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GM: Bankruptcy Is Not A Viable Option
DETROIT — General Motors Corp.'s board of directors does not consider bankruptcy protection a viable option to solve the company's financial troubles, but it has discussed Chapter 11 because it has a legal duty to do so, a spokesman said Saturday.
Century-old GM, an icon of American manufacturing, has been battered by a plunge in car sales as American consumers tighten their belts and shift away from the big moneymaking pickup trucks and SUVS that have long the staples of GM's lineup.
GM, which has slashed jobs and closed plants since early in the decade, has warned that it could run low on cash by the end of the year unless it gets a taxpayer-funded rescue from the government.
"The board has a responsibility to keep all options open considering the circumstances," said Vice President of Communications Tony Cervone. "Chapter 11 protection is not a viable option because it doesn't fundamentally address the issues at hand today."
The board, which has been meeting regularly by teleconference since the company's finances worsened, agrees with Chairman and CEO Rick Wagoner that bankruptcy would be disastrous for the company, Cervone said. Wagoner has said it would scare away customers who would not make a big-ticket purchase from an automaker that is under court protection.
Instead, Cervone said the board supports Wagoner's strategy to seek congressional approval of low-interest government loans, getting the company through its liquidity problems until the U.S. auto market recovers and it can be profitable again, Cervone said.
"The board continues to support management and has continued to express support for management," Cervone said.
But industry analysts say the board has to prepare for bankruptcy if the government doesn't come through with loans in time, and even with a loan if the U.S. auto market doesn't recover in the next year or so.
The board probably believes in the company's plan to get government help and survive, but members with financial knowledge also know that they need to explore the bankruptcy option because of GM's huge cash burn, said Kevin Tynan of New York-based Argus Research Corp.
"It may be the best way to go, and they may find that out. They may not have a choice," he said. "The cash is what keeps you in business."
Erich Merkle, auto analyst with the consulting firm Crowe Horwath LLP, said the board has to plan its next move in case Congress doesn't come through with a loan quickly.
"The decision isn't really theirs to be made," he said. "Unfortunately it's Washington's decision. They either get this bridge loan or they have to prepare for the bankruptcy filing."
Without loans, the board likely would seek bankruptcy protection and then ask the government to provide debtor-in-possession financing, Merkle said.
Wagoner, in testimony to the Senate Banking Committee on Tuesday, said that independent research shows 80 percent of consumers would not consider buying a car from GM if it were in bankruptcy.
Bankruptcy experts say the company may not be able to pay all its bills, and that some parts suppliers may start demanding cash from GM upon delivery. GM, though, may be able to negotiate terms from suppliers whose fates depend largely on the company's success.
Wagoner, Ford Motor Co. CEO Alan Mulally and Chrysler LLC CEO Robert Nardelli appeared before Congress this week seeking $25 billion in low-interest loans, but were drubbed by criticism from members of House and Senate committees.
Instead of leaving Washington with a commitment for the bailout loans, the three headed back to Detroit empty-handed, rebuffed by lawmakers who were upset that the trio flew to the nation's capital in separate private jets to ask for aid. Lawmakers also criticized the CEOs for appearing without a solid plan and for allowing high labor costs that put them at a disadvantage with their Japanese competitors.
In a letter to the auto executives released Friday afternoon, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid demanded a detailed accounting by Dec. 2 of the companies' financial condition and short-term cash needs, as well as their plan to achieve long-term viability.
The Democrats also called on the automakers to show how they would ensure that the government would be reimbursed and share in future profits, eliminate dividends and lavish executive pay packages, meet fuel-efficiency standards, and address their health care and pension obligations if they get the federal help.
The Bush administration sharply criticized the Democrats for departing Washington for a congressional recess without acting on a rescue for the car makers.
GM is considered by many to be in the worst financial shape of the three automakers. The company spent $6.9 billion more than it took in during the third quarter and has warned that it could reach the minimum amount of money needed to run the business by year-end.
GM already has cut expenses and has delayed for two weeks reimbursements to dealers for sales incentives such as rebates.
GM shares closed Friday at $3.06. They have withered since peaking near $94 in 1999 and 2000, and they have lost 93 percent of their value from $43.20 as recently as October of 2007.
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TOM KRISHER | November 22, 2008 05:33 PM EST |
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