, so it may take YEARS but one day GM will rise back to its peak and higher. It will be a different company, a better company, but it will take time.

I think GM needs to think carefully about its next few steps, because the next few months will be critical and the concessions the U.S. government demanded of them despite being harsh are fair and need to be done. So i think bond holders should remove their heads from their @$$es and do whats right.

giga-games

January 14, 2009 6:08 PM

hahaha, you realy think that GM will come back, expecialy as you said 'GM will rise back to its peak and higher',..I think it's already too late because the german/japan autoindustri is still growing in there...

Xanavi23

January 14, 2009 11:02 PM

Ya, Japan is doing good, i know how well, my 2 favorite companies are Nissan and Toyota but what goes up must come down except maybe for Toyota. GM will be back, but like i said, it will be a different company than its EVER been save for maybe the early 1920s-30s. Its going to be smaller, more focused and with more quality(if it is to survive).

ALOT of cars will continue to always be sold as Humans love cars. In a country as large America, there will never be any good reason save for inferior products as to why the Japanese and Americans can't both share large peices of the proverbial pie. Its well known that if GM will survive, which it will, it will be FORCED to offer better quality, cutting edge products otherwise it won't. GM was never stupid, they always knew what they had to do, they were lazy though and didn't focus WHERE they needed to, like compacts. They focused on trucks which are the BEST in the business, but with the real estate market crashing and a general lack of building going on, its only natural for their trucks to be bought less, part of the reason they're in bad shape.

Things have changed, and GM has learned their lesson and they know what they have to do. Like i said, it will take ALOT of time before GM gets to an all new peak, im talking at least 15 years, but they will get there and god willing, i will be there to see it.

There is absolutely no reason why GM can't survive and THRIVE in the new emerging market place. Especially with the supervision of the American government. You can't doubt if you like, thats fine. But just because i said GM will rise, i NEVER said the Japanese or other imports will decline, you implied i did and you're wrong. Don't put words in my mouth friend.

Viking79

January 14, 2009 8:47 PM

The problem still coninues to be that their unionized employees demand higher levels of compensation then the industry average. GM cannot turn themselves around with this ongoing issue. The UAW/CAW will not back down on their stance on this. They can only be forced to renegotiate by a filing of a chapter 11 bankruptcy.

Xanavi23

January 14, 2009 11:05 PM

Rest assured, when the Governments gave them the money, one of the prerequisites was that GM has to make very large concessions in those departments. Less hours, less workers, less product coming out. They HAVE to do it, and this time they have no fear because the U.S. Gov will back them up on it. It will suck for the workers, but like you said they have to do it and the Government plans on forcing them to do it. The workers have had it too good for too long and soon, sadly, their day in the sun is done.

Viking79

January 15, 2009 12:19 AM

Well said Xanavi23. I mean, asked to accept the average wage for your industry in order to save your job alltogether? Seems like a no-brainer to me.

Xanavi23

January 15, 2009 12:54 AM

Ya, it is a no brainer, but i thought i heard about GM still having to cut alot of jobs salaries aside. Ideally, ild hope jobs not be lost because it is peoples lives but its better than GM dying out, thats way more jobs gone.

Joe_Limon

January 15, 2009 4:02 AM

hopefully they can ditch the part in the union contract where people who's jobs are replaced by machines get an early paid retirement... that will be a huge incentive to get things running cheaper.

Joe_Limon

January 15, 2009 4:03 AM

it will also encourage more people to go to university since they can't just go work beside their father/mother with a high school education...

sensei

January 25, 2009 7:08 AM

Yaaaawn, the typical stupid American continues to blame union workers while ignoring the FACT that management continued for decades to buy substandard steel, rarely ever update a factory, build the Aztek like it was a great idea, buy into foreign companies rather than innovate IN Detroit, and continue to build cars they wanted to build rather than cars Americans wanted to buy.

I know my observation will go unheeded because stupid people want to blame the weak and not the truly responsible.

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