One analyst puts bankruptcy at GM at 30% after Delphi filing
10-10-05, 07:55 PM
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One analyst puts bankruptcy at GM at 30% after Delphi filing
Will GM follow Delphi into bankruptcy?
One analyst puts bankruptcy at GM at 30% after Delphi filing, but another disagrees.
October 10, 2005: 1:52 PM EDT
By Chris Isidore, CNN/Money senior writer
NEW YORK (CNN/Money) - The chances that General Motors will have to file for bankruptcy are now up to about 30 percent, according to one industry analyst, following the bankruptcy filing by the company's former parts unit, Delphi.
The Banc of America Securities analyst, Rod Tadross, estimated Monday that GM's retirement liabilities are now up to about $6 a share, as the automaker warned Saturday that it could be on the hook for up to $11 billion in contract obligations to its former employees at Delphi.
GM spun off the world's largest auto-parts maker in 1999, but retained responsibility for some of the company's retirement health and pension benefits if Delphi filed for bankruptcy before 2007.
"Our strong belief that the United Auto Workers union will be tougher on GM than Delphi should get GM to more seriously consider bankruptcy protections," Tadross wrote in a report Monday morning.
Tadross also cut his 12-month target price for GM shares to $18 from $32.
Shares of GM (down $1.62 to $26.67, Research) fell about 5 percent, to under $27 a share, at mid-session Monday morning, following the Saturday Chapter 11 filing by Delphi. In Chapter 11, a company is protected from creditors as it tries to reorganize and work out a plan to pay its debts.
Despite billions in losses recently from its core North American auto operations, GM has a healthy balance sheet, with $32.3 billion in cash on hand.
It also has said it has a fully funded pension plan, though that does not include retiree health care costs, which have become a significant burden for the automaker.
Auto analyst David Healy of Burnham Securities said he agrees that Delphi's bankruptcy is a significant hit for GM but one that he thinks the embattled automaker is well positioned to handle, given its strong balance sheet.
"I still think it's unlikely," said Healy about a bankruptcy threat at GM. "I think GM has the liquidity it needs. In addition to the cash, it has $50 billion in untapped borrowing."
Even though Healy said GM probably will have to assume billions in additional contract obligations due to the Delphi filing -- maybe as much as $11 billion -- he said Delphi's move could eventually work out to be a good thing for its former parent.
He believes the United Auto Workers be more willing to deal with GM on the cost savings it is seeking to avoid the risk to more members and retirees. And he said that GM estimates it is paying $2 billion a year in above-market pricing when it buys parts from Delphi.
"A billion here and a billion here adds up," he said. "In the long run a restructured Delphi could supply GM with parts at lower prices."
GM Chairman and CEO Rick Wagoner has said repeatedly this year that the automaker needs to negotiate lower health-care costs for active and retired union members and their families, but has so far not won an agreement in negotiations.
GM spokesman Jerry Dubrowski said the company is not commenting on Tadross' note to clients or its own view of the risk of a GM bankruptcy in light of the Delphi filing.
In its statement Saturday evening, GM said it was too soon to specifically assess the impact of the Delphi filing on its own finances, adding it "expects no immediate effect on its global automotive operations." It said it could potentially face anywhere from zero to $11 billion in contract obligations from Delphi's filing.
Wagoner dodged commenting on the risk of bankruptcy in prepared comments in June when he discussed financial problems facing the automaker.
"What happens if we can't reach agreement with the United Auto Workers on [retiree health-care costs] promptly? Well, I don't believe that it serves a useful purpose to speculate on that," he said at that time.
"Let me just emphasize that our very strongly preferred approach is to do this in cooperation with the UAW, because we're convinced that is the best way for our employees, our stockholders, all our constituents."
One analyst puts bankruptcy at GM at 30% after Delphi filing, but another disagrees.
October 10, 2005: 1:52 PM EDT
By Chris Isidore, CNN/Money senior writer
NEW YORK (CNN/Money) - The chances that General Motors will have to file for bankruptcy are now up to about 30 percent, according to one industry analyst, following the bankruptcy filing by the company's former parts unit, Delphi.
The Banc of America Securities analyst, Rod Tadross, estimated Monday that GM's retirement liabilities are now up to about $6 a share, as the automaker warned Saturday that it could be on the hook for up to $11 billion in contract obligations to its former employees at Delphi.
GM spun off the world's largest auto-parts maker in 1999, but retained responsibility for some of the company's retirement health and pension benefits if Delphi filed for bankruptcy before 2007.
