Friday December 12, 2008

GM, Chrysler may go bankrupt after Senate rejects auto bailout plan as talks collapse

This article belongs to the GM, Ford and Chrysler bankruptcy watch story arc.

The bailout plan for GM and Chrysler was rejected after talks failed over Republican senators' demands that union workers accept a cut in wages next year. GM and Chrysler said they may run out of cash as sales head toward their lowest in 17 years. President Bush must now decide whether to let the companies collapse or find another way to channel government funds. Minutes after the vote, he was pressed to tap funds from the Treasury's $700 billion bank-rescue fund.

GM said it will lack the minimum $11 billion needed to pay bills by end Dec 2008, raising the prospect of bankruptcy should it fail to win a cash infusion. An attempt to restructure GM in bankruptcy would end up as liquidation, as buyers flock to solvent car companies. Chrysler said it will run out of money early 2009. Pressure was mounting on GM and Chrysler as both faced demands from partsmakers for payments in advance because of bankruptcy concerns. Ford CEO Alan Mulally said his company doesn't need emergency loans, though he predicted it could be dragged into bankruptcy by a GM failure. GM is reeling from almost $73 billion in losses since 2004 and a 22% plunge in US sales this year. Job losses would total 2.5 million to 3.5 million from an automaker failure in 2009, including 1.4 million people in industries not directly tied to manufacturing, according to a report from the Center for Automotive Research.

- There is no way that the Big 3 US car companies can survive in their present form, dragged down as they are by high wage costs, underfunded pension plans, healthcare costs, and worst of all, a lack of buyers, and with all the above compounded by the ongoing global economic collapse.

The implications are staggering. There will be millions of jobs lost. The unemployment rate will climb into the 10- and 20-percent range, confirming entry into The Second Great Depression. If there is a cascade failure, and it looks like there may well be, the unemployment rate could start to approach 50% - half the country jobless.

See also :

1. GM, Ford, Chrysler face bankruptcy risk on crisis : S&P
2. GM to cut 25000 jobs in U.S. by 2008
3. GM risks bankruptcy as it runs out of cash, losing $73 billion since 2004, suspends Chrysler merger
4. GM share price target cut to zero by Deutsche Bank
5. GM collapse could cost $200 billion in bailout, 2.5 million jobs lost

(2008-12-12 23:40:22 SGT) [Biz] Permalink

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