NEW YORK (Bloomberg) — General Motors Corp., seeking US aid to survive, must significantly cut debt and labour costs and may still need a government-backed bankruptcy to remain viable, Merrill Lynch & Co. and JPMorgan Chase & Co. analysts said.

A bridge loan from Congress this month would allow the biggest US automaker to keep operating until a restructuring plan is devised after President-elect Barack Obama takes office, according to the New York-based analysts.

"It is increasingly apparent that GM's only hope for survival, which we define broadly as avoidance of Chapter 7 liquidation, is a bailout from the US government," Merrill Lynch's James Leda and Steven Landgraber wrote yesterday.

GM, pursuing about $12 billion in US aid, is working on a plan to slash debt and labour costs and reassess brands and dealers as sales flag, people familiar with the effort have said. GM says its board studied and rejected bankruptcy because buyers won't shop for cars from an insolvent automaker.

Congress has set a December 2 deadline for GM, Ford Motor Co. and Chrysler LLC to present plans that prove they will be able to survive and pay back any federal loans. GM's board is scheduled to review its final plan on November 30 and December 1, the people said. Congress may vote on an aid package on December 8.

GM shares have tumbled 86 percent this year as losses since the end of 2004 have mounted to almost $73 billion.

GM said on November 7 that 2009 US industry-wide sales will be 11.7 million, down from a forecast of 14 million, with a market share for itself of 21 percent. For GM, that would be 483,000 fewer vehicles sold on an annual basis than projected in July.

Even with approval from GM debt holders and unions to keep reducing expenses, the Detroit-based automaker may still need a government-backed bankruptcy to help trim an excess number of dealers, wrote Himanshu Patel, a JPMorgan analyst in New York.

Weak domestic demand also means that GM must lower its threshold for profitability to a US market of 13 million vehicles, not the 16 million the automaker needs now, Patel wrote yesterday.

Doing that would require chopping $4.2 billion in additional costs, split evenly between creditors and labour, Patel wrote.

Achieving the labour savings would require lowering combined hourly worker pay and benefits to $44 from $60 now, Patel wrote. Interest payments would need to be sliced by 70 percent, which GM may accomplish with debt-for-equity swaps, Patel said.

The analyst also suggested that GM cancel its $7 billion cash contribution to a health-care trust fund for union retirees on the idea that the Obama administration may expand access to health-care coverage. The payment is due in January 2010.

GM already has pared $9 billion in annualised costs since 2005, and is trying to reduce expenses by $15 billion by the end of next year. Still, the automaker said on November 7 it may run out of cash to pay monthly bills by the end of 2008.

Government bailout costs for GM alone may be $40 billion, according to the Merrill Lynch report. The automaker will need to chop production by as much as two million units; refinance $6 billion in secured bank debt; buy out employees; and have enough money to operate, Leda and Landgraber wrote.

GM must restructure its debt because of the government requirement that any federal borrowing be senior to all other debt, Leda and Landgraber wrote. GM must pay off a $4.5 billion revolver and $1.5 billion loan secured by equipment and assets of the Saturn brand, the Merrill analysts said.

After that, the government would be in a position to support a bankruptcy restructuring, the analysts said.

GM's 8.375 percent bonds due in July 2033 fell 0.55 cent to 15.5 cents on the dollar, yielding 53.7 percent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.