Hear the squeal of GM's brakes

GM has struck expensive deals with some of its workers. Picture / Reuters

General Motors faces going bust. Don't take my word for it. Suppliers, rivals, analysts and even GM insiders are now saying that this beacon of American industry could file for bankruptcy within a matter of months.

It would be the most shocking event in US corporate history - worse than the Enron scandal, worse than the near collapse of IBM (which ranks as the biggest destroyer of American corporate wealth in history). And it's all the more astonishing as GM not only has the iconic brands Chevrolet, Cadillac, Opel and Saab, it also claims to have US$19 billion ($28 billion) on its balance sheet.

The thing is, Rick Wagoner, GM's chairman and CEO, has been going through money faster than a fashionista buying Stella McCartney. Two years ago, GM had US$29 billion of cash. Now Wagoner has a union agreement which means that laid-off workers are paid at 75 per cent of their basic salary - which costs US$500 million a year; a company pension, benefits and healthcare programme that GM cannot afford, and despite striking a deal to cut US$1 billion a year, the bills look like going up, not down; one big supplier is in Chapter 11 bankruptcy, and another faces collapse.

Those suppliers face a strike - a move which would shut down GM in the US and cost it US$2 billion a month. Wagoner also needs to get rid of about a quarter of his workforce, without prompting a strike at GM itself.

He is having to heavily discount Chevrolets and Cadillacs to sell them. And, to cap it all, GM is no longer the world's biggest auto maker - that is now Toyota.

To try to steady a share price that has slipped by two-fifths this year, Wagoner has said he might sell a majority stake in its financing division, Gmac. This could bring in more than US$10 billion, but leave a big hole in GM profits.

Without Gmac, and with an urgent need to pay off the auto workers it either employs, or used to employ, the cash pile will be eaten up.

If GM is still haemorrhaging cash after this, Chapter 11 will become more a reality than a possibility.

Most of the US airline industry has been in Chapter 11 at some point in the past four years while McI rose from the rubble of WorldCom through Chapter 11 and is now a big player in world telecoms again.

Chapter 11 would harm shareholders and bondholders but the biggest harm would be to the American corporate psyche. How can a country claim leadership in world business when one of its manufacturing stalwarts has gone bust?

- INDEPENDENT