Dana, Delphi and GM (DCN, GM)

Includes: DCN, GM
by: Douglas McIntyre

Today Dana Corporation (DCN), the auto parts supplier, followed Delphi into bankruptcy. With Detroit squeezing them for lower parts prices and high labor costs, it was probably inevitable.

This raises the issue, once again, of whether GM (GM) will go to Chapter 11, either for strategic reasons, or because it is forced to. Bank of American Securities has puts the odds of a GM bankruptcy at 30%. Standard & Poors continues to cut the ratings on the GM debt.

Jim Cramer, the Wall Street commentator, wrote in New York Magazine recently that he believed that GM would declare Chapter 11 in 2006.

At this point, GM must look at bankruptcy as a strategic alternative. They have nearly $19 billion in cash on hand, so if the Chapter 11 filing can be used to drop pension, healthcare and other labor costs, it needs to be on the table. The company's CEO has said it is not. That's a mistake, if it is true.

The airline industry has used Chapter 11 to its benefit in several cases. If GM is going to use it as a strategic weapon, they have to do it while they still have a lot of cash on hand.

It would be tough for the common shareholders, but with the stock trading at 6% of the revenue per share, the GM shares are already telling us that bankruptcy is a very real option.

GM's chance to do this on their own, and not have it forced on them by circumstances, will not last for more than another few quarters. I hope someone at GM headquarters is working on it.