By on July 2, 2008

1171253841_7234.jpgRed Sox fans will recognize this "not impossible nightmare" as the inverse of their team's fabled 1967 season. The rest of us will see it as a fancy way for an influential Wall Street firm to say a GM bankruptcy is "increasingly likely." In fact, Yahoo! News reports that Merrill's analysts had a gander at June's sales stats and GM's cash burn and reckon the ailing American automaker will need to raise an additional $15b– preferably with Merrill's help– to stay afloat. Meanwhile, Merrill Lynch analyst John Murphy shanked The General, cutting GM from "buy" (har-har) to "underperform," and lowering his price target from $28 to… $7 per share. The move slammed GM's stock price and forced a subtle shift in GM's increasingly taciturn spin. "We continue to believe the company has sufficient liquidity for 2008 despite lower volumes," GM spokeswoman Renee Rashid-Merem told Reuters. "If conditions continue to deteriorate, we would consider other operating measures." In other words, more cost-cutting in addition to fund raising. But honestly, what good what that do?

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19 Comments on “Merrill Lynch: GM bankruptcy “not impossible”...”


  • avatar
    crackers

    The slamming of GM’s stock price is probably a good thing in that it may be the final impetus needed for the BoD to take serious action.

  • avatar
    John R

    “The slamming of GM’s stock price is probably a good thing in that it may be the final impetus needed for the BoD to take serious action.”

    Or better yet, a new board of directors.

  • avatar

    I’m sure if everyone would just stop criticizing them they’d have it turned around by next week…

    Back to reality: they never quite realize how good a product has to be to succeed in today’s market.

    The BoD isn’t the problem. Even having the right people at the top isn’t the problem.

    Expecting great products when this organization is run by a few men at the top–that’s the problem.

  • avatar
    montgomery burns

    “Expecting great products when this organization is run by a few men at the top–that’s the problem.”

    I would put it this way.
    Expecting great products when this organization is run by a few men at the top who don’t know anything about producing cars that people want to buy–that’s the problem.

  • avatar
    adam0331

    The problem isn’t only with the people at the top of GM. A good friend’s father is a GM line worker. He will not take a buyout because he thinks the company has “billions” in spare cash and management is just trying to squeeze the Union worker.

    I honestly think that Chapter 11 is the only way to knock some sense into GM. Ditto that for Ford as well. Chrysler needs to go straight past 11 into the chapter between 6 and 8.

  • avatar
    Axel

    Chrysler needs to go straight past 11 into the chapter between 6 and 8.

    I got a few grand in the bank. When does Jeep go on sale? Not the vehicle, the brand.

  • avatar
    jkross22

    Merrill had GM listed as “buy”? Looks like Merrill has a bit of a credibility problem.

  • avatar
    yankinwaoz

    Merrill had GM listed as “buy”? Looks like Merrill has a bit of a credibility problem.

    Here is your answer right here
    the ailing American automaker will need to raise an additional $15b– preferably with Merrill’s help

    Conflict of interest at a Wall Street firm. Business as usual. I thought this was made illegal, when the trading side of the house grants favorable ratings for a stock that the underwriting side is a customer of.

  • avatar
    hltguy

    This is actually humorous, Merrill Lynch is now coming forward saying a GM “bankruptcy is not impossible”, where have they been? TTAC has been saying it for what, three years? When did Merrill finally wake up? GM has a market cap under $6 billion and needs at least $15 billion more cash than they have to stay afloat, while their market share has been heading south for a long time. Geez, doesn’t anyone on Wall Street read anything?
    Sort of like the old joke I heard riding a cable car one time in San Francisco, the conductor of the cable car said “There’s Lombard Street (the famous curvy street in SF), it’s the second most crooked street in America, of course he added upon being asked which is the first, he replied “Wall Street”.
    So it goes…

  • avatar
    KatiePuckrik

    I really hate stories like this (i.e Yahoo reporting on Merrill Lynch. Not TTAC reporting on it! Let’s get THAT clear!). It’s not a story, in my opinion.

    Merrill Lynch has said “GM filing for bankruptcy is ‘possible’”.

    Now let’s put aside the notion that anyone with eyes in their head and a brain could see this a mile off and concentrate on the idea that “GM filing for bankrupcty is ‘possible’”.

    ANYTHING is ‘possible’! It’s “possible” that Toyota could file for Chapter 7 tomorrow. It’s “possible” that Rick Wagoner could admit that he’s messed up and will resign. Doesn’t mean it’s LIKELY!

    I think it was “Seven of Nine” from “Star Trek: Voyager” who said:

    “‘Impossible’ is a word humans use too often.”

    Well, likewise “Possible” is too vague a word to justify a story……

  • avatar
    mikey

    I don’t at this time hold any GM stock,unless you count 35.8 years of my life.An earlier poster mentioned his buddys dad is a line worker that won’t take a buyout.

    I don’t believe GM has a big stash of cash.But I
    don’t trust them.Myself and thousands of other guys will not take the buy out.

    If GM goes T.U.a guy is better off as an active employee than a retiree is IMHO.

  • avatar
    Pch101

    This is laying the groundwork for a bailout. The message between the lines is, “Uncle Sam, if you want more banker’s money for this deal, you are going to have help us out here.”

    This will start heating up early next year, as the 2008 year-end numbers come out. Maybe they should bring in Lee Iacocca, he has some personal experience with government-backed loan programs.

