Bankruptcy ‘probable’ says finance chief
Number crunchers at GM think bankruptcy may be the only way out.
General Motors is proving to be a good example of what can happen if you take on more debt than you can handle. Unfortunately for the automaker, I don’t think any amount of debt consolidation can dig this company out of the hole.
GM has a $1 billion debt payment coming up; it’s due June 1. Finance Chief Ray Young says GM might not be able to make the payment and is instead relying on a debt-for-equity exchange.
Headed for
GM will need to undergo some serious credit repair if it does default on a $1 billion payment. That $1 billion is only a small fraction of the company’s total debt, which is $28 billion.
GM spokeswoman Renee Rashid-Merem says that the company won’t be able to pay if the debt-for-equity exchange doesn’t go through or if the company goes bankrupt before the June 1 deadline.
Bankruptcy rumors
Young told reporters at a Chinese auto industry summit in Detroit that bankruptcy is “probable” for GM. The U.S. government is backing the company, and Young said that GM will get back on track “in court or out of court.”
Goldman Sachs also said today that both GM and Chrysler will likely file for bankruptcy in coming weeks.
“While there is significant operating upside at GM …, we see a high likelihood that the current class of common shares will be terminated through bankruptcy, [or significantly diluted in a best case],” Goldman analyst Patrick Archambault told clients in a note.
What about the bailout?
The government has been in talks with GM regarding more funding from the White House for the flailing corporation. However, GM’s CEO Fritz Hendersen has said that because of the Obama administrations demands and conditions regarding the funding the company will most likely go bankrupt.
GM already received $13.4 billion from the government, and it is vying for another $5 billion to stay afloat. He said reports that the automaker had been approved for the funding were premature.
“One of the things that was clear … from the task force findings [in February] is that we needed to go deeper and faster with respect to balance sheet restructuring, and so, anything that had been on the table up to that point was off the table,” Henderson said.
Chrysler prepares for merger
Chrysler is also reportedly facing the possibility of bankruptcy. However, the government previously agreed to supply funding aid if the company reached a deal with Fiat by the end of this month. Those negotiations are on track.
If GM and Chrysler go bankrupt, that will leave Ford Motor Co. in the position to capitalize (big time) on the market-share front.
One billion dollars is a lot of money. It’s going to take a lot of time and effort to negotiate on a debt reconstruction, but it’s a better way out than to file for bankruptcy. The economy is still at a very upsetting state and things are going to get a lot worse before it’s placed back in their perspective places. GM is obviously struggling financially and is doing everything possible just to remain above waters. The least we can do is to be patient.
Oh, this is not good. GM has been saying it will likely slip into bankruptcy for some time. I hope it can come out leaner and meaner on the other side, because that is the largest automobile maker in the US. Perhaps they shouldn’t have invested nearly as much time into the PUMA.