Odds Are GM Will File For Bankruptcy, Says Bloombe

[Guest Josh]

Nov. 14 (Bloomberg) -- Derivatives traders are increasing bets that General Motors Corp. may follow Delphi Corp. and Delta Air Lines Inc. into bankruptcy after the disclosure of accounting errors and four straight quarters of losses.

Traders last week demanded upfront payments in addition to annual premiums for derivatives contracts that protect owners of the Detroit-based company's debt should it miss a payment or declare bankruptcy. By doing so, traders relegated GM to the same status as Delphi and Delta just before those companies defaulted.

GM, the world's biggest automaker, is losing U.S. market share to Asian rivals such as Toyota Motor Corp. and is in the midst of its longest stretch without profit in 13 years. Moody's Investors Service and Fitch Ratings this month cut GM's debt rating two levels. Cash at the company's auto operations has fallen to $19.2 billion from $24.5 billion a year ago.

``Things just keep piling one on top of the other for GM,'' said Rob Hinchliffe, an analyst with UBS Securities in New York who rates GM ``reduce.'' GM is one of the two lowest-rated stocks among the 11 auto and auto-parts companies he covers, according to data compiled by Bloomberg.

The annual cost of insuring $10 million of GM debt for five years with credit-default swaps rose to $1.7 million upfront plus $500,000 a year on Nov. 10, compared with an annual premium of about $1 million earlier in the week, traders said. The debt- insurance contracts changed hands at about $260,000 at the start of the year.

Demanding Upfront Payments

Delphi default-insurance sellers started demanding upfront payments on April 19, six months before it filed for bankruptcy on Oct. 8. Credit-default swaps on Delta, which filed on Sept. 14, were trading in January with upfront payments of about $4.5 million. Upfront fees for bankrupt Northwest Airlines Corp., which filed the same day as Delta, were about $4 million.

GM spokeswoman Toni Simonetti didn't immediately return calls seeking comment.

A derivative is a financial obligation whose value is derived from interest rates, the outcome of specific events, or the price of underlying assets such as debt, equities and commodities.

Full Story: http://www.bloomberg.com/apps/news?pid=100...KqLnq8&refer=us

[jbartley]

i'm so tired of hearing about bankruptcy speculation. what i want to know is WHAT HAPPENS after they do declare bankruptcy... what changes/reorganizations? besides the union going BYE-BYE... will we still get our new GMT-900's on time?

[mustang84]

Man, all these backruptcy predictions are getting depressing. I hope GM can find some way to make things work out.

[Ultra Magnus]

More good news. I have thought for a while its only a matter of time. Being as big as GM is there is a lot of restructuring that has to be done to make it profitable again. I dont think there will be a large stoppage in production if there is one at all. I also think the closer it gets to a last minute scenario the more the UAW will be willing to negotiate.

[caddycruiser]

i'm so tired of hearing about bankruptcy speculation. 

what i want to know is WHAT HAPPENS after they do declare bankruptcy...

what changes/reorganizations? besides the union going BYE-BYE...

will we still get our new GMT-900's on time?

[post="42967"]<{POST_SNAPBACK}>[/post]

EXACTLY. So, what would happen? Anybody?

[bowtie_dude]

EXACTLY.  So, what would happen?  Anybody?

[post="43005"]<{POST_SNAPBACK}>[/post]

Wipes their slate clean, rids them of all their date, BUT causes their stock to nosedive in the short term. In the long term, however, most companies that file for bankruptcy come out better and stronger than before. Look at K-Mart for example, they just recenlty bought Sears.

[FUTURE_OF_GM]

Wipes their slate clean, rids them of all their date, BUT causes their stock to nosedive in the short term.  In the long term, however, most companies that file for bankruptcy come out better and stronger than before.  Look at K-Mart for example, they just recenlty bought Sears.

[post="43018"]<{POST_SNAPBACK}>[/post]

BUT, the catch 22 to that is this: under the new arrangement K-Mart is supposed to become a holding company (For multiple companies; Sears is the first) and not so much a retailer. So, is it really a better deal?

I don't know much about it, but bankruptcy would have it's advantages and disadvantages...

ADVANTAGES: unloading debt, capacity and pensions. Becoming leaner and meaner and giving Toyota hell. :D Rebirth as a "new" company.

