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NOTORIOUS VR · 11-11-2005, 09:28 AM

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BY MICHAEL ELLIS and SARAH WEBSTER
FREE PRESS BUSINESS WRITERS
November 11, 2005

General Motors Corp. is unraveling -- fast.

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.

Lower wages, less generous benefits and fewer jobs would not only be devastating for the automaker's 142,000 U.S. employees. It would hurt everyone who makes parts for GM cars and trucks, sells furniture and homes to GM workers, or treats their children for the flu.

Almost everyone in Michigan has a stake in GM's future.

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.

There is a growing sense that GM Chairman and Chief Executive Officer Rick Wagoner, as well as the company, is running out of time.

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YOUR QUESTIONS ABOUT GM
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.

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GM woes shake stock, rattle Wall Street
By Sharon Silke Carty, USA TODAY
DETROIT — Continuing bad news for General Motors (GM) rattled Wall Street Thursday, dragging down shares industrywide and fueling further speculation that the company could file for bankruptcy protection, fire its CEO or both.
GM's shares closed down 4.6% at $23.51, lowest in 16 years. The auto sector was down 1.7%.

The drop came after GM said late Wednesday that it would restate 2001 earnings, lowering income by $300 million to $400 million. That news comes amid an ongoing Securities and Exchange Commission investigation into how the company accounts for health care and pension benefits, and comes weeks after it posted a $1.6 billion loss for the third quarter.

Worries about a potential strike at Delphi, GM's largest supplier and former subsidiary, also are taking a toll on GM. Delphi filed for bankruptcy protection in early October and has said it wants workers to agree to cut their wages by more than half. A strike at Delphi could shut down production lines at GM in as little as 48 hours.

The bad news added to continuing speculation that GM might file at some point for bankruptcy protection. Bank of America analyst Ron Tadross said that after Wednesday's news, the likelihood that GM will file for Chapter 11 protection in the next two years increased to 40% from 30%. "The odds that GM management could be held accountable for accounting errors has gone up, and this could accelerate a bankruptcy-protection decision we think is inevitable," Tadross wrote in a note to investors.

Argus Research analyst Kevin Tynan thinks there's a 100% chance the company will file at some point. "I wouldn't say two years, and I wouldn't say five years," Tynan says. He notes that GM is weighed down by inflexible labor costs, and he doesn't see how the automaker will get out from under those expenses without the aid of a bankruptcy court judge. But, "I think there are enough Band-Aids left; they could really push this out pretty far until they have to deal with the wage issue."

CEO Rick Wagoner, who was at the helm when the 2001 finances were reported, has said GM has no plans to file for bankruptcy protection. That sentiment was repeated Thursday by GM spokeswoman Toni Simonetti, who called bankruptcy talk "counterproductive speculation."

Tynan thinks the stock price reaction to the earnings restatement, which GM says involved supplier credits being booked sooner than they should have been, was overblown. "It's just money that was accounted for in the wrong period. It's not like the money doesn't exist," he says. "But it just shows that there's still a lot of downside risk."

Kimberly DuBord, an analyst at Briefing.com, said in a research note that the board should fire Wagoner. "Drastic times call for drastic measures."