Merrill Lynch: GM Bankruptcy "not Impossible"

by Robert Farago

July 2nd, 2008 11:15 AM

merrill lynch gm bankruptcy not impossible

Red 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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Redbarchetta on Jul 02, 2008
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.

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Geotpf on Jul 02, 2008

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.

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ZoomZoom on Jul 03, 2008
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.

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ZoomZoom on Jul 03, 2008

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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