Bulky GM Looks Bound for Bankruptcy

I have very mixed feelings about the plight of General Motors (GM - commentary - Cramer's Take). The financial side of me believes that the company will (and probably should) go under, crushed by the weight of post-retirement liabilities that may never allow the company to again be competitive and a product line that is both too broad and too reliant on trucks and SUVs. They also seem to lack that one killer brand-name product (that holds its resale value) such as Honda (HMC - commentary - Cramer's Take) has with the Accord, or Toyota (TM - commentary - Cramer's Take) has with its Camry.

For me, there's another side to this story, the one that would like to see GM work through its many challenges and regain the status it once enjoyed. Here's why: my grandfather spent 38 years at a GM plant in Trenton, N.J., as that facility's master heat-treater. He retired long before the money was really good, but he participated in what made the company good for our country. During World War II, the plant changed over from manufacturing car parts to making airplanes. That is no small change. In the beginning in 1942, the plant could turn out one Grumman Avenger each day. By the end of the war, it had delivered thousands of this successful torpedo bomber to the U.S. Navy. This is the kind of ingenuity that helped the U.S. and its allies win the war. Many U.S. manufacturers played a role, and GM's contributions -- and those of its employees -- were huge.

Back to the present, the fact remains that the deck is now stacked against GM. There's plenty of blame to go around here -- the company, the labor unions, poor planning, bad asset-liability management, the list goes on -- but none of this really matters; the damage has been done. I am convinced that without intervention -- i.e., a Chrysler-like bailout -- General Motors will ultimately file for bankruptcy.

If long-term debt of $44 billion wasn't bad enough, the real killer is post-retirement liabilities (pension and health care) underfunded to the tune of $58 billion. The company did have $23 billion in cash and short-term securities on the books as of March 31, but given current conditions, that cash balance is likely to continue declining as it did during the first quarter (it fell $3.2 billion in the first three months of the year). In fact, some analysts estimate that due to slower U.S. sales, GM may be burning through $1 billion or more every month.

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At the time of publication, Heller had no positions in the stocks mentioned.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, a fee-only financial planning he recently launched. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.