Is General Motors headed for bankruptcy, much like fellow automaker Chrysler? If you ask the experts, they will say yes.
The reason, experts say, is that in order to forestall a Chapter 11 bankruptcy, the number of issues it must overcome are so great, the odds are nearly infinitesimal.
First, GM must persuade bondholders to swap $27 billion in debt for 10% of its stock. Have you seen the price and the analysts' opinions of the company? Enough said. Debt problems, and the inability to work out deals, felled Chrysler.
Second, the automaker must work out deals with the UAW, cut (they already announced a cut Pontiac, but they also have to worry about other brands), and possibly force many dealers out of business, and they have three weeks to do it.
On Thursday, GM posted a $6 billion first-quarter loss. Let's be honest, bankruptcy fears scared customers away from showrooms, despite the assurances by the U.S. government that even in the event of bankruptcy, warranties and service would be backed by the feds.
Additionally, Ch. 11 bankruptcy allows for restructuring; it does not mean a company is dead. Some have said that the reason Chrysler could not restructure its debt is because those who refused to deal were hoping for a better government bailout.
Kevin Tynan, an industry analyst for Argus Research in New York said:
"When you look across at what the union is getting and what the government is getting, to expect them to take 10 percent is just unrealistic."
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