Opposing View
(From Forbes, dated yesterday)
Five Reasons GM Won't Declare Bankruptcy
Richard Lehmann, Forbes/Lehmann Income Securities Investor, 11.14.05, 10:00 AM ET
MIAMI - General Motors recently said that it would have to restate its 2001 earnings by as much as $400 million, spurring fresh downgrades and prompting some analysts to raise the probability that the automaker will declare bankruptcy. The talk about a GM bankruptcy makes for market attention but lacks real substance. Here are a few of the reasons why this is so.
Reason No. 1: You have to be eligible to declare bankruptcy; you can’t just decide it would be strategically beneficial to do so. General Motors (nyse: GM - news - people ), with $19 billion in cash and a book value of $40 billion, hardly meets that test now or for a number of years.
Reason No. 2: GM doesn’t need a bankruptcy threat to win concessions from its unions. It has Delphi (nyse: DPH - news - people ) to do that for them. When the Delphi bankruptcy is concluded, the unions will know what they can expect to win from GM if they force it to use the bankruptcy route. Chances are, they will settle for something close to the Delphi concessions because they have even more to lose with GM.
Reason No. 3: GM as a business is a very valuable franchise. Before it goes into bankruptcy, it would likely reach a merger agreement with a foreign car manufacturer much as Chrysler did seven years ago when it “merged” with Daimler to form DaimlerChrysler.
Reason No. 4: Unlike the airlines, GM and its unions have it within their power to fix the problems. There are a variety of ways this can be done short of bankruptcy. The main battle may well be within the United Auto Workers, pitting young workers against those who are either retired or about to retire.
Reason No. 5: A bankruptcy filing would be most devastating to GM shareholders. It is the duty of the board of directors and management to do everything to prevent that from happening. While this principal seems to have been ignored in several recent bankruptcies, it seems less likely to happen here. Besides, we have Kirk Kerkorian watching to make sure this doesn’t happen. I’d be more worried if he had bought GM debt instead of stock.
Richard Lehmann is editor of Forbes/Lehmann Income Securities Investor.
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