Three Weeks to Midnight

Let’s see, GM has three weeks until it must pony up a plan for saving itself to the Feds.

That means getting concessions from the UAW on: wages and work rules, paying for retiree health care, and bickering over planned job cuts and plant closings. There will be bickering not just with Ron Gettelfinger, but with the Canadians: The CAW was told by its government on Thursday to negotiate a new deal with GM.

And the deadline also means getting bondholders who hold $27 billion in GM debt to settle for a minority 10 percent stake in the new company. They want a majority stake, but Treasury won’t buy that. Moreover, there’s the small matter of the company’s cash burn rate. It plowed through $10.2 billion in the first quarter of this year, worse than some analysts expected.

The prospect of bankruptcy in turn creates an impact on sales, which are dismal. GM has to figure out how to move product, eliminate or sell brands, and close hundreds of dealerships protected by state laws—all in three weeks. Oh, and let’s not forget, it also has to negotiate a deal with Fiat to sell Opel, plus get rid of Saab, Hummer, and Saturn.

We have a cascade of really difficult scenarios, all playing out at once. I have a hunch that if GM could get the bondholders in line, some or most of the other problems might get resolved, but the probability of that happening is remote. So bankruptcy looms, as Fritz Henderson acknowledged in his online press conference this morning.

He got some puffball questions about how good the company’s cars are and put off most of the hard ones (which he more or less had to do):

I understand the concern and quite bluntly fears that people have today. We will need to take further measures in this area to lean out our management structure and simplify the work of our salaried work force, which will mean we need further moves. I anticipate communicating our plans in this regard by the end of this month.

I don’t know if it’s good or bad news, but it was also reported today that GMAC, the financing arm for GM and now Chrysler, could receive up to $7.5 billion more from the Treasury in TARP funds. This bank still looks like a big loser to many people, and though it will still need more money, don’t look to private investors.

We can all remember the wretched onslaught of TV ads from Ditech, the noisy online lender that was absorbed into GMAC and contributed mightily to the current mortgage mess. If the government wants/needs to fund the GMAC enterprise, whose failure would cause real systemic problems, they are welcome to do so.

GM stock was selling at $1.46 at 1:30 pm today.

Do you think GM will successfully emerge from bankruptcy? How?

—jgoods

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