Can General Motors Overcome Bankruptcy?
General Motors is predicted to make a comeback from their recently declared bankruptcy. However, the United States’ financial aid to the company will then be nearly $50 billion, and both the government and the company are uncertain how much of and if the money will be able to be repaid.
In order for the company to be able to repay the loan, their stock would have to rise to unheard of levels: above $68 billion. The previous high the company reached was in 2000, and this was only $56 billion. This is certainly a concern, especially since the competition around the world for carmakers will continue to put pressure on American companies; there is already far more supply than there is demand.
There have been several people who have commented on the state of the company; both Dave Whiston, the auto equities analyst at Morningstar, and Maryann Keller, an automotive analyst and the author of “Rude Awakening: The Rise, Fall, and Struggle for Recovery of General Motors”, have been quoted as saying that it unlikely that General Motors will be able to pay back the loan, at least not for a long time.
However, the company’s own internal analyst predicts that the company’s stocks will be between $59 to $77 billion by 2012; if the company’s stocks fall on the high side of this prediction, General Motors will be able to pay back the money and get out of debt. In order for this to occur, the company’s revenue would have to be similar to what they were prior to their downward fall, which will be a difficult task in today’s economy.
As Ron Bloom, senior advisor to the US administration’s auto task force, and GM chief executive Henderson have stated, bankruptcy may help the company in allowing them to shed debt so stock prices can more easily rise. However, just how long it will take them to recover may not be able to be foretold for a long time.
The company is slated to receive an additional $30 billion from the government to help them recover; the government is requiring 60% equity, and General Motors will still owe approximately $6.7 in secured debt and $2.1 billion in preferred shares. Once these debts are paid, the company’s stock will have to rise to $68 billion to repay the remaining debt. These numbers do not take into account other governmental loans given to the General Motors financial company.
This means that General Motors has a lot of work to do, both during and after recovery.
Of course, the situation has caused many political questions to rise; the Bush administration attempted to rescue the company and therefore caused the debt to climb, while the Obama administration steered them toward bankruptcy, from which they are just now emerging. Questions have arisen regarding which administration handled it better.
President Obama has stated that his intention in this loan is, “not because I want to spent the American people’s tax dollars, but because I want to protect them.”
