Chrysler's Chapter 11 opens door for GM's
DETROIT -- After the government proved it's willing to let an automaker go into bankruptcy — and suffer the supply-chain and customer loyalty risks that go along with that — little could stop GM from filing for court protection if it fails to slash debt and win new labor contracts.
Chrysler's filing came just hours after it failed to persuade bondholders to cut its debt from $6.9 billion to $2.25 billion. GM has to cut $27 billion in debt.
JPMorgan analyst Himanshu Patel says there's a 60% to 80% chance GM will default.
CEO Fritz Henderson told the Associated Press on Monday that GM is working hard to stay out of bankruptcy and can restructure its debt and reach a deal with the United Auto Workers union to cut labor costs. But Henderson also has said he's not opposed to filing for Chapter 11, even going so far as to call that outcome "probable."
"But if we're going to go through one, then we're going to learn from Chrysler's experience," he told the AP.
Jeffrey Manning, managing director of Trenwith Securities, said a company can end up filing for bankruptcy after a competitor does so. It happened in 1995, when a filing by retailer Bradlees precipitated a filing by Caldor. Suppliers burned by Bradlees' filing worried about Caldor's health and stopped shipping products.
It could happen to automakers. Companies that supply parts to Chrysler and GM are in jeopardy because of the Chrysler filing. If suppliers run out of something as small as a door handle, GM's production lines could be stopped. That would hurt cash flow, because the automaker books revenue when it produces cars, not when they're sold to consumers.
And there's the customer issue: Will they buy from a bankrupt automaker? Don Grimes, an economist at the University of Michigan's Institute for Research on Labor, Employment and the Economy, says if so, that could increase the GM bankruptcy risk: "If people are still buying Chrysler vehicles, they may conclude they can go into bankruptcy and let the courts take care of this."
