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GM On Verge of Bankruptcy



July 22 (Bloomberg) -- General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, have about a 46 percent chance of default within five years, according to Edward Altman, a finance professor at New York University's Stern School of Business.

``Both are in very serious shape and the markets reflect that,'' Altman, the creator of the Z-score mathematical formula that measures bankruptcy risk, said in an interview with Bloomberg Television. The model shows that these companies are ``on the verge of bankruptcy,'' he said.

The Z-scores for GM and Ford give both a bond rating equivalent to a CCC ranking, though GM is in slightly worse condition than Ford, Altman said. GM reported a $38.7 billion loss in 2007, the biggest in its 100-year history, and hasn't posted a profit since 2004. The scores are based on the companies' finances at the end of the first quarter.

Moody's Investors Service said July 15 it may cut GM's Caa1 senior unsecured debt rating because the Detroit-based automaker's plan to raise at least $15 billion by suspending its dividend, cutting management payroll by 20 percent and selling assets may not be enough to offset losses. Standard & Poor's also said in June it may lower GM's B rating. Altman said the plan to raise $15 billion may improve GM's outlook.

Ford, based in Dearborn, Michigan, is rated Caa1 by Moody's and B by S&P, which said in June that Ford's rating may also be cut.

``The thing that triggers a default in almost all cases is running out of cash and not being able to refinance,'' Altman said in an interview prior to his television appearance. ``You're not going to go bankrupt as long as you can refinance short-term liabilities. You will go bankrupt if you can't.''

GM Chief Executive Officer Rick Wagoner said in an interview July 15 that the company has the ability to raise cash, and he called bankruptcy ``a bad idea.'' Ford has said it had access to $40.6 billion in funds as of March 31, including credit lines.

GM's $3 billion of 8.375 percent bonds due in 2033 fell 1 cent to 57 cents on the dollar as of 1:56 p.m. today in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 15 percent, or 1,033 basis points more than similar-maturity Treasuries.

Bonds that trade at a spread of 1,000 basis points or more to Treasuries are considered distressed, indicating investors are concerned that the company will default. A basis point is 0.01 percentage point.

``I would not put money with GM right now because the downside is so great relative to the upside, relative to the yield,'' said Altman, speaking in New York. ``Your downside is probably 60 percent on the debt. The risk reward ratio is pretty poor.''

http://www.bloomberg.com/apps/news?pid=20601087&sid=asXjYQuEUW4Q&refer=home
 

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I think if any automaker can pull through.. GM will. Their new vehicles are outstanding and people are changing the way they see GM vehicles.
 

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Bankruptcy remains the best AND worst thing GM and Ford could do.
It is a possibility. But we'll see what happens.

I don't think GM is willing to make the necessary cuts to its product portfolio.
 

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I would say, go ahead and go bankrupt, but I think nobody would buy a car from them if that happened so they would probably windup folding. No, I think the only way for them to come out of this is to continue with outstanding vehicles and consolidate.
 

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GM management needs to do something to make these stories

GO AWAY.

It is a little Odd that Bloomberg prints a storey like this and the stock rallies to over $14.00 a share...
The highest it has been in almost a month.
 

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BK could be a good thing, if the right things happen. I would be more worried flying with a BK airline carrier.

BTW I would not accept as gospel what b-school professors predict. Believe me, I've had a lot of them.
 

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Doesn't this mean that, using the gentlman's own data, there is a 54% chance that GM will not go into bankruptcy. In fact this would mean that there is a slightly better chance that the company will recover in the next 5 years.
I always refer back to the reported, imminent death of Audi in the 80's and 90's. Contrary to these reports and fears the company has thrived, in spite of what experts reported.

Further I agree with Greg Burr, I am not staking my expectations for GM or Ford's future on the opinions of an "Expert" interviewed by Bloomberg TV, or any TV program for that matter. I place them in the same category as the experts that are hired to testify in a court case. His prognostication is very much like the predictions given by soothsayers. "If this happens, what I say will be true."
 

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The saying "Those who can't do, teach." comes to mind for some reason.
 

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OMG! NOOOOOOOOOOOOO!!!!!:eek:*


*Sarcasm
 

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Everyone knows in their heart of hearts that it's inevitable. Do we want this to happen? No. Is it deserved after so many decades of mis-management, wild spending, and total disregard for future trends? Probably.

Watching GM and Ford doing everything to get their hands on some kind of operating cash, reminds me of people who end up mortgaging their homes to buy essentials and paying credit card minimums with other credit cards... it's called rearranging the deck chairs... and insanity. BK is inevitable.

I understand GM and Ford are forced into doing what they're doing, but it doesn't take away from the fact that they need MEGA PROFITS in order to ever make a dent in their debt load. Money trickling in is not nearly enough, fast enough. It would take decades of everything going GM and Ford's way. I just don't see it.

If either does declare bankruptcy, loyal customers would pull back and potential conquest customers (GM and Ford's only hope at this point) would completely dry up.

Pray for a million miracles.
 

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The saying "Those who can't do, teach." comes to mind for some reason.
NYU and Bloomburg are not exactly friends of traditional US corporations.

Any jackass perfesser can do an interview and start rumors. The headline is very deceptive and essentially a psyop for the forces of negativity and evil in general.

How about: "Leading Perfesser Nobody's Heard of Thinks GM, Ford Have Positive Odds Over Next Five Years!"
 

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I hate the media. GM has had some great vehicle launches lately, their products are getting great reviews, they're changing the emphasis from SUV's to more fuel efficient cars and yet all the media can do is print crap like this? A "46% chance they could file bankruptcy" means they are on the verge? What? Let's keep the sensationalism in the Enquirer where it belongs. This is why I won't watch the news.
 

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GM hasn't turned a profit since 2004. The competition is only going to get fiercer. I believe in my heart and soul that GM has a 50/50 chance of making it. The following, among other things, will probably determine whether GM lives or dies:

1) Get the Cruze and the Volt out ASAP
2) Go back to the UAW and renegotiate an even better deal
3) Straighten out the product overlap mess
 

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If you read Fark you can see that certain stories just keep getting recycled. This is one of them. Nothing new, just someone had to put out the "GM is going bankrupt" story again. Wait a few months, it'll re-emerge for some reason.
 

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The worst part is it is on Drudge. The media is too lazy and worthless to do proper investigation so they usually run with what pops up on Drudge.
Yeah, like the Drudge Report is accurate.:rolleyes: Matt Drudge is nothing more than a well-paid troll who does nothing more than post other people's links. He's a Massengill, a Summer's Eve....you get the idea.
 
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