Tuesday, July 22, 2008

Chronicles Of Depression 2.0: #169

GM, Ford `On the Verge of Bankruptcy,' Altman Says (Update2)
July 22 (Bloomberg) -- General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, have about a 46 percent chance of default within five years, according to Edward Altman, a finance professor at New York University's Stern School of Business.

"Both are in very serious shape and the markets reflect that," Altman, the creator of the Z-score mathematical formula that measures bankruptcy risk, said in an interview with Bloomberg Television. The model shows that these companies are "on the verge of bankruptcy," he said.

Emphasis added by me.

The Z-scores for GM and Ford give both a bond rating equivalent to a CCC ranking, though GM is in slightly worse condition than Ford, Altman said. GM reported a $38.7 billion loss in 2007, the biggest in its 100-year history, and hasn't posted a profit since 2004. The scores are based on the companies' finances at the end of the first quarter.

Moody's Investors Service said July 15 it may cut GM's Caa1 senior unsecured debt rating because the Detroit-based automaker's plan to raise at least $15 billion by suspending its dividend, cutting management payroll by 20 percent and selling assets may not be enough to offset losses. Standard & Poor's also said in June it may lower GM's B rating. Altman said the plan to raise $15 billion may improve GM's outlook.

Emphasis added by me.

Oh boy.

I will just say this. One of these companies is hinted at in Ominous Rumors.

Yeah, it's that bad.

What I want all of you to be aware of is this aspect: everyone tends to think of these two companies as manufacturers. If they were just that, they wouldn't be in the middle of the ocean about to drown. They are both also financial giants, which in the past made more money from financing than they made from selling their cars.

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