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GM bankruptcy may not be the doomsday first feared, analysts say

DETROIT — With General Motors' long-anticipated day of reckoning a little more than a week away, signs are pointing to the wounded auto giant limping its way into bankruptcy court, but experts say that might not be as bad as once expected.

Car and truck buyers, they say, may not be as fearful of Chapter 11 as once thought, as evidenced by Chrysler's stronger-than-expected sales in the two weeks after it took the dreaded step into court.

"I think in this case and in the eyes of the consumer, uncertainty is the enemy," said Jeff Schuster, executive director of automotive forecasting for J.D. Power and Associates. "Once they know what happened, it at least is better than uncertainty."

GM has received $19.4 billion in federal loans, including $4 million Friday, and faces a June 1 government-imposed deadline to finish restructuring or be forced into bankruptcy court. Restructuring demands from President Barack Obama's administration include cutting labor costs, reducing debt, shedding dealerships and brands, and closing excess factories.

The company this week reached cost-cutting deals with Canadian and U.S. unions that still have to be ratified by members, but GM's unsecured bondholders have resisted an offer to take a 10 percent stake in the company to wipe out $27 billion in debt. They say that's too small a stake for what they are owed.

But even if GM files for Chapter 11, Chrysler's performance since its April 30 bankruptcy filing has made analysts optimistic that GM sales won't "fall off a cliff" as the company's CEO predicted in February.

Chrysler's sales to individual buyers are down 40 percent so far this month when compared with May of last year, a little worse than the overall market, which is down about 35 percent, the company has said.

With the government announcing that it would back GM and Chrysler warranties, people are taking advantage of deals to get cars on the cheap, said David Koehler, a clinical marketing professor at the University of Illinois at Chicago.

"I think consumers right now know cars last for a long time," he said. "What they're looking at is the deals. I don't anticipate the doom and gloom that GM said, that this was going to kill them."

Under GM's new capital structure, the government would forgive about $10 billion of its loans and get 50 percent of the company, and the United Auto Workers would own 39 percent for cutting in half the $20 billion GM owes to a union-run retiree health care trust.

Given that, bankruptcy experts say it's unlikely that GM can round up enough bondholders to get the debt-reduction to go through. A spokesman for the bondholders committee declined to comment Friday.

Also in doubt is GM's plan to cut its network of about 6,000 dealers by 40 percent before the end of 2010. GM sent notices last week to 1,100 dealers telling them their franchise agreements won't be renewed when they expire next year, and many dealers plan to fight in court. State franchise laws generally protect dealers, so it's unlikely GM could accomplish the cuts without help from a bankruptcy judge, experts have said.

As June 1 fast approaches, there's still an outside chance that GM could somehow pull it all together and complete restructuring out of bankruptcy court, said John Pottow, a University of Michigan professor who specializes in bankruptcy.

Since the unions have given concessions and settled, there is pressure on GM's bondholders to do the same or risk becoming the entity that drove GM into bankruptcy, he said.

"When they make those concessions, it becomes tougher for you not to make those concessions as well, because everyone's doing it," Pottow said, adding that dissident Chrysler creditors gave up their fight as pressure mounted and other stakeholders fell in line.

GM bankruptcy may not be the doomsday first feared, analysts say 05/22/09 [Last modified: Saturday, May 23, 2009 1:04am]
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