View Full Version : what will be the effects of a gm bankruptcy?
someone emailed me, saying that he thought a gm bankruptcy might be a real catastrophe. i wrote a reply, below, and then thought to post it here for discussion. i'm interested in others' thoughts about how serious the consequences of a gm bankruptcy might be. is the scenario i picture realistic or just doomer porn?
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why do you think a gm bankruptcy, especially if it's mostly prepackaged, will cause catastrophic fallout? or rather than "why," let me ask "how?"
i share your sentiments about how misdirected all the rescue/bailout efforts have been, but i think we are playing out the "it has to get worse before anything serious can be done" scenario. ej predicted 20% unemployment. that's pretty damn bad. so far i think itulip's specific predictions have been overly optimistic, just as they say. they're called doomers, but their predictions are on the bright side when the events come to pass.
i think that the bad news is just hitting main street. so maybe that's the lehman-gm parallel. in bill fleckenstein's terms, this is a triple header- financial disaster, economic disaster, funding crisis. the financial problems perhaps peaked with lehman's failure. it feels like the gov't has made clear now that, after lehman, nobody significant IN THE FINANCIAL SYSTEM will be allowed to collapse.
the heart of the crisis then moves from the financial system into the real economy. perhaps the peak will be gm's bankruptcy, with its attendant job losses at both gm and its suppliers, dealers, and assorted camp followers. i think even a prepackaged bankruptcy will have to include shutting many factories and laying off many workers, and cutting wages and/or benefits for remaining employees. pontiac, gmac and perhaps buick divisions will disappear. i say perhaps for buick because it's big in china. maybe it will only remain as an asian brand.
but this is mere digression from the wider effect of a gm bankruptcy. will e.g. parts suppliers stop trusting their customers for payment? not just in the auto industry, but more broadly. will all deliveries be for cash, not 30 day invoicing? imagine every factory having to be run on cash instead of accrual. will supermarkets have to pay their food suppliers in cash on delivery? that would really screw things up a lot, wouldn't it? that would be analogous to the effect that lehman had in the financial system.
i've got to stop for now. i'm scaring myself.
Good question. My only comment is that a GM bankruptcy won't be as surprising as Lehman's was. Presumably people who would be affected have done more planning for it, so the shock to the system may be less. Then again, government threw trillions at the financial system shock, and (so far) seem to be thinking orders of magnitude less for these real-economy problems. That will have to change, and maybe GM's effects will be the catalyst for that political attitude change.
It's very hard to separate out all the individual forces at work these days. For me the only hope is to look at the Great Depression as the model, and adjust it with factors such as U.S. net debtor status (suggesting high inflation as the eventual outcome). Then read iTulip to get the truth. :)
JK,
The good news is, there is a canary in the coal mine of PC economy going cold turkey on credit: Russia.
Russia had probably some of the most egregious supply chain credit: 60 day and 90 day credit was very common.
In December, that all stopped. Completely.
So far as I can tell, it has still not restarted.
The stores are still stocked, but the supplies are running low. The only reason they haven't fallen further is that the difficult nature of Russian importing meant a larger than typical amount of inventory in the pipeline - plus consumption basically stopped for about 1 month.
But consumption is starting up again. It will be interesting to see what happens next - I have customers ordering products for which price increases are 40%+ increased. Fortunately I've always maintained a policy of COD which is (mostly) intact, but I've seen a number of im/ex companies fail due to the losses accrued from the foreign exchange gyrations at the end of last year plus mostly disappeared credit.
someone emailed me, saying that he thought a gm bankruptcy might be a real catastrophe. i wrote a reply, below, and then thought to post it here for discussion. i'm interested in others' thoughts about how serious the consequences of a gm bankruptcy might be. is the scenario i picture realistic or just doomer porn?
