Bad for GM, Bad for America

This isn't exactly a great deal for General Motors. GMAC is the company's most profitable unit, earning $2.8 billion in 2005, and GM has been able to tap GMAC for capital during what has become a perennial rough patch. The investor group is paying about five times net income for its 51% stake in GMAC -- and part of that price is cash from GMAC itself. If you look just at actual cash from the investor group and subtract the cash from GMAC, the price is closer to two times income.

But when you've lost $10.6 billion in a year, as General Motors did in 2005, getting a good price takes back seat to getting the deal done at all. Especially when your auto sales are dropping like a rock. GM's U.S. sales dropped 14% in March.

The No-Sale Sale

But price isn't the real, company-crushing bad news in this sale. I'd save that moniker for this oddity: The sale isn't a sale at all. Cerberus and the rest of the group can walk away from this deal before it closes some time in the fourth quarter of 2006 if the credit rating on General Motor's unsecured long-term sinks to less than a triple-C rating from Standard & Poor's.

A rating like that would be two notches deeper into junk-bond territory than General Motors' current rating of single-B. (The deal is also off if GMAC's own credit rating slips below its current double-B rating, just two notches below investment grade.)

What could drive General Motors bond ratings down another two notches just about overnight? A strike set off by supplier Delphi's efforts to break its contracts with its unions in bankruptcy court.

The company has filed a reorganization plan that includes closing or selling all but eight to 12 of its 33 North American plants and cutting as many as 30,000 jobs. For U.S. workers who keep their jobs, Delphi has proposed an immediate wage cut of $5 an hour (or 18%) to $22 an hour for production workers and another cut to $16.50 an hour -- for a package of cuts totaling $10.50 an hour -- in 2007.