GM Working Toward $100 Billion in the Red; Bankruptcy Filing Imminent
By Michelle Krebs May 26, 2009By Bill Visnic
With a barely noticed new "draw" of $4 billion from the U.S. Treasury Department late last week, General Motors Corp. is sputtering its way to a long-expected bankruptcy announcement that some insiders speculate could come as early as Wednesday.
Last week's cash infusion to GM brought the total government investment in the company to $21.6 billion by June 1, The New York Times reported. In addition, GM has said in Security and Exchange Commission filings that it will need more than $7.5 billion after June 1 to continue operations.
GM has a June 1 deadline to deal with its union contracts and barter with recalcitrant bondholders in order to prove it can restructure outside of bankruptcy. Bondholders have until midnight Tuesday to agree to a debt-for-equity swap.
If GM takes another $7 billion-plus after June 1, government loans -- extended through the Treasury Department's Troubled Asset Relief Program (TARP) -- will exceed $28 billion. Add that indebtedness to the nearly $70 billion combined that GM lost in 2007 and 2008 and the company is approaching an astounding $100 billion "loss" in the past two-and-a-half years.
But a tenth of a trillion dollars will not be the depth of GM's red-ink sea. If the company declares bankruptcy, The New York Times reports that those familiar with the situation say GM could require another $40 billion to $70 billion in debtor-in-possession financing.
Adding a possible $90 billion in government loans to GM's 2007 and 2008 combined loss of nearly $70 billion and GM might swallow up as much as $160 billion to stay afloat from 2007 through 2009.
Meanwhile, although the United Auto Workers union last week said it would rework its contract with GM to help the automaker further reduce labor costs and liabilities to the union's retiree health care fund, some in the industry believe GM may not wait for the June 1 restructuring deadline set by the Obama Administration's Auto Industry Task Force and could declare bankruptcy this week if it is not able to win the deep concessions the company is asking of its debt holders.
Because of GM's size and international scope, some think the company will decide to quickly move to bankruptcy in order to win more time to work the immensely complex bankruptcy case GM is certain to present.
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GM needs to just pull the band-aid off fast and be done with it. They know they are going to have to file since the bond holders are never going to take the proposed haircut, especially when the institutional holders can make more from the CDS's they purchased.
The faster GM can file and get the news cycle behind them, the faster they can work to recover their finances and public perception.
I'm having a difficult time trying to understand how GM is ever going to pull out of this tailspin. I gather this doesn't include the money they have received or will receive from other countries where thy have operations. They must be losing $5- to 6 thousand dollars on every vehicle they build in the USA.
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