GM’s third attempt at a restructuring plan in which it will swap bondholder debt for equity in an attempt to avoid bankruptcy on June 1 is looking as unlikely as its previous attempts, according to leading industry analysts. And even if it does succeed the prospects for its logistics providers don’t look good.
Aaron D. Bergman, analyst for Global Automotive Group at IHS Global Insight, told Automotive Logistics that “with the dramatic reduction in both dealer count and the number of brands GM has, along with the 18-19% market share that the company is predicting it will have, I think we're going to be seeing reduced demand across the board for logistics providers at GM.”
Under the new plan, by the end of next year the carmaker is planning to shut 13 of 47 plants as well as 2,600 dealerships in North America, taking the number down to 3,600. The risk of lost business for suppliers of logistics services isn’t hard to imagine, something compounded by plans to remove Hummer, Saturn and SAAB brands from the US market at the end of the 2009 model year, as well as the cancellation of the Pontiac by the end of 2010.
“The objective here is not to survive,” said GM’s CEO Fritz Henderson. “The objective is to develop an operating plan that allows us to win.” Not surviving is a poignant reflection for many supporting GM’s activity, with 124,200 job losses forecast as a consequence, not to mention to potential sales revenue loss for GM of $51 billion.
According to Global Insight, the plan announced on Monday is unlikely to succeed because of the rough deal for the bondholders. The US government, which will take 10% of the company for $27 billion in debt, requires that 90% of bondholders accept a debt-to-equity swap. The government will receive a 50% equity share in GM in return for half the money it loaned to the carmaker, giving it the right to appoint all of GM’S board of directors, as well as control of the vote on substantially all matters brought before stockholders. To be able to restructure out of court, 90% of GM’s bondholders must accept, something that is highly unlikely given the ‘one-sided’ nature of the offer.
At the same time, should bankruptcy proceedings go ahead in June, GM warned bondholders that they might receive no consideration at all.
“When talking about supplier contracts, if GM enters bankruptcy, all bets are off as the company could very easily seek to nullify its contracts with all suppliers, and renegotiate them at reduced prices,” said Bergman.
But bankruptcy is seen as the only way that GM can void franchise agreements without lengthy court action. When it eliminated the Oldsmobile brand in 2004 it sustained a cost of $1 billion in settlements with dealers.