GM (GM) January Sales: Odds Of Chapter 11 Go Way Up

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Turning around GM (GM) and getting additional money from the federal government to support the company after the end of March depends on two things.

The first is that GM has to get its costs of doing business under control. That will be difficult because the UAW, creditors, and suppliers will all have to make significant concessions. Each group is going to put up some resistance.

The second part of GM’s restructuring depends on something over which is has only the most modest control–sales.

General Motors reported a 48.9% drop in January U.S. light vehicle sales to 128,198 cars and trucks from 250,926 in January last year. According to MarketWatch, " Sales of cars fell 57.9% to 43,943 while truck sales declined 42.5% to 84,255. The automaker also forecasted its North American production to total 380,000 vehicles in the first quarter–118,000 cars and 262,000 trucks, down 57% from the same quarter last year."

With it stock trading under $3, GM’s commons shareholders have almost been wiped out. The company would probably be better off going into Chapter 11 with the government provided funds for it to operation through a restructuring period. The court could cut labor and credit costs without drawn out negotiation which might not yield enough to bring GM’s costs down to where it can survive in the worst car market in decades.

Douglas A. McIntyre