UK: Bank gives General Motors 50% chance of bankruptcy within two years

There is a 50% chance General Motors will file for bankruptcy within the next two years, research from BNP Paribas reportedly claimed.

According to the London-based Daily Telegraph, the bank thinks that, out of a series of scenarios, it is most likely GM will remain vulnerable but avoid a Delphi strike, deferring Chapter 11 [US bankruptcy protection] until at least 2007.

The paper noted that Delphi , which filed for bankruptcy protection last month, supplies more than 15% of GM’s parts and that BNP Paribas predicts that any disruption to supply would stop production at most GM plants in a matter of weeks.

The report came a week after the troubled car maker announced 30,000 job cuts. Cyril Benayoun, a BNP Paribas credit analyst, told The Daily Telegraph : “We view these measures as a step in the right direction. But near-term risks still offset the long-term positives of such a restructuring plan.”

Benayoun reportedly has raised the probability of bankruptcy from 40%, as GM’s sales and product mix in the US continue to weaken.

“Any recovery would largely result from GM’s successful introduction of its new full-size SUVs and pick-up trucks allowing better profit margins despite lower industry sales in these segments,” he told the paper, which added that these new cars will make up 30% of sales next year, presenting a considerable risk in case of failure.

The Daily Telegraph said GM is expected to file for bankruptcy protection before its cash pile dwindles below US$10billion (£6billion) to ensure Chapter 11 is successful. It currently holds around $19billion in cash and Benayoun reportedly predicts a two or three-month strike at Delphi could burn a $10billion hole in those reserves.

However, cash reserves are likely to be boosted by a sale of its financing arm General Motors Acceptance Corporation, which some analysts expect by the end of the first quarter next year, the paper noted.

The Daily Telegraph said credit markets appear to agree with BNP. Banks reportedly are still asking for an upfront payment from investors buying protection against GM defaulting, a measure that implies a high likelihood of default.