GM judged too big to fail as Pelosi embraces rescue

House Speaker Nancy Pelosi has thrown her support behind the premise that General Motors Corp, the largest US automaker, is too big to be allowed to fail.

In urging Congress to enact emergency aid for the ailing auto industry, Pelosi rejected calls to let GM collapse and sided with the company and its allies in trying to prevent a “devastating” domino effect that would cost millions of jobs.

“Trying to reorganise the auto industry in bankruptcy would be as close to reorganising the whole US economy as you could get,” said Alan Gover, a bankruptcy lawyer with White & Case LLP in New York. “The vast supply chain involves thousands of businesses, millions of existing jobs and just as many retirees, as well as whole communities and states.”

Passage of an industry bailout plan may keep GM from running out of operating cash by year's end, which it says may happen without US help. GM is the second-biggest provider of private health-care benefits and was the third-biggest advertiser in this year's first half.

“It’s truly one of those companies that's too big to fail, and everybody understands that,” said Nariman Behravesh, chief economist at IHS Global Insight Inc in Lexington, Massachusetts. “If it does collapse, it could make the recession deeper and longer.”

Behravesh said a GM bankruptcy could send the US jobless rate as high as 9.5 per cent, up from a 14-year high of 6.5 per cent in October, and produce a recession comparable in length to that of 1980-82.

Share Performance: GM shares traded in Germany rose 10 per cent to the equivalent of $3.21 as of 10:19 am in Frankfurt. The stock declined 13 per cent on Tuesday in New York Stock Exchange composite trading, chopping its value almost in half in a week.

Ford Motor Co and Chrysler LLC both likely would be forced into bankruptcy eventually if GM were to fail, Mark Oline, a Fitch Inc credit analyst, said in an interview.

GM, Ford and Chrysler want $50 billion in loans to boost liquidity and cover union retirees' medical costs, people familiar with the matter have said. That would be on top of $25 billion in low-interest borrowing Congress approved in September to help retool plants to build more-efficient vehicles.

The trio employs 240,000 people in the US, or about 70 per cent of US auto workers, according to the Automotive Trade Policy Council in Washington, the industry group for the US companies.