The global financial crisis closed in on two more victims yesterday after General Motors said it would need a government rescue and major US electronics retailer Circuit City filed for bankruptcy.
The news capped another day of gloomy developments in the US, the world’s largest economy, undermining hopes that coordinated action by governments around the world could keep the global downturn from getting worse.
Fannie Mae, the US mortgage giant bailed out by the government earlier this year, posted a US$29 billion loss. Meanwhile the US expanded its bailout of insurer AIG to more than US$150 billion.
PHOTO: AFP
General Motors CEO Rick Wagoner said the US automaker would need state help before president-elect Barack Obama takes over the White House in January, telling industry publication Automotive News that time was of the essence.
“This is an issue that needs to be addressed urgently,” he said, calling on the government to “overshoot, not undershoot” the level of assistance.
His call for support came as GM shares lost 23 percent on Monday after analysts at Deutsche Bank said they expected the stock eventually to be worth nothing at all.
“Even if GM succeeds in averting a bankruptcy, we believe that the company’s future path is likely to be bankruptcy-like,” the bank said.
Only federal aid can prevent a collapse by the largest US automaker, analysts including Buckingham Research Group’s Joseph Amaturo said on Monday as the shares plunged to a 59-year low.
Reorganizing in court protection also may not be possible, because the credit crunch has dried up financing.
“Strategic bankruptcy is not an option for GM,” said Mark Oline, a credit analyst with Fitch Inc in Chicago. “This is an issue of operating or not operating.”
The prospect of a forced liquidation raises the stakes for GM’s quest for new federal borrowing after saying on Nov. 7 it may run out of operating cash as soon as year’s end. GM had US$16.2 billion on hand as of Sept. 30, down from US$21 billion at the end of June, and needs US$11 billion to pay its monthly bills.
“A bankruptcy wouldn’t address our immediate liquidity concerns,” said Renee Rashid-Merem, a spokeswoman for GM. “It’s not an option for GM because it creates more problems than it solves.”
Wagoner said the entire US auto industry was suffering, with sales expected to be down by more than 3 million vehicles next year in the face of the global economic downturn.
“I’d question whether the US industry as a whole could survive that without support,” he said.
US electronics retailer Circuit City said on Monday it had filed for bankruptcy protection and obtained a US$1.1 billion credit lifeline to battle a sharp decline in sales.
Just a week after announcing it would close 155 stores and take other restructuring measures to fight a cash crunch, the firm became the first major US retailer to file for bankruptcy protection since the crisis began.
Canadian telecommunications equipment provider Nortel Networks posted a third-quarter loss of US$3.4 billion and announced 1,300 job cuts.
“We have seen worsening economic conditions, together with extreme volatility in the financial, foreign exchange and credit markets globally,” Nortel president and chief executive Mike Zafirovski said in a statement.
The latest gloomy company news came ahead of emergency talks among the leaders of the G20 group of largest developed and emerging nations in Washington on Saturday aimed at restoring market confidence and stability.
Washington officials have said that the summit is likely to result in an “action plan” including short-term steps to help fix the global economy.
However, other countries, notably France, have pushed for the talks to agree concrete steps.
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