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GM considered too big to fail

(China Daily)
Updated: 2008-11-13 08:08

US House Speaker Nancy Pelosi has thrown her support behind the premise that General Motors Corp, the largest US automaker, is too big to be allowed to fail.

In urging Congress to enact emergency aid for the ailing auto industry, Pelosi rejected calls to let GM collapse and sided with the company and its allies in trying to prevent a "devastating" domino effect that would cost millions of jobs.

"Trying to reorganize the auto industry in bankruptcy would be as close to reorganizing the whole US economy as you could get," said Alan Gover, a bankruptcy lawyer with White & Case LLP in New York.

"The vast supply chain involves thousands of businesses, millions of existing jobs and just as many retirees, as well as whole communities and states."

Passage of an industry bailout plan may keep GM from running out of operating cash by year's end, which it says may happen without US help. GM is the second-biggest provider of private healthcare benefits and was the third-biggest advertiser in this year's first half.

"It's truly one of those companies that's too big to fail, and everybody understands that," said Nariman Behravesh, chief economist at IHS Global Insight Inc in Lexington, Massachusetts. "If it does collapse, it could make the recession deeper and longer."

Behravesh said a GM bankruptcy could send the US jobless rate as high as 9.5 percent, up from a 14-year high of 6.5 percent in October, and produce a recession comparable in length to that of 1980-82.

Ford Motor Co and Chrysler LLC both likely would be forced into bankruptcy eventually if GM were to fail said Mark Oline, a Fitch Inc credit analyst.

GM, Ford and Chrysler want $50 billion in loans to boost liquidity and cover union retirees' medical costs, people familiar with the matter have said.

That would be on top of $25 billion in low-interest borrowing Congress approved in September to help retool plants to build more-efficient vehicles.

The trio employs 240,000 people in the US, or about 70 percent of US autoworkers, according to the Automotive Trade Policy Council in Washington, the industry group for the US companies.

Agencies

(China Daily 11/13/2008 page16)