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GM bankruptcy before Christmas? Would crush all hopes of a Christmas Rally

November 15, 2008 – Comments (1) | RELATED TICKERS: GM

this year. GM is the biggest overhang right now to a short-term market rally. The Center for Automotive Research, which receives funding from the auto industry, has warned that the collapse of the Big Three -- or even just GM -- could set off a catastrophic chain reaction in the economy, eliminating up to 3 million jobs and depriving governments of more than $150 billion in tax revenue over the next three years.

GM has said Chapter 11 bankruptcy -- under which the automaker would continue to operate while holding its creditors at bay and overhauling its finances -- is not an option because that would scare away customers.

Some industry analysts say doubts about the company's chances of survival already are driving away would-be buyers, who worry that their warranties might not be honored or that they might not be able to get replacement parts.

Chapter 11 bankruptcy may be of little use anyway, Baird said, since GM may not be able to get the necessary financing to reorganize itself. That could lead to Chapter 7 liquidation, in which the automaker's assets would be sold off piecemeal.