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GM troubles cloud future for dealers

Automaker's stock, once considered blue-chip, falls to its lowest value since 1933

Posted: May 31, 2009 10:14 p.m.
Updated: June 1, 2009 4:55 a.m.
General Motors Corp. is expected to file for bankruptcy protection today, leaving its shareholders high and dry and its dealers wondering about the future.

"It's going to be a new world for the auto-dealer industry, for cities and for people who want to buy a car," said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. "Recovery doesn't mean what it used to."

None of Santa Clarita's dealerships are on the chopping block, but Kyser said he expects a continued trend of combined dealerships.

"It's not going to be a single-dealership business," he said.

For example, Parkway Supercenter in Valencia is a dealer for Pontiac, GMC, Buick and Cadillac - though Pontiac is slated for extinction.

"We've been really lucky so far not to have lost any of the brands," said Jason Crawford, Santa Clarita's director of economic development. "The more auto dealers we have here, the stronger the whole association is."

The travails of GM and other car manufacturers has left dealers wondering what's next.

"I don't know what to expect," said Don Fleming, president of the Santa Clarita Valley Automobile Dealers Association.

"I think (local dealers) are in pretty good shape for now," he said, but added GM's bankruptcy issues "put a cloud over all the businesses."

Shares of GM fell below $1 on Friday for the first time since 1933 as the struggling automaker approached a government-imposed restructuring deadline and a likely filing for bankruptcy protection. GM shares lost more than 22 percent to fall as low as 87 cents in morning trading.

The symbolic drop came just ahead of a government-mandated June 1 deadline to restructure. GM is expected to file for bankruptcy protection by then, which would leave existing shareholders virtually wiped out.

GM's new road map, outlined in a regulatory filing Thursday, would send the automaker into bankruptcy protection, erase most of its debt and eventually have it emerge leaner and stronger.

GM offered a new debt-for-equity exchange to its bondholders Thursday as it sought to put the pieces in place for a quick bankruptcy process. The offer would give the bondholders a 10-percent stake in a reorganized GM, plus warrants to buy another 15 percent, in exchange for retiring their $27 billion in unsecured debt.

Under the terms of the new offer, the bondholders would agree not to oppose a quick sale of most of GM's assets under bankruptcy protection. A key group of institutional bondholders backed the new terms on Thursday.

All told, the U.S. government would own 72.5 percent stake in the restructured automaker after it emerges from bankruptcy. A United Auto Workers trust that will take over retiree health care expenses will get 17.5 percent, and the old GM, effectively owned by the bondholders, would get the rest. The plan made no mention of the fate of existing shareholders.

"Shareholders will basically be wiped out," Kyser said. "At one point (GM) was viewed as the bluest of blue-chip stocks. It is bad, bad news."

He expects GM's way forward to include a reduced product line.

That echoed statements by GM spokesman David Barthmuss, who said the company's plan is to emerge from its reorganization, "smaller, leaner and a company that is viable for the next 100 years."

Restoring customer confidence will come down to product and action, he said.

"Our products have never been better than they are today," Barthmuss told The Signal Friday. "It's going to take a lot of open and candid discussion about where we're going."

The Associated Press contributed to this report.


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