By Mike Ramsey
Nov. 11 (Bloomberg) -- General Motors Corp. fell for a fifth day in New York trading as House Speaker Nancy Pelosi urged Congress to pass an emergency rescue package for the ailing U.S. auto industry.
Lawmakers should take ``immediate action'' before their new session begins in January, Pelosi, a California Democrat, said today in a statement. Analysts said only federal aid can prevent a collapse for GM, and reorganizing in bankruptcy 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 $16.2 billion on hand as of Sept. 30, down from $21 billion at the end of June, and needs $11 billion to pay its monthly bills.
Any automaker aid would come with conditions, Pelosi said in the statement. She called for limits on executive pay, ``independent oversight'' and ``taxpayer protections'' to ensure that companies repay any costs incurred by the government.
GM reiterated yesterday that bankruptcy is ``not an option'' even as the stock plunged to the lowest since 1946 and Deutsche Bank AG said the shares may be worthless in a year. ``A bankruptcy wouldn't address our immediate liquidity concerns,'' said Renee Rashid-Merem, a spokeswoman for Detroit-based GM.
Chief Executive Officer Rick Wagoner said GM's U.S. sales ``would be devastated'' by a bankruptcy filing. Deliveries fell 21 percent last quarter and 45 percent in October. The ``unimaginable consequence'' of a bankruptcy ``motivates us to really come up with cash in every way possible,'' Wagoner said in a Nov. 7 Bloomberg Television interview.
Investors may be concluding that GM will fail. The shares slid 44 cents, or 13 percent, to $2.92 at 4:15 p.m. in New York Stock Exchange composite trading, chopping their value almost in half in a week. It was the lowest closing price since 1943.
The U.S. bond market is closed today for the Veterans Day holiday. GM's 8.375 percent bond due in July 2033 rose 1.75 cents yesterday to 25.75 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bond yielded 32.5 percent.
GM, Ford Motor Co. and Chrysler LLC have asked for $50 billion in aid to weather the worst auto market in 17 years, people familiar with the discussions said. That would be in addition to $25 billion approved in September to help retool plants to build more fuel-efficient vehicles.
White House View
President George W. Bush would consider ``ideas on accelerating'' federal loans to the automakers, though borrowings under the $700 billion bank-rescue plan have gone ``as far as they can,'' a White House spokeswoman, Dana Perino, told reporters traveling today with Bush in New York.
She denied a New York Times report that Bush tied auto- industry assistance to a free-trade agreement with Colombia when he met yesterday with President-elect Barack Obama at the White House. ``There was no linkage,'' Perino said.
The White House signaled its opposition yesterday to a proposal by Pelosi and Senate Majority Leader Harry Reid of Nevada for Treasury Secretary Henry Paulson to tap the bank- rescue package.
Democrats' View
Should Paulson continue to resist using funds from the financial bailout, Congress would craft language to help the automakers and add it to the stimulus plan to be considered next week, Senator Carl Levin of Michigan said yesterday in an interview. Treasury spokeswoman Brookly McLaughlin referred questions to the White House.
GM is cutting jobs and shutting plants after almost $73 billion in losses since the end of 2004. U.S. sales were hammered this year by gasoline prices that peaked at $4.11 a gallon in July, damping demand for light trucks, then crimped further when the credit freeze curbed buyers' access to loans.
Wagoner, 55, told trade publication Automotive News that GM needs an aid package before Obama takes office in January. The automaker had about $43 billion in debt at the end of 2007, according to a regulatory filing.
Default Risk
Credit-default swaps protecting against a GM default for one year rose yesterday to a level that implies the market has priced in a more than 71 percent chance of default, according to CMA Datavision.
One-year credit-default swaps were quoted at a mid-price of 55.5 percentage points upfront, compared with 51 percentage points on Nov. 7, CMA data show. That means it would cost $5.55 million initially in addition to $500,000 over one year to protect $10 million of GM bonds.
Bill Ackman, manager of the Pershing Square Capital Management LP hedge fund in New York, said GM shouldn't take government money because ``it has been hamstrung for years because it has too much debt and it has contracts that are uneconomic.''
Ackman, who said he doesn't have a position in GM securities, said yesterday on the Charlie Rose show the automaker should file for a so-called prepackaged bankruptcy with financing to keep operating while in court protection.
That may be difficult. Such debtor-in-possession loans have ``all but shut down,'' CreditSights Inc. said yesterday in a report. The loans, which are paid off when companies exit bankruptcy, aren't being made as lenders become more averse to risk, wrote Chris Taggert, a New York-based analyst.
GM would have no choice but to shut down, said Maryann Keller, an independent auto analyst and consultant based in Greenwich, Connecticut. A GM failure that stops production would cost 2.5 million jobs in the U.S. in the first year, according to the Ann Arbor, Michigan-based Center for Automotive Research.
``In this world, you don't go Chapter 11 reorganization,'' Keller said in an interview. ``You go Chapter 7 liquidation.''
To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net
No comments:
Post a Comment