-------------------------
why do you think a gm bankruptcy, especially if it's mostly prepackaged, will cause catastrophic fallout? or rather than "why," let me ask "how?"
i share your sentiments about how misdirected all the rescue/bailout efforts have been, but i think we are playing out the "it has to get worse before anything serious can be done" scenario. ej predicted 20% unemployment. that's pretty damn bad. so far i think itulip's specific predictions have been overly optimistic, just as they say. they're called doomers, but their predictions are on the bright side when the events come to pass.
i think that the bad news is just hitting main street. so maybe that's the lehman-gm parallel. in bill fleckenstein's terms, this is a triple header- financial disaster, economic disaster, funding crisis. the financial problems perhaps peaked with lehman's failure. it feels like the gov't has made clear now that, after lehman, nobody significant IN THE FINANCIAL SYSTEM will be allowed to collapse.
the heart of the crisis then moves from the financial system into the real economy. perhaps the peak will be gm's bankruptcy, with its attendant job losses at both gm and its suppliers, dealers, and assorted camp followers. i think even a prepackaged bankruptcy will have to include shutting many factories and laying off many workers, and cutting wages and/or benefits for remaining employees. pontiac, gmac and perhaps buick divisions will disappear. i say perhaps for buick because it's big in china. maybe it will only remain as an asian brand.
but this is mere digression from the wider effect of a gm bankruptcy. will e.g. parts suppliers stop trusting their customers for payment? not just in the auto industry, but more broadly. will all deliveries be for cash, not 30 day invoicing? imagine every factory having to be run on cash instead of accrual. will supermarkets have to pay their food suppliers in cash on delivery? that would really screw things up a lot, wouldn't it? that would be analogous to the effect that lehman had in the financial system.
i've got to stop for now. i'm scaring myself.
Like the banks this decade, the global car industry, which has been in trouble for many years, also participated in one last cheap credit driven hurrah. Not just SUVs flying out the door, but every imaginable car from every imaginable manufacturer.
I've been watching the same silly thing develop in the commercial airline manufacturing business...for years Airbus and Boeing just traded places as to which was in the most trouble, and there was an undeniable +'ive correlation between "how well" one of them was doing and the relative [de]value of their competing currencies. Troubles with the product [A380 and B787] were just a media sideshow. The real problem is too much capacity fueled by too much artificial demand [think back to those unbelievably huge orders from Middle East and Asian airlines at every Farnborough, Paris, Dubai and Singapore airshow]. As we all know, when capacity has to be reduced, invariably the largest owner of capacity ends up taking the biggest hit. And that's one important reason why GM is taking the brunt of this.
If GM goes down it will affect the economies of much of the world. How? Well you answered a good part of that yourself jk. And I agree, it is scary.
GM is a huge, global company, that not only owns a lot of car assembly capacity around the globe, but is contractually entangled through its various businesses, including finance, with thousands of other companies in pretty well every economic sector. Restructuring the car manufacturing part of GM, including the related parts suppliers, may be the tip-of-the-iceberg easy to see part.
There is much talk about "prepackaged bankruptcy". This is a nice sounding phrase that just rolls off a press secretary's tongue or a journalist's pen. It makes the whole thing sound clean and sanitary. Reminds me of the Fed repeatedly stating that although it was helpless to prevent it, we should be confident in its ability to stand by ready to mop up the mess of a bursting asset bubble. And "prepackaged bankruptcy" makes it sound as though the Obama Administration has a well constructed plan, and is fully in control of the situation and outcomes. After all, that's what we all want to believe in these troubling times, isn't it? Well pardon me all to hell, but I remain sceptical.
I think the danger is that the complexities of letting GM fail are badly underestimated, in the same way the Administration underestimated the complexities and consequences of letting Lehman fail. I really believe this has the potential to be for Fleckenstein's "economic disaster" phase, what Lehman was to the "financial disaster" phase. And it may mark the surfacing into full view of the beginning of the "funding crisis" phase as the rest of the world realizes that the US government is sinking their economies because it is now politically impossible for it to rescue its multi-national [non-financial] companies.
BiscayneSunrise
04-01-09, 11:05 PM
A GM bankruptcy, pre-packaged or simulated, or whatever is going to be softened by government intervention and social tinkering.
I haven't fully formulated the theory yet but it is my belief that GM will be Obama's great experiment in social engineering in changing the face of American business and government.
Being an industrial company, GM allows Obama to tinker with the future of the common American worker. Note how unions at GM are being warned of future concessions. Rather than being "saved" by Obama, union supporters are now being used as tools. Union pay will be cut but more importantly for Obama, their health care and pensions will be cut off from GM and the responsibility transferred to the government.
This will be an experiment and then eventually the model for how all health care and pension obligations will be provided for in the US. Of course, greater government responsibility in these areas will require greater taxes to cover the costs.
