**GM preparing for bankruptcy**

[vztrt]

Holden could be sold off...

http://business.theage.com.au/busine...o.html?page=-1

Holden 'could be sold' as GM teeters
Chris Zappone
May 29, 2009 - 10:12AM

Holden may be sold by General Motors even if the parent company avoids bankruptcy expected this week, some car industry experts believe.

"Bankrupt or not, GM will continue to downsize very quickly," said US-based Plunkett Research chief executive Jack Plunkett. "My forecast is that they are very likely to sell or close most non North-American businesses," with the exception of China.

Holden employs about 6500 people in Australia, with about 3100 in Victoria.
GM bondholder group agree to deal

The debt-riddled US parent has already put Hummer and Saab on the chopping block, along with European brands Opel and Vauxhall. It has been racing to get its books in order ahead of a June 1 deadline imposed by President Barack Obama to prove its viability or go into bankruptcy while it restructures. The US government has pumped $US17.4 billion into the company so far this year.

"This is not to belittle the importance of Australia as a market, or to belittle the importance of a strong and positive relationship between business interests in the US and Australia," Mr Plunkett said. "The fact is that GM must shrink to survive, while becoming much less complex and much less global in the process."

ANZ senior economist Julie Toth agrees.

"I expect if and when General Motors in the US goes bust, its overseas subsidiaries will be sold, including in Australia," she said.

"The Australian Government's reaction will depend on the suite of potential bidders."

The narrow choices of possible suitors for the Australian icon may present more problems for Holden.

"It seems a gross shortage of potential buyers will be a huge problem for GM worldwide, regardless of the viability of each individual business unit," Ms Toth said.

A Holden spokesman denied it would be sold. He said GM regarded its Australian operation as a "a viable, valuable and important part of its global picture."

"Is Holden about to be sold or spun-off? The answer is no," he said.

"Are there discussions to sell or even offer a stake in Holden? No."

"We remain confident about our future."

The German example

Opel, GM's German carmaker, has been threatened with insolvency by the German government after it was forced to put up tax-payer funds to keep the company running while it looks for a buyer.

Talks between the German and US governments broke down last night after the GM subsidiaries revealed a 300 million euro ($533 million) short term funding gap. Germany alluded to a "controlled insolvency" for the European carmaker.

"Watching the circus erupting over GM in Europe doesn't augur well for Holden Australia," said Ms Toth.

The credit crisis and the recession has cut the appetite for mergers and acquisitions around the world.

Global car sales have also plunged, making the industry less attractive to would-be investors.

Chrysler is already in Chapter 11, a form of bankruptcy which buys it time from creditors and allows it to trade. That company is rapidly restructuring to combine some operations with Fiat. It has made no secret of its need to slim down to survive.

Markets outside the US and China, "even markets the size of major European nations, are of lesser importance to the long-term outlook for GM," Mr Plunkett says.

"The US government will be focused on using its money to support North American jobs and commerce," he said.

Last week, Holden acknowledged it had "contingency planning underway" for GM's possible slide into Chapter 11, without specifying what those plans were.

Bankrupting all units

"If there is a bankruptcy, GM's management and advisors will determine whether to bankrupt all business units as well as the parent company," Mr Plunkett said.

It is common, but not always necessary to bankrupt all units, he said.

"Some units may become bankrupt even if GM as a parent company stays afloat," he said, noting that Saab is already working under the Swedish version of bankruptcy.

The company's legacy in the minds of the Australian consumer leaves one industry analyst confident of Holden's future.

"We don't think Holden will go broke because Holden is an Australian icon," said IBIS World industry analyst Sarah-Jane Derby. "We don't think the Australian public will let it go broke."

The Federal Government pledged $6.2 billion in November to help the local industry move to greener car production, and to help it become more competitive.

In the Federal budget handed down this month, the Government also raised the bonus tax deduction to 50 per cent for small businesses buying cars in an effort to rekindle falling sales.

Earlier this year, Holden reduced the shifts at its Elizabeth plant to meet slumping demand locally, and GM's decision to scrap the global Pontiac brand, which the Australian factory helped supply.

Holden generated a net loss of 6.1 per cent on revenues of $6.1 billion in 2007 by IBIS World estimates, the last year for which they are available. The slumping sales generated a net loss margin of less than 1 per cent, IBIS World said.

Spin-off possible

However, the losses have surely continued, with more recent data from the Federal Chamber of Automotive Industries showing a 19.2 per cent slump in Australian car sales in the year to March.

Holden's retail sales slumped 20.3 per cent in the year to March 2009. Toyota sales fell 26.4 per cent in the same period, according to FCAI, although Ms Derby acknowledges Toyota's sales were higher.

The Australian automaker accounts for less than 3 per cent of GM's total revenue, IBIS World estimates. Australia represents less than 1 per cent of the world's car manufacturing.

Holden, in contrast to many of GM's other global holdings, has the ability of being able to build a car from scratch, taking it from design, testing, prototype development and production to marketing.

Ms Derby said she expects GM will keep Holden in its stable, but the restructure of the carmaking giant would also make Holden an easier asset to sell.

"In the sense that Holden is already a standalone company. It's easier to spin off."

czappone@fairfax.com.au