Commentary: General Motors admitting bankruptcy risk is no surprise

Friday, March 6, 2009

Daniel Howes

Commentary: General Motors admitting bankruptcy risk is no surprise

Now is it real?

Now do the skeptics, the deniers and the deluded understand that General Motors Corp., the archetype of 20th-century American industrial power, truly is facing the kind of existential threat that reshapes lives, fortunes and communities if the worst is realized? The automaker’s 10-K, filed Thursday with the Securities and Exchange Commission, should dispel any lingering doubt.

GM’s clear admission that it would be forced into bankruptcy should its "Viability Plan" fail, should sales languish or should the federal government stop pumping billions into the automaker is being treated as news, but I’m not sure that it really is if you’ve been paying attention.

Company brass, starting with Chairman Rick Wagoner, months ago dropped the silly pretense about bankruptcy not being "an option" because, in fact, it has been for some time — whether they wanted to acknowledge the chatter and publicly admit it or not.

All Thursday’s filing did was state the facts clearly in a legalistic government document that should be easy to understand and impossible to deny. Or view it through the prism of a) GM’s $1.88 share price and b) its meager $1.14 billion market cap and c) its massively expanding debt load and d) metastasizing troubles in Europe that have forced GM to seek $4.2 billion in government aid there, too.

This is an unambiguous statement to the Obama White House, the president’s auto task force and the few members of Congress who care: the flat-lining economy and abysmal auto sales have the General (and most of the rest of the industry, if the slide lasts long enough) on a one-way street to some kind of bankruptcy.

And time, in the real world of business, bond covenants and financial markets, matters.

"Even if our progress under the Viability Plan … is successful, our indebtedness and other obligations will continue to be significant," GM said in the filing. "If the current economic environment does not improve we are not likely to generate sufficient cash flow from operations to satisfy our obligations as they come due, and as a result we would need additional funding, which may be difficult to obtain."

Ya’ think?

GM’s filing is certain to amp up critics whose bottom line is simple — rescuing GM from itself is a hopeless proposition, they’ll say, and the 10-K pretty much proves the point. It also should remind the White House just how perilous a GM failure could be for their friends in labor, voters in the industrial Midwest and a fragile national economy.

The mounting troubles in the auto space — the French automakers, Toyota, Honda and Mazda, too, are seeking help from their governments — demands less ambiguity, more solutions and a lot more confidence building from the new administration.

Should it back a scrappage program like the successful one in Germany that is offering rebates to buyers who trade a 10-year-old car for a new, more fuel-efficient one? The environmental lobby would love it.

Should Team Obama revive Maryland Sen. Barbara Mikulski’s proposal to deduct interest payments on new vehicles? Should it slow-walk tougher federal fuel economy rules that force automakers to make incremental product development investments when they can least afford them?

GM’s awful predicament is nothing to cheer, especially in the communities — like this one — whose well-being and whose people are so deeply intertwined with the automaker. But denying the depth of its troubles, as e-mails in my inbox suggest, won’t erase the arc of the next few months, probably the most consequential weeks in the company’s 100-year history.

No question, GM’s weak balance sheet, punishing debt and excess capacity make it the industry’s leading basket case and could well tip it into bankruptcy, most likely one guaranteed or financed by the government.

GM also won’t be alone, ranking industry executives have told me in the past week, if Americans sit on their wallets and the sales trends of December, January and February keep repeating each month into the spring or deep into summer.

Then GM would just be a prelude to the main event — if that’s conceivable.

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