The beating General Motors and Ford took on Wall St. yesterday has people loosely throwing around the word "bankruptcy" this morning. GM made its position clear in a statement just released (read in full after the jump) that "bankruptcy protection is not an option." It's true that both automakers are in a bad way after yesterday's sell off. Shares of GM ended the day at 4.76, which gave the giant U.S. automaker a market capitalization (cost of a single share times the number of shares outstanding) of less than $3 billion, while Ford shares closed at just 2.08 to give the Blue Oval a market cap of $4.7 billion. Further adding fuel to the fire is speculation that the debt rating of each automaker may slip further into junk status.
But how real a prospect is bankruptcy for these two iconic automakers? Though some consider the prospect a real, if almost inevitable, possibility, the reality is that neither GM nor Ford is likely to voluntarily enter Chapter 11 anytime soon. For one, both companies still have billions of dollars of cash on hand that should last them well into 2009, despite the fact they're burning through their reserves at an increasingly quicker pace. They also have still have untapped lines of credit and assets to unload. Ford has sold off a number of its brands like Aston Martin, Jaguar and Land Rover, while GM is seeking buyers for HUMMER and its medium-duty truck business.
But the real obstacle to bankruptcy is the position that these two companies hold in the fabric of American life, which is both material and emotional. Combined they employ hundreds of thousands of people and indirectly are responsible for many times more. They're also more near and dear to our hearts than big investment banks on Wall St., so politicians would likely step in before it was too late. No one can predict the future, and the markets seem to be stuck in a self-perpetuating downward spiral at the moment, but that doesn't mean we should listen to alarmists on TV looking for higher ratings.
[Source: LA Times, General Motors]
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Statement from General Motors
"Clearly we face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets. But bankruptcy protection is not an option GM is considering. Bankruptcy would not be in the interests of our employees, stockholders, suppliers or customers and we believe speculation about a possible filing is exaggerated and unconstructive."
But how real a prospect is bankruptcy for these two iconic automakers? Though some consider the prospect a real, if almost inevitable, possibility, the reality is that neither GM nor Ford is likely to voluntarily enter Chapter 11 anytime soon. For one, both companies still have billions of dollars of cash on hand that should last them well into 2009, despite the fact they're burning through their reserves at an increasingly quicker pace. They also have still have untapped lines of credit and assets to unload. Ford has sold off a number of its brands like Aston Martin, Jaguar and Land Rover, while GM is seeking buyers for HUMMER and its medium-duty truck business.
But the real obstacle to bankruptcy is the position that these two companies hold in the fabric of American life, which is both material and emotional. Combined they employ hundreds of thousands of people and indirectly are responsible for many times more. They're also more near and dear to our hearts than big investment banks on Wall St., so politicians would likely step in before it was too late. No one can predict the future, and the markets seem to be stuck in a self-perpetuating downward spiral at the moment, but that doesn't mean we should listen to alarmists on TV looking for higher ratings.
[Source: LA Times, General Motors]
____________________________________________________
This post has been Twittered. Click here to follow Autoblog on Twitter
Statement from General Motors
"Clearly we face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets. But bankruptcy protection is not an option GM is considering. Bankruptcy would not be in the interests of our employees, stockholders, suppliers or customers and we believe speculation about a possible filing is exaggerated and unconstructive."
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