DISADVANTAGES: Stock price will die, sales will die, consumer sentiment will probably be shitty (Because you know the media will play up the "Dead GM" and won't let them slide on "Dumping all of their debt on U.S. taxpayers--so buy japanese") Definately a sell off of assets (GMAC) and maybe division closings (This is the part that scares me the most) a break up and sell off of the corporations profitable entities (Cadillac, Chevrolet)

Those are a few of the more obvious things.

[aaaantoine]

Hmm... When those stock prices plummet, it could very well be a good time to invest if you're feeling like taking a risk.

[thegriffon]

They plummet for a reason. In most bankruptcies the current shares become literally worthless, which is why trading is suspended. Even if shareholders do get something it is usually just a few cents in the dollar in new shares. If you bought before the bankruptcy you'd be lucky to see any positive return for many, many years. Most of the "new" stock will go to creditors and key executives.

[CaddyXLR-V]

They plummet for a reason. In most bankruptcies the current shares become literally worthless, which is why trading is suspended. Even if shareholders do get something it is usually just a few cents in the dollar in new shares. If you bought before the bankruptcy you'd be lucky to see any positive return for many, many years. Most of the "new" stock will go to creditors and key executives.

[post="43051"]<{POST_SNAPBACK}>[/post]

What if you buy during the bankrupcy, after the sharp decline?

[c0ld_phuz10n]

Yeah, bankruptcy isn't always a bad thing in the long run, if the company doesn't drag its feet with the restructure and re-alignment of their business plan/strategy. If they go for it, get the debt monkey off their back for a bit, get the GMT-900's out, get us something nice and shiny on Zeta, and a few more cars that get the media lovin' that the Solstice and Cobalt have received as of late...I thing they could be ok. But I agree with Future_Of_GM, it is a bit scary, I hope they dont start selling of brands. :( // c0ld_phuz10n

[radioactivesob]

What if you buy during the bankrupcy, after the sharp decline?

[post="43055"]<{POST_SNAPBACK}>[/post]

Then you could buy let's say 30,000 shares of GM for let's say $3,000, and you would have those shares of GM free and clear until the "NEW" company emerges from bankruptcy. Then your shares become invalid when "NEW" shares of the "NEW" company emerges.

You may get a little bit of money from a negotiated settlement, but it will be for pennies on the dollar. Don't fool yourself for a second, if you own shares of a bankrupt compnay you will 99.9% of the time loose your money. The only chance that you would have of making any money is by playing the fluctuations of the bankrupt GM shares.

For example, I bought shares of United Airlines at $18 a share before it went bankrupt. After bankruptcy I bought enough shares to lower my average price-per-share to about $.50. I then sold everything at a dollar a share to make a nice profit. Pretty stupid on my part because if the company would have emerged from bankruptcy when I was playing this game I would have lost it all.

Think about the Cleveland Browns. The current Cleveland Browns are an expansion team that happens to have the same uniforms, logos, etc. as the Cleveland Browns of yesteryear. The real Cleveland Browns are now the Baltimore Ravens. Moot point from the perspective of the fans, but from the perspective of the owner...

If I never get to pass any other advice on to you, take this and heed it.

NEVER BUY SHARES OF A BANKRUPT COMPANY! You will loose your money

[vanquish25]

What caused GM`s current financial trouble anyway. And GM is currently number one in world wide sales, so can someone tell me how GM is in the situation that its in.

[turbo200]

I choose to mostly ignore the bankruptcy reports. Sure we could all worry they are going to go bankrupt, and we all do, but I prefer to just sail the boat and see what happens. I still don't think they will file for bankruptcy, just earlier this year we were hearing all the reports about 19billion in cash they were just sitting on, and certainly they've had to pay out a lot and continue to, this will be thier downfall. Don't know if they will or won't file for bankruptcy, if so it will be the stupiddest bankruptcy filing I've ever seen, here we have the largest automaker in the world and nobody inside or outside the company could do anything to help stop the bleeding? Nobody had the foresight to protect this American company. Here on C&G we have been begging for competitive products for years, and here we are today still waiting for those to come out. Why didn't the board react faster? Why didn't they heed the calls of do or die? What is taking so bloody long to get the REAL cars out? Why didn't anyone react to the situation sooner? Why am I reading the Lutz came in and revolutionized everything, and yet many were still hesitant with the product schedule? Why haven't they had one major mass market success in a damn long time? Why aren't cars coming out faster and faster? Why is their product approval process so littered with people who will do everything possible to cut that program out of the air? Why are people in GM so dogmatic in thier non-belief that PRODUCT is KING????? Why can't they understand the issue of product and branding, it's all too similar to every other BRAND STORY out there!? Why don't they see how far Lexus has gotten with GOOD CARS THAT SPEAK THE TALE OF THAT BRAND and COPY????? I feel like I am knocking my head on a wooden baord? I could go on and on forever.....Pretty soon it will be why didn't the government react to this situation?..........