  • avatar
    Redbarchetta

    mikey You should look to past airline collapses to see if a buyout is a good option or not. I think I told you in my dad’s case it wasn’t a buyout from Pan Am but a complete job transfer to Delta when they bought a bunch of A310 from them but didn’t have trained maintenence to work on them. We had to move and he pension didn’t carry over but he kept all his seniority. Ironicly he took the offer(I was surprised looking back because he was like you, die hard figuring the company couldn’t fail) and some of his buddies he had word 20 years with didn’t. And we all know what happened to Pan Am, TWICE! His buddies were basically shown the door and given nothing, except half their pension like my dad and slim job prospects because the market was flooded with younger workers.

    I know your situation might be completely different but I would think leaving with some of GM’s money in hand now and starting over would be better than going to down with the ship and being left with nothing. I thought some of the buyout packages were pretty nice, maybe you could start a small business partnering up with a few of the other guys, do what you know. Good luck.

  • avatar
    John Horner

    Katie: Firms like Merrill never talk straight and are highly biased in favor of the companies they report on. So, it is newsworthy when the likes of Merrill uses the phrase “not impossible”. Of course any good student of english knows to avoid such double negatives, but financial types make a career of speaking obtusely.

    Also, be sure that Merrill is already positioning itself to provide debtor-in-possession financing the minute chapter 11 papers are filed.

    Mikey said: “If GM goes T.U.a guy is better off as an active employee than a retiree is IMHO.”

    If it were me, I would research the historical precedents very carefully before reaching that conclusion. Study very closely what happened when the steel and airline industries restructured.

  • avatar
    mel23

    I don’t remember how the Chrysler bailout worked. It was loan guarantees, right? Assuming the politicians could be convinced to fall in line, how could GM be bailed out? I don’t mean given loan guarantees or even a pile of money, what could they do that would succeed? I’m assuming the truck/SUV market won’t come back to anything like the volume it’s been here. I don’t care if they add 10 shifts to Lordstown and build a bridge from here to Korea to import Aveos, what do they have or have coming that will sell in volumes at profit to make them a going concern? If gas stays about where it is, Honda and Toyota will ramp up production and add hybrids, etc. to out perform and out sell GM it seems to me. Is there any hope even with a bailout?

  • avatar
    Redbarchetta

    mel23: Is there any hope even with a bailout?
    No I don’t think there is any hope. I was thinking aout this last night wile I couldn’t sleep. Even if they were to get the $15 billion in loans, they don’t have any substantial products to bring them out of this death spiral. They are too truck heavy and reliant on selling them to remain in the black. It is obvious from the shock they had in May that they weren’t anticipating a shift like this for years to come and have no products in the pipeline to combat it in the near future.

    Even if they could get out something that would sell hot and at a small profit(I’m not counting the Volt it wont be profitable) it will take them at best 4 years and that is wishful thinking for a great product. At the rate they are burning cash even with the added $15B they will be dead by then. Remember if gas prices stay high or go higher their sales will remain the same way they have been for the last 2 months or get a lot worse, meaning they will be losing more money each month. If they stopped ALL truck/SUV production today and shifted everything to cars they still would lose tons of money because of their fixed costs. Plus the sales of their cars that generate little profit will platue soon in this declining market and when everyone else adjust their production and gets more cars to dealers.

    I just don’t see any hope for them, they are past the point of no return without even a “profitable” Hail Mary project to save them in the future. Their only hope is for gas prices to drop and drop a lot, or the second coming with Jesus riding down in a Chevy Tahoe.

  • avatar
    Geotpf

    Twenty eight to seven? Wow, that’s a downgrade. I’m getting whiplash just reading about it. It also shows that the analyst should do his homework a little more; there should never be that much of a swing.

    Now, on the other hand, the option markets are over reading into the problems here. The linked article says that they think there’s a 73% chance that GM will not pay it’s bills before September 2012 and a 69% chance Ford will do the same. There might be a 73% chance that one of the Detroit 3 does so, but there’s also about a 72% that Chrysler will do so and the other two won’t. I am fairly certain that both Ford and GM will not go into bankruptcy within five years (because I think Chrysler will, saving their hides for a few years in a dead-cat bounce). This is like the story of three guys being chased by a bear in the woods. Two of the guys don’t have to out run the bear; they just have to out run the third guy.

  • avatar
    ZoomZoom

    Geotpf :

    Twenty eight to seven? Wow, that’s a downgrade. I’m getting whiplash just reading about it.
    Whiplash? If my computer desk had an airbag, it would have gone off by now!

    It also shows that the analyst should do his homework a little more; there should never be that much of a swing.
    Analysts don’t do homework. Some of them will still be telling us to “buy” when the market finally bottoms. Then they will be bears on the way up.

    Never listen to analysts. They are always behind the curve, even moreso when they’re attached at the hip to an investment capital firm or bank. This happened in 2000 and 2001.

  • avatar
    ZoomZoom

    To Mikey:

    Yeah, as others have said, you should re-examine your offer.

    When the layoffs do come (as they always do), you may not see as good of a deal, especially in the areas of pension carryover, health care, or seniority.

    And if you try to sue or get help from your union, the company could just come back and say that what the hell, they MADE you a decent offer, and there you will be, out in the cold.

    Be very careful and don’t make any assumptions either way. Verify and validate every eventuality, even the so-called “good” ones, if any exist.


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