GM faces bankruptcy..

[Apollo]

2nd UPDATE:Merrill:GM Needs $15 Billion,Bankruptcy 'Not Impossible'http://www.dj.com/ July 02, 2008: 04:43 PM EST Updates stock price, crude oil price)

By Ed Welsch and Cynthia Koons

Of DOW JONES NEWSWIRES

 

 

NEW YORK -(Dow Jones)- General Motors Corp.'s (GM) stock fell 15% Thursday after a Wall Street bank warned the automaker could stumble into bankruptcy, and oil prices hit a record high.

 

Merrill Lynch warned Wednesday morning GM is burning through cash faster than investors realize and may even face bankruptcy if the auto market worsens and it can't raise enough capital. Merrill downgraded GM shares to underperform from buy.

 

At the same time, crude oil futures settled at a new high of $143.57 a barrel Wednesday, adding more pressure on the automaker which has already seen sales of its sport-utility vehicle and pick-up truck sales fall sharply.

 

GM's stock, at $9.98, is at its lowest price in at least 36 years.

 

GM's troubles have weighed on the broader stock market, helping to push the the Dow Jones Industrial Average into bear territory. The Dow fell 166 points to 11,215 points.

 

A GM spokeswoman declined to comment on Merrill's report.

 

"Bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised," the Merrill analysts wrote, while also increasing the firm's expectations for GM's losses this year and projecting the automaker will report a loss next year as well.

 

Merrill believes GM will need to raise $15 billion in capital to fund its operations for the next two years - more than the between $5 billion and $10 billion analysts had previously forecast. The capital raise would come partly from existing credit facilities, with the remainder through a combination of secured debt, asset sales or even by effectively borrowing from the United Auto Worker's independent trust created to fund retiree health care, the Merrill analysts said.

 

Not all analysts were as bearish about GM's cash needs. Shelly Lombard, an auto analyst at Gimme Credit, said while GM may need additional liquidity, some of the fund-raising required may just be cash for an "emotional security blanket" to assuage investors' anxiety.

 

GM could secure some of its more profitable international operations to issue debt against. In its most recent earnings report, GM's pretax earnings from international results - helped by growth in Asia and Latin America - nearly doubled to $1 billion, while its pretax losses in North America quadrupled to $ 812 million.

 

"When we look at the assets that are available, the existing term loans outstanding are securitized by primarily domestic property, plant and equipment, " Kingman Penniman, president of KDP Investment Advisors, said. "I don't know how much is left there as a cushion. We have the impression most of their foreign assets have not been securitized for a debt package."

 

Fundraising Challenge

 

GM's fundraising options have narrowed significantly as its fortunes and credit ratings have declined.

 

The automaker's falling share price could make it more difficult for the company to raise convertible debt. With GM's bonds trading as low as they are - the 8.375% notes due 2033 are actively changing hands around 57 cents for a yield of 15% - the company will have to pay extraordinarily high finance costs in the unsecured junk bond market if it attempts to drum up funds there.

 

In its first-quarter report released in early May, GM said it believed it had enough capital to meet its requirements this year. The company said it may take several actions to conserve liquidity "if the current adverse economic conditions persist or deteriorate further," including cutting structural costs further, selling non-core assets and delaying or cutting some capital spending.

 

The company also said in its report it could cut its dividend or raise capital through the public markets or through debt if necessary.

 

Merrill's report throws cold water on budding optimism that followed GM's June sales report Tuesday, which showed late-month sales incentives helped the Detroit automaker post a slimmer loss in sales than competitors Toyota Motor Corp. , Ford Motor Co. (F) and Chrysler LLC.

 

"We believe that the weakness in demand and deteriorating mix through the first half of 2008 are just the beginning of what is shaping up to be a more severe downturn than even the most bearish industry observers expected," the Merrill analysts wrote.

 

Derivatives investors already have an extremely negative view of GM.

 

The cost of insuring GM's bonds has already fallen to levels that imply investors are positioning for bankruptcy.

 

The derivatives presently imply investors must pay a $3.7 million fee on top of $500,000 annually to insure $10 million of GM's bonds for five years. That has risen from a fee of $2.35 million within just the past few weeks.

 

High-Yield Market To Suffer

 

It's an ugly scenario for all of the U.S. automakers and also for the junk bond market, in which the companies are major issuers.

 

With around $200 billion notional auto and auto finance debt in the markets, "significant auto sector dislocation" could be a catalyst for broader deterioration in high yield," said Jeffrey Rosenberg, a Banc of America analyst, said.

 

The cost of insuring Ford Motor Co.'s (F) bonds has similarly been rising over the past few weeks as a result of this bearish sentiment about the health of the U.S. auto market. Ford has an advantage to GM, however, in that the company secured $18 billion of new debt in late 2006, before the credit markets seized up.

 

-By Ed Welsch and Cynthia Koons, Dow Jones Newswires; 201-938-5451;

 

http://money.cnn.com/news/newsfeeds/articl...20_FORTUNE5.htm

 

 

rainy days coming better stop spending unnecessarily. editted... storm and hurricane coming.

 

those who can barely afford to drive better give up while u can.

[Qr25vet]

they got what they deserved....i've always never respected GM's marketing strategy...making cars lose their identity and turning brands to nothing more than a badge...

[Mustank]

but i like their GMC yukon denalli xl

 

you know the one they feature in bad boy 2

[Drive_carcar]

Theirs is a very "bo-bian" and somewhat flawed strategy.

 

Marketing is all about the badge and the image that it represents. Hardly about the actual product, and it's quality. Unfortunately, many people still perceived Korean and Thai made cars to be lesser than Jap cars. It's a perception thing, whether or not it is actually the case is another story.

[BoneStock]

their sister company Delphi automotive already filed for chapter 11 if I am not mistaken

[Watwheels]

So the rumours of Ford selling Volvo to Renault is quite true?

 

Will they sell Ma*da and Op*l too?

Edited July 4, 2008 by Watwheels

[Friendstar]

i'm surprised this statement comes from a person who just bought a jap car

[Friendstar]

they own AMD meh?

[Apollo]

Self Pwned!

[Drumstick]

They already done that about 2 yrs ago in US...

[Starengine]

some chinese company may buy it...

[Drive_carcar]

No lah... I bought a Civic because it's a Civic.... heheh

 

 

Hope it's at least a reasonably good magnet.

[Rickster]

So the rumours of Ford selling Volvo to Renault is quite true?

 

Will they sell Ma*da and Op*l too?

 

Renault alrdy threw $ into nissan a few years back, its amazing they still have $ to throw into volvo as well.

[Rickster]

Its a good car, unfortunately it has become the no.1 most common car on the road liao. No longer have any exclusivity, thus not a strong babe magnet at all...but if its the CTR its a differnt story altogether

[Drive_carcar]

Ooooohhhh! CTR!

 

I've been having wet dreams about the car every since I saw one and sat in the cockpit...

[Daveneo]

Just checking. how will this affect the owners in Sg? eg. warranty issues...

 

Dave

[Apollo]

dun worry lah.. they beri common to file Chpter 11 for protection

 

pple is 100+ yr old biz.. wun collapse so easily.

[Ultramega]

Can almost 99.99% guarantee they won't collapse, at least not overnight. Government won't let this kind of super huge company collapse. If they collapse, hundreds of thousands of people will go out of job, then next thing government also collapse.

 

Most likely the government will pump money into the company to keep it afloat, or give high tax rebates or something. The government is actually saving themselves by doing that.