General Motors Co Hummer H3 vehicles sit parked in a storage lot at the Port of Newark in Newark, New Jersey. Bloomberg News

A bankruptcy filing by General Motors could allow the struggling automaker to reduce its debt more aggressively than an out-of-court restructuring and might not be as damaging as it would have been just a few months ago, an analyst said on Monday.

"We think the damage to the enterprise of a GM bankruptcy is notably less than it would have been a few months ago, largely because of public desensitization to a bankrupt carmaker," JP Morgan analyst Himanshu Patel said in a note for clients.

Patel's note raises the possibility by a prominent Wall Street analyst of the renewed threat of a bankruptcy by GM or Chrysler, a risk many observers believe had been sharply reduced by the government bailout.

GM, like its smaller rival Chrysler, faces a Feb 17 deadline to submit new restructuring plans to the US government under the terms of the $17.4 billion rescue provided to the struggling automakers.

GM has said it is aiming to reduce its unsecured US debt by about two-thirds from nearly $28 billion to $9 billion. The company also plans to halve the $20 billion it has promised to a health care trust fund affiliated with the UAW by offering equity instead of cash.

But Patel said the diminished threat of a bankruptcy filing by GM appeared to have removed a key incentive for bondholders to offer concessions.

"After the GM bailout, GMAC received aid, GMAC received bank holding status without achieving required funding levels (and) Chrysler and its (financing company) received aid," Patel said. "All of these steps by the government were likely to have emboldened bondholders."

Patel said that if GM fails to win substantial concessions from bondholders and the UAW, the bailout could become "a political lightning rod" for the Obama administration.

"We are increasingly thinking that such a development might force the White House to more seriously consider allowing GM/Chrysler to go into bankruptcy," he said.

GM has repeatedly ruled out seeking bankruptcy protection, saying such a step would scare off consumers, cause its revenues to plummet and risk that a Chapter 11-style restructuring would end up as a liquidation of its assets.

(China Daily via Agencies February 11, 2009)