[I hope GMRULES again]

What caused GM`s current financial trouble anyway. And GM is currently number one in world wide sales, so can someone tell me how GM is in the situation that its in.

[post="43085"]<{POST_SNAPBACK}>[/post]

The short answer is a guy named Roger Smith and the 1980's.

[Lexcar14]

GM is far too valuable to wollow in bankruptcy forever. Sadly, it would likely be bought by another auto company. In bankruptcy, GM would be able to jettison those pesky UAW contracts and pension obligations. After that, GM would be a prime takeover target by a company such as DaimlerChrysler, Toyota, or Nissan/Renault. GM has a lot of valuable assets and strong markets in Asia for any other company to ignore. Honestly, if GM declared bankruptcy, it wouldn't bother me if DCX bought them and maybe moved their headquarters from Stuttgart to Detroit. DCX would then stop the Toyota juggernaut. Personally, I think GM needs a new CEO. The company is just taking way too many hits to the gut. The company needs new blood, and fast. Edited November 15, 2005 by Lexcar14

[rivieraranch]

What if you buy during the bankrupcy, after the sharp decline?

[post="43055"]<{POST_SNAPBACK}>[/post]

You're betting that it will rebound. Sometimes it doesn't.

[CaddyXLR-V]

You're betting that it will rebound. Sometimes it doesn't.

[post="43179"]<{POST_SNAPBACK}>[/post]

But are the stocks issued during bankruptcy still good after bankruptcy? Or are new shares issued, and the previous shares become worthless?

[avro206]

Don't forget the sad period known as the 1970's, which included the massive decline in GM's quality during that time (though it wasn't nearly as bad as Chrysler,) two gas crisis and the UAW acting like spoiled little kids and sabotaging the vehicles, a string of worthless engines that include but are not limited to the 2.3 SOHC I-4, the 2.8 V6, the 3.1 V6, 3.4 V6, the 305 V8, the 307 V8, the 350 diesel, the Cadillac V-8-6-4 and the 6.2 diesel. Not to mention every N-body ever produced.

Oops, I see a hurricane coming. (Runs off in corner and hides.)

[post="43233"]<{POST_SNAPBACK}>[/post]

yeah you better run mister!! :P

#1 the 307 came out in the late 60's.

#2 The 305 wasn't a bad engine at all. The L69 4bbl HO beat that Mustanf 302 in 83-84 and a 305 TPI 5 speed did well too. It was meant for fuel economy and not performance---hence some shortcomings on that front.

#3 The 60 degree engines aren't ...um...bad at all...either

# the rest you named sure did suck though! :lol:

[thegriffon]

But are the stocks issued during bankruptcy still good after bankruptcy? Or are new shares issued, and the previous shares become worthless?

[post="43192"]<{POST_SNAPBACK}>[/post]

Stocks aren't issued "during" bankruptcy. If things go very well there may be a small return for investors, but whe the company emerges from bankruptcy the old shares are almost always cancelled and new shares issued to a new set of investors.

The decline in GM's share price highlights why it may be a very bad idea to have pension obligations funded by your own stock. The stock declines, your unfunded pension obligations increase, causing your stock to decline ... and you find yourself in a vicious cycle. If you're going to invest in any auto company it should be toyota, with steadily rising profits, increasing dividends. The stock is around $45 per share ($90 for the ADRs sold in the US), with an annual dividend payout of around 56c per share. With a market cap of $162 billion, the pension fund (said to be some $90 billion) could buy a very large chunk and demand a higher dividend. A total of 120 Yen ($1) per yer share annually would be high but not unreasonable - just over a third of net income.

