Nov. 11 (Bloomberg) --
General Motors Corp., the biggest U.S. automaker, should file for bankruptcy rather than taking money from the government, hedge fund manager Bill Ackman said.
``It has been hamstrung for years because it has too much debt and it has contracts that are uneconomic,'' Ackman, manager of the Pershing Square Capital Management LP hedge fund in New York, said in a taping of the Charlie Rose show yesterday.
``The way to solve that problem is not to lend more money. They should do prepackaged bankruptcy.''
GM is petitioning the U.S. government for aid after saying last week that it may not have enough cash to operate this year. A bankruptcy would leave bondholders in control of the company in exchange for forgiving some debts, Ackman said.
The automaker dropped to its lowest level in 59 years yesterday after a Deutsche Bank AG analyst downgraded the shares and said they may be worthless in a year. The slump demonstrated mounting pessimism that a turnaround will succeed amid a global credit crisis and the worst sales market in at least 15 years.
GM fell 44 cents, or 13 percent, to $2.92 as of 4:02 p.m. in New York Stock Exchange composite trading. The shares have lost more than 90 percent of their value over the last year.
`Not an Option'
A bankruptcy filing ``would be a disaster far beyond General Motors and a sad chapter in American history,'' GM Chief Executive Officer Rick Wagoner said in a Bloomberg Television interview last week. GM said on Oct. 24 that bankruptcy ``is not an option.''
GM's 8.375 percent bonds due in July 2033 traded at 25.75 cents on the dollar yesterday, less than half their price two months ago, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes yielded 32.5 percent.
GM needs to reduce debt to a supportable level, Ackman said.
``The `bankruptcy' word scares people but it's simply a system,'' said Ackman, who said he doesn't have a position in GM securities.
A Chapter 11 bankruptcy filing enables a company to seek protection from creditors while still continuing to operate.
Ackman, 42, profited as a short seller when MBIA Inc. and Ambac Financial Group Inc., the two largest bond insurers, plummeted this year over guarantees they issued on securities tied to subprime mortgages. In July Ackman said he had short positions in Fannie Mae and Freddie Mac, which were seized by U.S. regulators in September after $14.9 billion in net losses threatened to further disrupt the housing market. Last month Ackman said he bought a 9 percent stake in Wachovia Corp.
Federal Aid
GM, Ford and Chrysler LLC, owned by Cerberus Capital Management LP, may be moving closer to gaining federal aid.
U.S. House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada wrote to Treasury Secretary Henry Paulson to urge that bank-bailout funds be opened up for loans to automakers.
Rahm Emanuel, chief of staff to President-elect Barack Obama, has said the U.S. auto industry is ``essential'' to the economy.
While Emanuel stopped short of endorsing such a plan,
the White House yesterday signaled its opposition, saying aid to the industry wasn't discussed during the debate on the banking bailout. Congress may take up automaker assistance when it returns next week.
The government should ensure GM uses funds to retrain workers and shouldn't put money into the company if it will only be used to service existing debt, Ackman said.
``The welders at GM could help on the infrastructure of the country,'' Ackman said.
``That's a much better use of taxpayer money.''
The Ackman interview is scheduled to air today, according to the Charlie Rose show's Web site.
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