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GM VEERS OFF ROAD: Automaker is ripe for bankruptcy

Its solution: Cut costs and make better cars
November 11, 2005

Its stock price plunged to a 13-year low Thursday after the latest in a string of financial problems dismayed shareholders once again.

Wall Street experts say the unthinkable is more likely than ever before: Michigan's largest company could be bought by a corporate raider like Las Vegas billionaire Kirk Kerkorian, forced to file for bankruptcy, or both.

Getting GM out of bankruptcy could require the same drastic cost-cutting that is racking Delphi, its largest parts supplier...

...But the facts are unavoidable: You can now buy every single share of GM stock for a mere $13.5 billion, or about $3.5 billion less than last spring.

Experts say a buyer like Kerkorian could sell GMAC (the division that lends money for everything from cars and homes to Manhattan skyscrapers) for $10 billion to $15 billion, take GM's $15 billion in cash and stock, put GM's automaking business into bankruptcy, and walk away with a huge profit.

Q: Might GM declare bankruptcy, like Delphi?
A: The once unthinkable now has to be a real concern -- for everybody in Michigan.

"We think it is inevitable," Bank of America said of a GM bankruptcy in a note to investors Thursday. Bank of America downgraded to 40% its odds that GM would declare bankruptcy during the next two years.

GM executives say bankruptcy is not an option. But the decision by automotive supplier Delphi Corp. to declare bankruptcy Oct. 8 makes it a very real possibility.

A GM bankruptcy would be by far the largest ever.

Q: How can GM recover?
A: Build gotta-have cars and trucks, most experts agree.

GM's new full-size SUVs and pickup trucks will go on sale next year. Falling gas prices could help sales of the trucks, which are crucial. Also:

•GM plans to close more U.S. plants, and by the end of 2008 cut 25,000 hourly jobs in an effort to cut billions of dollars in costs. Some say GM should eliminate one or two brands such as Pontiac or Buick.

•GM also is trying to sell off a majority of its financial services company GMAC, which could raise $10 billion to $15 billion.

More questions and answers at link:

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