[VenSeattle]

Question? If GM declares bankruptcy, will it be for just GMNA? or will it impact all GM regions like GME, GMAP? When Delphi declared bankruptcy it was just for their NA division. I'm wondering if GM is structured to allow the same option.

[Polish_Kris]

GM needs new management, just like Canada needs a new Prime Minister! lol :P :CanadaEmoticon:

[SimonDavid]

What happens in bankruptcy - - The stock becomes worthless, as stated above the old stock is usually cancelled - The company effectively comes under the control of the court during the restructuring period - any major new spending or cash disbursements need to be authorised by the court - Labor contracts are rewritten - Delphi is getting a short time to reach a new agreement with the union, after that the court can just impose terms. The UAW can legally strike but the company can legally hire a new workforce. - Legacy costs will be cut down significantly - Overseas operations will not be affected - The big question mark is the affect on consumer confidence - I think this is the first time a company selling a consumer durable to an end customer has done chapter 11 - there is very little risk when you buy a flight from an airline in chapter 11, but buying a car....

[corvettekidc6]

If, GM does go bankrupt, and the company slits up, what brands would still survive? My best guess would be Chevy and Caddy. The weaker brands such as Pontiac and Buick could be lost if they do. With Saturns "Revolution" they might be able to make it if GM does split. Hopefully, brands like Chevy and Caddy wil adopt a lesser brand of GM and keep them on the market. But only if GM does go bankrupt and change ALOT. The problem with GM is that they have Lutz in charge of them. That's that reason that they are going bankrupt.Get Lutz out of there and replace him with Robert Penske. He's that guy that bought Detroit Deisel from GM and turned them into a billion dollar company. But really. if they do go bankrupt, I'd be glad to pay taxes to help get GM back on their feet. GM has been in tought situations like this before and they got out of them. They'll get out of it this time too. Just like the 90's finacial problems.

[G. David Felt]

B) GM is a great company that has had bad management with far too many yes boys on top and a gready UAW.

To set the record straight, everyone must remember that the unions did great things during the industrial revolution and up to the 60's in helping build a quality of life, get kids out of the work force and benefits for the common man. I take nothing away from negotiating a fare contract.

Yet today, being the last 30-40 years, the unions have gotten corrupt, political hungry and over all forgotten to see the bigger picture for basic manual labor. Does a assembly line worker deserve to out earn the college educated? No offense, but last time I looked those that use their brains usually earned more than manual labor. At the same time taking nothing away from high school educated only line workers, they need a fare wage and benefits, but not the current socialist system the UAW has set up.

Unions were good up to a point and now they are worthless, truly not helping the class of workers they were supposed to represent. IMO

Bankrupcy for GM = GOOD, Keep in mind the asian auto companies get ton's of special help from the governments, so why not allow our companies to shed their debt / Legacy obligations and be on an equal fighting stance.

GM gains by shedding the UAW, Legacy obligations, finally close down under performaning divisions, Buick, Pontiac and maybe GMC. Stream line a clean product line of entry level = Chevy, Middle Level = Saturn and Luxury = Caddy.

Bad news for tax payers who get stuck with the debt loss, Legacy pension as the government takes over and a loss in customer support. Yet keep in mind, Chrysler had junk on the roads and turned around based on marketing, GM can do the same thing.

All in All, this really can be a positive thing, no matter how you look at it.

FOR THE STOCK BUYERS: Unless you can afford to loose all the money you invest in a stock that might or might not go bankrupt, stay away!

Leave playing daily changes in the stock price to those that desire to take the risk and can loose the money. Many a middle income person lost their life savings trying to buy bankrupt companies or those close to it.

I admit I have played and for the most part done well with KMART, WorldCom, Eron, etc. There is money to be made if you time it right and buy low, sell high and keep changing hands daily, but then like another member has stated, if a company comes out of the Chapter 11 when you are still holding, you loose big time.

I say goodluck to GM, they need a major change from executive on down and a change of their divisions.

[avro206]

You sir, have never had to replace the oil seal on 2.8 and dozens of head gaskets on 3.1s and 3.4s. But yeah. you are right on the other ones.

[post="43362"]<{POST_SNAPBACK}>[/post]

Your right. But I hjave owend 3 cars with 2.8Ls and had no problems. Guess it just depends.

I have never heard of head gasket problems on a 3.4L----intake manifold gaskets yes. Wifes GAGT had that done.

