|
Answer:
Dear BuyandHolders,
The answer may sound a little vague and somewhat waffley -- that’s because no one knows for sure. We will present the facts for your consideration; then your educated opinion will be as correct as anyone else’s!
Five factors to enter into the yes or no equation:
1) Previous examples
In the not-too-distant past, other large blue-chip type companies have declared bankruptcy and emerged as viable businesses.
All this means, however, is that General Motors has several examples from which it can learn and perhaps on which it can model aspects of its own reorganization plan.
2) Size
Although being a large company generally improves the likelihood of survival, it’s not a given. Think Circuit City, which filed for bankruptcy last November and failed to thrive and survive.
3) Pre-arranged financing
Pre-arranged financing is a great plus. No one will argue about that. And, GM’s external financing comes from a pretty solid source – the U.S. government. On the other hand, Circuit City’s $1 billion+ in outside financing didn’t solve its financial woes.
4) A debt reduction plan
A major reason to declare bankruptcy is to reduce debt and to cut operating costs. Among the means to achieve these goals is ending exorbitant lawsuits, expensive contracts, overwhelming employee benefits, and ongoing and/or future leases.
GM addressed these points in a recent announcement in which it stated that it will cancel almost 1,500 dealership agreements, close additional U.S. factories and sell some of its European units (including Opel to the Magna, a Canadian auto parts manufacturer). It is also putting the final touches on a new cost cutting deal with labor, as represented by the United Auto Workers (UAW). In addition, over 50% of the company’s bondholders have agreed to a plan to reduce debt.
5) Facing competition and anticipating future trends
These are essential to a company’s survival through the bankruptcy procedure. We now know that GM overreacted to America’s love of trucks and big cars so that when fuel prices went sky high and drivers turned to non-gas guzzlers, GM was left holding the bag, a bag filled with Hummers. (Some of the high end models, such as the H2s, consume almost 10 miles per gallon!)
This week, GM told shareholders and the government that it will build a small car plant at one of its empty (yet to be announced) assembly facilities. The small car, also yet to be named, is in addition to the already announced plug-in Chevrolet Volt, due on the lots at the end of 1010.
Fritz Henderson, president of GM, issued the following statement:
"Small cars represent one of the fastest growing segments in both the U.S. and around the world. We believe this car will be a winner with our current and future customers in the U.S…. The retooled plant will have the ability to build 160,000 cars annually.”
Many investors and non-investors alike wonder where GM has been during the past decade and why it’s now just catching on to the small car craze. Skeptics also wonder if this move will come about in time to save the company.
Note: In the late nineties, GM dropped its EV1, a small electric car. (The test cars had to be recalled and management left it at that.) Critics maintain that GM could have been a leader in the growing green market. Instead, it gave it up and Toyota’s hybrid Prius became the winner.
Past failures, however, need not necessarily mean future failures. New leadership, with the help of bankruptcy and an infusion of cash may be able to address the company’s problems and devise new solutions.
TIP: The media has been covering General Motors 24/7, so you won’t have any difficulty in following the company through bankruptcy. Keep in mind that some of the best reporting is done by journalists near the source – that is, in the company’s own back yard. Continually check the articles in the Detroit Free Press, on the newsstand or at: www.freep.com.
Good luck!
BUYandHOLD does not recommend any securities. The securities mentioned above are being used for illustrative purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy.
.
|
