Bankruptcy for GM?

Today, it was released in GM's annual report filed with the U.S. Securities and Exchange commission that the company's auditors express doubt of the ability for GM to continue without declaring bankruptcy.

When you think about it, from a money point of view, they kind of have a point. Over the last 3 years, General Motors has issued a net loss of nearly $80B according to reports I could find on the GM Media Web site. We're looking at losses of $2B in 2006, $43.3B in 2007 and $30.9B in 2008. Then you have the fact that GM posted a 53 percent drop in sales for February 2009 over February 2008. The automaker has thus far received $13.4B from the government and is seeking a total of $30B.

The prognosis doesn't seem to look that great.

But, I would still argue that GM won't necessarily need to declare bankruptcy.

First, look at the product in the pipeline. From the Pontiac G3 to the Chevrolet Cruze to the hybrid pickup trucks to the 2011 Chevrolet Volt, there's a lot of good stuff here. The automaker is working toward a high tech and fuel efficient lineup. Remember their tagline: "From gas friendly to gas free"? It's so true.

While you have a lot of stick-in-the-mud manufacturers who refuse to acknowledge hybrids as a viable business plan or who are happy with the status quo of their lineups, I've seen GM constantly search for alternatives. In my article "Fuel Frenzy" from January of 2008, I break down GM's fuel friendly initiatives, including Project Driveway, which put 100 fuel cell vehicles directly in the hands of consumers.

Aside from the Honda FCX Clarity, I haven't seen a lot of real-world attempts by manufacturers to find a solution to our dependency on oil. In my mind, GM is the manufacturer who's been consistently stepping up to the plate.

Yet we, the consumer, seem to pan them, avoid them and hurl insults at them every chance we get. Sure, they went through a rough patch with gas guzzling trucks and poor fit and finish, but have you looked at their product lately? What about the new Chevrolet Malibu? The Pontiac G8? The Cadillac CTS? Heck, even the Chevrolet Aveo is a really nice vehicle when it comes down to it.

Another reason I don't think GM should or will declare bankruptcy is that I don't think it's fiscally responsible. Per Appendix L in the viability plan GM submitted to the government on Feb. 17, GM would actually require less government funding in out-of-court restructuring than they would in three different bankruptcy scenarios considered by the company. We're talking $33B for the out-of-court restructuring vs. $45B, $57-70B and $86-103B for the three scenarios.

Not to mention the stigma associated with the word "bankruptcy." For an American automaker who's already been getting a bum rap, that could be the death knell. Consumer confidence would be shot to hell, more layoffs and cuts would ensue and, quite possibly, GM would not survive.

Some startling statistics GM quotes in its plan:

• 80% of people who intend to purchase a vehicle within six months said they would not acquire from a company that filed for bankruptcy. (CNW Research 7/08)

• 32% of new vehicle intenders who decided not to buy GM cited possible bankruptcy
discussions. Bankruptcy is #1 Reason for Avoidance for GM. (CNW Purchase Path
11/08)

• 21% of respondents indicated they were ―very likely‖ to acquire from the Big 3; figure drops to 10% if the Big 3 company was to go bankrupt, an overall reduction in purchase intent of 50%. (MORPace Research 11/21/08)

• 33% would not consider a Detroit-brand vehicle if the company were in bankruptcy
court. (USA Today/Gallup Poll 12/16/08)

• 39% of GM considerers in a national panel (representative of the general U.S.
population) said they would drop their consideration of GM if GM files for bankruptcy. (TNS Online Express Omnibus Survey 02/10/09)

So, while I think that GM has a tough road ahead, I do not think bankruptcy is a viable option. And, for now, GM seems to agree with me. Their response to the auditor's "going concern" is as follows:

"Auditors are required to assess whether there is substantial doubt about an entity's ability to continue as a going concern over the next year. Given GM's public statements on our liquidity position dating back to the end of 2008 and more fully disclosed in our February 17 viability plan submission, the opinion rendered in our 10-K was not unexpected.

"That opinion is dependent on a number of factors including our ability to execute our viability plan, compliance with our U.S. Treasury loans, volume recovery of the industry, and access to additional funding from the U.S. and certain other governments. Once global automotive sales recover and GM’s restructuring actions generate the anticipated savings and benefits, the company is expected to again be able to fund its own operating requirements.

"The auditor’s opinion has no impact on the aggressive actions we are taking to restructure our business for long-term viability."

Will GM survive? Why or why not? I would love to hear what you think. Remember, you don't have to log in to comment, you just have to select "Anonymous" from the drop down menu.