Bond Holders Reject GM's Debt for Equity Swap
Wednesday, May 27, 2009SUSIE GHARIB: Meanwhile, General Motors' board of directors will meet to decide the company's next move, now that bondholders have rejected GM's debt for equity swap. But the auto maker says that there are no plans to extend or revise the offer. That means GM will likely be pushed into bankruptcy on Monday. Now worries about that are keeping sales in neutral at many dealers, while the sour economy is plaguing all car companies. Analysts say the possibility of a Chapter 11 filing has made it even harder for GM to offer leases and rebates. But as Diane Eastabrook reports, a government-backed reorganization could get consumers buying again.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: In late February we joined Tom and Julie Godar as they shopped for a new or used Chevy sedan to replace their nine-year-old Chevy minivan. But three months later the Godars still have that old minivan and no immediate plans to trade vehicles.
TOM GODAR, CONSUMER: We're just nervous about the economy and about our jobs, even though there isn't anything necessarily foreseeable, an issue with our jobs. But every day you hear of other companies where it didn't appear there was foreseeable layoffs and now they're laying people off.
EASTABROOK: The Godar's fears are helping to fuel one of the worst sales slumps in decades for the auto industry. General Motors is battling those fears on top of the burden of a potential bankruptcy, a battle that is being fought in every dealership. Veteran Chevrolet dealer Bill Stasek says the new Malibu and other Chevy products have been drawing more interested buyers to his showroom in recent weeks. But Stasek speculates a lot of that interest isn't translating into actual sales because of bankruptcy fears.
BILL STASEK, CHEVROLET DEALER: I would hope that people would realize that General Motors isn't going away. There are going to be dealers to service those cars and I don't think that that is a reason that anyone should hesitate buying a car.
EASTABROOK: The poor economy and GM's financial woes are also denting sales at Mike Ettelson's dealership. GM's primary financing arm GMAC, suspended leasing last summer and leases made up almost half of Ettelson's lucrative Cadillac business. He is hopeful improving credit markets will let the auto company go back to leasing.
MIKE ETTELSON, CADILLAC DEALER: Typically someone in the upper echelon that drives a luxury car trades cars every two, three, four years and so they want to get in their car and get out of it before the warranty runs out, before they have any expenses and they just found that leasing makes a lot of sense for them.
EASTABROOK: IHS Global Insight auto analyst John Wolkonowicz thinks bankruptcy is inevitable. But he thinks Chrysler's progress in bankruptcy could renew consumer confidence in GM.
JOHN WOLKONOWICZ, SR. AUTO ANALYST, IHS GLOBAL INSIGHT: Chrysler was taken into bankruptcy a month ago. The president suggested to the American public that Chrysler would be coming out very soon and now the news is indicating that in fact that is exactly what is happening.
EASTABROOK: Analysts say more certainty about GM's future could encourage some consumers to start buying the auto company's products again. But they also concede it might not encourage buying from consumers like Tom Godar who are more concerned about the overall economy and job market. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Hogdkins, Illinois.