[Northstar]

The problem with GM is that they have Lutz in charge of them. That's that reason that they are going bankrupt.Get Lutz out of there and replace him with Robert Penske.

[post="43417"]<{POST_SNAPBACK}>[/post]

:rolleyes:
Do you homework before you post. Almost none of GM's new products are Lutz, with the only totally Lutz vehicle being the Solstice, a smash hit. The GMT900s have Lutz details, and they appear to be kick ass. We'll see what the Lambdas and other vehicles and NAIAS look like, then we'll see if all these problems are because of Lutz.
:rolleyes:

[IbuyGM]

THE GMT 900's will still come out as planned no matter what happens.

[wildcat]

According to comments by dfelt, if GM files for bankruptcy, it should drop Buick and Pontiac.

Should that happen, I promise that I will be one customer who will NEVER buy any GM product again (and I have been a loyal GM customer up to now). In fact, I will hope for the day that whatever "new" (Buick and Pontiac-less) GM emerges will fall flat on its face. And I don't think I'd be alone; there are many long-time Buick and Pontiac customers. Also, I don't think GM can recover from the stigma of being bankrupt.

Therefore, I suggest that GM do the best it can with the brands it has now. I think if it hangs in there, it will not need to file for bankruptcy. Bankruptcy would be the easy way out. Anybody can start from a clean slate. Let's see GM right itself on its own and be loyal to the brands that helped make GM a major player to begin with.

[razoredge]

According to comments by dfelt, if GM files for bankruptcy, it should drop Buick and Pontiac.

Should that happen, I promise that I will be one customer who will NEVER buy any GM product again (and I have been a loyal GM customer up to now). In fact, I will hope for the day that whatever "new" (Buick and Pontiac-less) GM emerges will fall flat on its face.  And I don't think I'd be alone; there are many long-time Buick and Pontiac customers.  Also, I don't think GM can recover from the stigma of being bankrupt.

Therefore, I suggest that GM do the best it can with the brands it has now.  I think if it hangs in there, it will not need to file for bankruptcy.  Bankruptcy would be the easy way out.  Anybody can start from a clean slate.  Let's see GM right itself on its own and be loyal to the brands that helped make GM a major player to begin with.

[post="43664"]<{POST_SNAPBACK}>[/post]

Yea, so many of these brainiacs here seem to have a hard time comprehending what GM is and what it will not be when they get done with their little follies. When they are done they will not be GM any more so whats the point ?

[ehaase]

Therefore, I suggest that GM do the best it can with the brands it has now. 

[post="43664"]<{POST_SNAPBACK}>[/post]

Which is what I believe will happen. And I don't think GM will declare bankruptcy for the next 5 to 10 years, even though Wall Street seems to want it to. It will generate enough cash just to survive and pay its bills. But I do think that Buick will have no more than 3 or 4 vehicles in its lineup. GM just doesn't have the money to return Buick to its glory days.

[drew770]

The only thing that is preventing GM from filing bankruptcy is that it is sitting on a cash hoard of 19 billion dollars. But, if GM, Delphi & UAW make a deal to buyout most of Delphi's union contracts that will eat up alot of it's cash.

The good thing about a company as large as GM filing bankruptcy is that it will send a message to our government that "Free Trade" is not necessarly "Fair Trade" plus the need for health care reform is as vital to this country as us getting off of middleastern oil!!

I agree with alot of people that GM has brought this onto themselves but our "Hate America" media has been part of the problem also. We never hear about the good things coming from GM or any of her successes. All we hear is the doom and gloom. But this is the type of news that make headlines.

During bankruptcy GM will get a chance to look over all contracts and their balance sheets to see what is viable and what is not. Plus, the Judge will want to see a sustainable plan of action to get out of bankruptcy and to become profitable. This puts the onus back on management to come up with a plan to get back market share without relying on trucks and suvs.

I don't think GM would want to get rid of any of it's brands because of all the platform sharing that is going on but what GM would like to have a chance to do is to rework it's dealer franshises. To force Cadillac as a stand alone store and to get Buick, Ponitac, & GMC dealers together faster than what is going on currently.

Also, GM will be among every airline besides for JetBlue and Southwest, Texaco, Kmart, and Delphi to file for bankruptcy and they are still up and running all a bit smaller than what they went into court as. GM will survive bankruptcy and the media rush to judgement.