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Rick Wagoner, chairman and chief executive of General Motors, robustly rejected claims that the world’s largest carmaker could be heading for bankruptcy as he tried to reassure staff worried about dire Wall Street predictions.
In a letter to the company’s 325,000 employees sent on Wednesday, Mr Wagoner said it was “just plain wrong” to talk of GM filing for Chapter 11 bankruptcy protection from creditors. “I’d like to just set the record straight here and now,” he wrote. “There is absolutely no plan, strategy or intention for GM to file for bankruptcy.”
The letter follows a sharp fall in the company’s shares and bonds amid fears of a strike at Delphi, the bankrupt parts maker which is GM’s biggest supplier. In Thursday morning trading the shares hit an 18-year low of $20.80, close to the $20.44 low of Black Monday, the 1987 record stock market crash.
Delphi supplies parts to every north American-built GM vehicle, and analysts predict GM would burn through its $19.2bn cash pile and be forced into bankruptcy in a three-month strike.
In the letter, Mr Wagoner points to the “robust” balance sheet and liquidity of the company and sticks to this year’s plan to revamp the US business, which involves new vehicles, cost-cuts, a $1bn a year healthcare deal with unions approved last Friday and changes to sales and marketing.
“The large losses at GM North America are unsustainable, for sure, and require a comprehensive strategy to address them… a strategy that must be implemented promptly and effectively, to get our US business profitable again,” he wrote. GM lost $4.1bn in its North American automotive division in the first nine months of this year.
Mr Wagoner’s decision to stick to the existing plan is unlikely to reassure investors, who have been factoring in a probability of about 20 per cent of the company defaulting on its bonds in the next year.
He also makes no mention in the letter of the impact of Delphi’s bankruptcy, which GM has estimated could cost it up to $12bn, although more likely about $6bn. In addition, Delphi executives have said they want GM to contribute to the cost of its restructuring by paying its workers lump sums to help cushion the blow of job losses and big pay and benefit cuts.
Earlier this week the United Auto Workers union, which represents workers at both GM and Delphi, flatly rejected a revised pay proposal from Delphi, further raising fears that negotiations will break down and lead to a strike. Delphi’s revised proposal raised the average wage for its 35,000 blue-collar workers in the US from $10 an hour to $12.50, with benefits taking the total package to $21 an hour. But this remains less than a third of the $65 an hour Delphi pays today.
“Delphi’s contract proposal is not a framework for an agreement but a road map for confrontation,” the company’s six unions said in a statement on Thursday.
If a deal is not reached by mid-December, Delphi has said it will ask the bankruptcy court judge to annul its worker contracts in mid-January, allowing a strike.