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GM - Rose Colored Glasses?

|Includes: General Motors Company (GM)

News out of the WSJ this morning:

General Motors Corp. (NYSE:GM) said Monday it could still avoid seeking bankruptcy protection, though key elements of its restructuring plan remain in flux. The auto maker has just three weeks to resolve union and creditor discussions, finalize the fate of ailing brands and cull its U.S. dealer network.

With a deadline set for a planned bond exchange and union talks expected to continue up until the deadline, Henderson did indicate some progress on GM's slimmed-down brand profile.

He said GM is negotiating with two bidders on Hummer and continues talks to shed Saab and Saturn. He also confirmed the Pontiac brand will be wound down rather than sold. 

GM dealers will learn this week if they are among those marked to close as it looks to shutter 2,600 of its more than 6,000 U.S. outlets. 

Talks continue with the United Auto Workers to cut in half of GM's obligations to a $20 billion retiree health care trust in exchange for 38% of its equity. The two sides also are in talks over which U.S. factories will close. 

Outside the U.S., the company is struggling as well. Henderson said funding needs in Europe, where losses are mounting and GM is looking to offload its Opel and Saab brands, are "urgent." Henderson said the company would consider holding a minority stake. 

Henderson said GM has no plans to alter the debt exchange offer despite a broad dissatisfaction from bondholders. GM is offering to exchange 225 common shares for each $1,000 principal amount of outstanding notes. The exchange will commence only if 90% of bondholders agree to the terms. Under the plan, if GM fails to get adequate participation, it will file for bankruptcy protection. 

The automaker had been considering moving its headquarters out of downtown Detroit's spacious Renaissance Center skyscraper among cost cutting options, Henderson said. He said the relocation is no longer a priority.

Couple thoughts on this:

  1. It is this inability to realize what is happening that got the company to this point.  There is no hope of an out of court restructuring - saying so is either naive or a lie;
  2. How are they going to shutter dealerships by force when those dealerships are covered by state franchise laws;
  3. Holding a minority stake in a money loser is just "less bad" than owning it outright;
  4. No plans to alter the debt exchange means they have no plans to stay out of court;
  5. Who were they going to sell their headquarters to?  Not many buyers of massive office space in Detroit;

Disclosure:  Long GM bonds (no CDS hedge)