Financial thoughts

DETROIT — With General Motors’ long-anticipated day of reckoning a little more than a week away, nearly all signs are pointing to the wounded auto giant limping its way into bankruptcy court, but experts say that might not be as bad as once expected.

Car and truck buyers, they say, may not be as fearful of Chapter 11 as once thought, as evidenced by Chrysler’s stronger-than-expected sales in the two weeks after it took the dreaded step into court.

"I think in this case and in the eyes of the consumer, uncertainty is the enemy," said Jeff Schuster, executive director of automotive forecasting for J.D. Power and Associates. "Once they know what happened, it at least is better than uncertainty."

GM borrowed an additional $4 billion from the government Friday on top of $15.4 billion it previously received. It faces a June 1 government-imposed deadline to finish restructuring or be forced into bankruptcy court. Restructuring demands from President Barack Obama’s administration include cutting labor costs, reducing debt, shedding dealerships and brands, and closing excess factories.
The company this week reached cost-cutting deals with Canadian and U.S. unions that still have to be ratified by members, but GM’s unsecured bondholders have resisted an offer to take a 10 percent stake in the company to wipe out $27 billion in debt.

But even if GM files for Chapter 11, Chrysler’s performance since its April 30 filing has made analysts optimistic that GM sales won’t "fall off a cliff" as the CEO predicted in February.

Chrysler’s sales to individual buyers are down 40 percent so far this month when compared with May of last year, a little worse than the overall market, down around 35 percent, the company has said.

Schuster said that’s better than he expected, and he predicted GM might fare even better if it goes into Chapter 11 electronic check payday advance. "Maybe optimistic is a little too strong, but I think there could be potential for, once it’s announced and once we understand how it’s going to work, the potential for an uptick in the second half of the year," he said.

With the government announcing that it would back GM and Chrysler warranties, people are taking advantage of deals to get cars on the cheap, said David Koehler, a clinical marketing professor at the University of Illinois at Chicago.

"I think consumers right now know cars last for a long time," he said. "What they’re looking at is the deals. I don’t anticipate the doom and gloom that GM said, that this was going to kill them."

As June 1 fast approaches, there’s still an outside chance that GM could somehow pull it all together and complete restructuring out of bankruptcy court, said John Pottow, a University of Michigan professor who specializes in bankruptcy.

Since the unions have given concessions and settled, there is pressure on GM’s bondholders to do the same or risk becoming the entity that drove GM into bankruptcy, he said.

"When they make those concessions, it becomes tougher for you not to make those concessions as well because everyone’s doing it," Pottow said, adding that dissident Chrysler creditors gave up their fight as pressure mounted and other stakeholders fell in line.

But with thousands of bondholders, it will difficult to get 90 percent of them to agree.

"There’s no sort of like central negotiating committee of bondholders and unsecured creditors," he said.

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