Investor Wilbur Ross, who made billions turning around distressed steel and textile companies, said a Chapter 11 filing by General Motors Corp or another US automaker wouldn’t work and might devastate the economy. Going to court to reorganise would be “a very inhospitable environment for any of these guys,” Ross, 70, said in an interview Thursday. “It would be a total mess.”
His views run counter to those of investors such as hedge- fund manager William Ackman and executives including Jack Welch, the former chief executive officer of General Electric Co, who have said the automakers could solve some of their problems by restructuring in bankruptcy court. Ross, dubbed the “King of Bankruptcy” by Fortune magazine in 1998, said a restructuring bid by one of the three top US automakers would topple its peers and drive weakened suppliers out of business because the credit crunch dried up financing.
“If we were in a different overall economic environment, one of them going down wouldn't necessarily kill” the industry, he said. A weakened economy and frozen debt markets make an automaker bankruptcy impossible, with a Chapter 11 filing for reorganization resulting in liquidation instead, Ross said.
Failures by automakers and related businesses would lead to a drain on government spending for unemployment benefits, health care and pension recoveries, said Ross, whose WL Ross & Co is based in New York. GM has said bankruptcy isn’t an option.
Ross’s holdings include auto-parts maker International Automotive Components Group, which he assembled by buying assets from Lear Corp and bankrupt Collins & Aikman Corp. He said he isn’t advocating a US industry bailout to aid his interests 'Doesn't Add Up'
GM, Ford and Chrysler have asked for $25 billion in bridge loans to support their operations while they weather the worst automotive market in 17 years.
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Such legislation is being crafted by Democratic Senator Carl Levin and Representative Barney Frank, respectively of Michigan and Massachusetts. The Bush administration opposes tapping the $700 billion financial-rescue package for automakers.
“It doesn’t add up that they are letting GE and American Express to become banks to get aid, but they won’t save the car industry,” said Ross.
Ross created International Steel Group Inc from the assets of LTV Corp, Bethlehem Steel Corp and Weirton Steel Corp at a time when the US steel industry had gone through 35 bankruptcies in five years.
After taking it public, in 2004 he agreed to sell the company to billionaire Lakshmi Mittal for $4.5 billion.
Ross said the steel industry consolidation occurred when the economy was healthier and banks were willing to lend money.
“It was a far different set of facts than we have now.”