UpdatePossible GM bankruptcy could cost plastics makers

08 April 2009 19:04  [Source: ICIS news]

US automaker GM mulls bankruptcy - report(adds market reaction, paragraphs 1-9, updated GM stock information, paragraph 10)

HOUSTON (ICIS news)--A possible bankruptcy filing by General Motors (GM) could be costly to US plastics suppliers involved in the auto parts business, sources said on Wednesday.

“Tier 1 and Tier 2 suppliers will get pennies on the dollar [if GM goes bankrupt],” a plastics buyer said.

“Anyone currently supplying the automotive industry is really struggling,” the buyer added. “There’s going to be a lot of people going out of business or retooling.”

While delayed payments from GM could hurt struggling plastics makers, it appears too soon to forecast the full extent as well as how many companies would be impacted, according to Kevin Swift, chief economist for the American Chemistry Council (ACC).

GM said earlier on Wednesday that it was able to pay its monthly tab to parts makers this month without additional federal loans.

However, Swift said the filing could impact overall chemical demand if GM’s operating and supply-buying plans are altered during a reorganisation.

“If [automobile] production in North America were less, it would definitely impact the demand for chemistry,” Swift said.

But because GM would have financing during the bankruptcy process, some buyers doubted whether the filing and subsequent plan would significantly alter current market demand.

“I don’t think a GM bankruptcy will change anything right now,” a US acrylates buyer said. “It will continue to operate with interim financing for a while. Our business has already been hurt by the downturn in automobile sales.”

Shares of GM fell by 4.5% to $1.91 in mid-day Wednesday trading on the New York Stock Exchange (NYSE) following a report from Reuters that the US automaker is in intense preparations for a possible bankruptcy filing.

A plan to split GM into a new company comprised of the most successful units and an old one of less-profitable units is gaining momentum, a source told Reuters.

Moreover, if the plan goes through, the new GM would then be expected to assume some previous creditor debt from bankruptcy proceedings, including secured debt, Reuters reported.

The company has until 1 June to complete a reorganisation plan.

Automobiles are an important chemical end market, with each vehicle having an average of $2,200 (€1,650) worth of chemistry, according to the ACC.

Automobile parts include rubber hoses, plastic dashboards, catalysts, fibres, adhesives and coatings.

GM shares fell significantly on Tuesday on the report, dropping 11.9% to close at $2.00/share.

($1 = €0.75)

(Additional reporting by David Barry and Larry Terry)

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By: Ben DuBose
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