"Our strong belief that the United Auto Workers union will be tougher on GM than Delphi should get GM to more seriously consider bankruptcy protections," Tadross wrote in a report Monday morning.
Tadross also cut his 12-month target price for GM shares to $18 from $32.
Shares of GM (down $1.62 to $26.67, Research) fell about 5 percent, to under $27 a share, at mid-session Monday morning, following the Saturday Chapter 11 filing by Delphi. In Chapter 11, a company is protected from creditors as it tries to reorganize and work out a plan to pay its debts.
Despite billions in losses recently from its core North American auto operations, GM has a healthy balance sheet, with $32.3 billion in cash on hand.
It also has said it has a fully funded pension plan, though that does not include retiree health care costs, which have become a significant burden for the automaker.
Auto analyst David Healy of Burnham Securities said he agrees that Delphi's bankruptcy is a significant hit for GM but one that he thinks the embattled automaker is well positioned to handle, given its strong balance sheet.
"I still think it's unlikely," said Healy about a bankruptcy threat at GM. "I think GM has the liquidity it needs. In addition to the cash, it has $50 billion in untapped borrowing."
Even though Healy said GM probably will have to assume billions in additional contract obligations due to the Delphi filing -- maybe as much as $11 billion -- he said Delphi's move could eventually work out to be a good thing for its former parent.
He believes the United Auto Workers be more willing to deal with GM on the cost savings it is seeking to avoid the risk to more members and retirees. And he said that GM estimates it is paying $2 billion a year in above-market pricing when it buys parts from Delphi.
"A billion here and a billion here adds up," he said. "In the long run a restructured Delphi could supply GM with parts at lower prices."
GM Chairman and CEO Rick Wagoner has said repeatedly this year that the automaker needs to negotiate lower health-care costs for active and retired union members and their families, but has so far not won an agreement in negotiations.
GM spokesman Jerry Dubrowski said the company is not commenting on Tadross' note to clients or its own view of the risk of a GM bankruptcy in light of the Delphi filing.
In its statement Saturday evening, GM said it was too soon to specifically assess the impact of the Delphi filing on its own finances, adding it "expects no immediate effect on its global automotive operations." It said it could potentially face anywhere from zero to $11 billion in contract obligations from Delphi's filing.
Wagoner dodged commenting on the risk of bankruptcy in prepared comments in June when he discussed financial problems facing the automaker.
"What happens if we can't reach agreement with the United Auto Workers on [retiree health-care costs] promptly? Well, I don't believe that it serves a useful purpose to speculate on that," he said at that time.
"Let me just emphasize that our very strongly preferred approach is to do this in cooperation with the UAW, because we're convinced that is the best way for our employees, our stockholders, all our constituents."
10-11-05, 08:56 AM
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Most insiders put the odds currently at 50%, give or take. GM management hasn't shown itself to be very adept at much of anything so how long the cash reserves will last is anyone's guess. Miller, Delphi's CEO, knows bankruptcy and unions so it should be interesting to see what happens. When he was brought in to Bethlehem they had 12,000 active employees trying to support over 130,000 pensioneers. Miller didn't cave to the unions over the years but he did get saddled with cleaning the mess up. That's why the management during bankruptcy is important and why they get some attractive packages to stick around it. If management bails, there isn't anything for the stockholders to do other than make sure the last one out turns off the lights.
GM, Ford, and DC have many of the same problems so whether this is a tipping point or not will have to wait to be seen. There are some screwy things being talked about now for the future of the industry, just have to wait and see. The way things stand now, you wouldn't give very good odds on GM, Ford, and DC all existing anywhere near their current forms. Probably one goes away. I have already heard the rumor floated that it will be Ford who gets acquired. Who knows? Don't count on following this soap opera with insights form those who test drive cars for a living. This is pretty much business hardball. It will be a while before a Delphi CEO can worry about getting new business for his company. He has to get out of bankruptcy first. Customers can be a might reluctant to commit orders to bankrupt companies.
GM, Ford, and DC have many of the same problems so whether this is a tipping point or not will have to wait to be seen. There are some screwy things being talked about now for the future of the industry, just have to wait and see. The way things stand now, you wouldn't give very good odds on GM, Ford, and DC all existing anywhere near their current forms. Probably one goes away. I have already heard the rumor floated that it will be Ford who gets acquired. Who knows? Don't count on following this soap opera with insights form those who test drive cars for a living. This is pretty much business hardball. It will be a while before a Delphi CEO can worry about getting new business for his company. He has to get out of bankruptcy first. Customers can be a might reluctant to commit orders to bankrupt companies.
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