Contributed by: filbert Wednesday, April 20 2005 @ 09:21 PM CST
Wall Street speculates on General Motors bankruptcy [*2] .
The adjustments that the company has made to its production schedule in the first two quarters of 2005, and the warnings from credit rating agencies that the company’s huge debt faces downgrading to junk bond status has focused America’s financial markets on the problems of the world’s largest carmaker.
GM CFO John Devine denied that GM was headed for bankruptcy on a Neil Cavuto interview on Fox News:
DEVINE: Absolutely not, no. There’s no question about that.
I realize some companies have done that, but it is not our game plan, doesn’t enter our mind. Our issue is, get our product right, focus on our marketing and get our costs right. So, we think, in the case of health care, there are things we can do. We have other areas of cost. That’s what we have to focus on. That’s what we have to do to turn around North America.
As this Business Week article on Yahoo![*3] states however, GM still has quite a distance to fall before the b-word really becomes imminent:
Still, GM is a long way from the worst-case scenarios floated by some critics. Before it could qualify for bankruptcy, GM would have to tip into serious cash-negative territory. United Airlines Inc. (UALAQ ) lost $5.4 billion in the two years before it went bankrupt in 2002, and it has avoided paying hundreds of millions in pension payments since. GM, by contrast, now has a $3 billion surplus in its pension fund and won’t have to make any contributions this year or next. Says Devine: “Anyone who thinks that bankruptcy is an answer is nuts.”.
Still, even mentioning GM and bankruptcy in the same sentence says volumes about the “perpetual” nature of corporations. It’s really simple: make money and live, lose money and die.