GM will agree to the this, so as to get out from underneath those obligations and the unions will agree because they have no choice. Obama and Democrats will gladly take on this added government responsibility because it allows them to use it as a model for how they would like to see the rest of US business to go. Even some pro-business advocates may like it because it removes direct health care costs from business.
It is interesting to note that there is talk of GM being divided into a good GM (Cadillac, Chevy, GMC, Buick) and a bad GM with Hummer, Saturn, Pontiac being tied to the toxic debt
Now, of course, many of us would say the experiment will end in tears with even more unsustainable debt from the bad GM being covered by the Feds; but given the trillions being spent on the banks, a few hundred billion to work this grand social experiment is well worth it to Obama. It will likely fail, but in the short to medium term that is the Obama model because it sets in stone social policy for a generation
Just a big picture theory at this point, still working out the details. Thoughts?
Just a big picture theory at this point, still working out the details. Thoughts?
Your theory makes good sense.
Where this is going to get interesting is with the mismatch between Obama's view of how the world works and how it actually works. The picture that's being painted today is that the mean execs and stockholders will be punished, and the noble employees and car owners will be saved. Heck, new car buyers are even likely to benefit. I just don't see it playing out anything like that. It's going to be an unmitigated disaster.
Combine that with your theory, and I wouldn't be surprised if the result is some form of Draconian legislation that prevents certain people from acting in their own best interests. Maybe something like GM employees being guaranteed certain wages, but then not being allowed to quit for 4 years. Or it might even be simple protectionism, with strict import quotas, etc.
GM is in some ways like a microcosm of the whole country: the more controls the government imposes on them, the more unstable and unpredictable the system becomes. They might drag it out, but it's hard to imagine how this ends up anywhere other than eventual full nationalization.
As we all know, when capacity has to be reduced, invariably the largest owner of capacity ends up taking the biggest hit. And that's one important reason why GM is taking the brunt of this.
gm has been losing share as global capacity has INCREASED. Now it will likely lose more as global capaicty is decreased. But more generally, when capacity has to be reduced, the largest owner of capacity ends up taking the biggest hit in terms of units of production or percent of overall production. But in another sense, surely the biggest hit is taken by small producers who disappear entirely.
Union pay will be cut but more importantly for Obama, their health care and pensions will be cut off from GM and the responsibility transferred to the government.
This will be an experiment and then eventually the model for how all health care and pension obligations will be provided for in the US. Of course, greater government responsibility in these areas will require greater taxes to cover the costs.
I think this is a brilliant idea, and if they don’t do it, they should.
GM will agree to the this, so as to get out from underneath those obligations and the unions will agree because they have no choice. Obama and Democrats will gladly take on this added government responsibility because it allows them to use it as a model for how they would like to see the rest of US business to go. Even some pro-business advocates may like it because it removes direct health care costs from business.
the tie between employment and healthcare is an atavism which originated with businesses’ attempts to get around wwii wage and price controls. It ended up being a severe handicap for globally competitive manufacturing firms. Cat, for example, provides healthcare for its employees, komatsu does not.
GM is in some ways like a microcosm of the whole country: the more controls the government imposes on them, the more unstable and unpredictable the system becomes. They might drag it out, but it's hard to imagine how this ends up anywhere other than eventual full nationalization.
a couple of years ago, bill gross wrote that gm was a microcosm of the country because it had made unaffordable promises about future health and pension benefits. That still stands.
Like the banks this decade, the global car industry, which has been in trouble for many years, also participated in one last cheap credit driven hurrah. Not just SUVs flying out the door, but every imaginable car from every imaginable manufacturer.
I've been watching the same silly thing develop in the commercial airline manufacturing business...for years Airbus and Boeing just traded places as to which was in the most trouble, and there was an undeniable +'ive correlation between "how well" one of them was doing and the relative [de]value of their competing currencies. Troubles with the product [A380 and B787] were just a media sideshow. The real problem is too much capacity fueled by too much artificial demand [think back to those unbelievably huge orders from Middle East and Asian airlines at every Farnborough, Paris, Dubai and Singapore airshow]. As we all know, when capacity has to be reduced, invariably the largest owner of capacity ends up taking the biggest hit. And that's one important reason why GM is taking the brunt of this.
If GM goes down it will affect the economies of much of the world. How? Well you answered a good part of that yourself jk. And I agree, it is scary.
GM is a huge, global company, that not only owns a lot of car assembly capacity around the globe, but is contractually entangled through its various businesses, including finance, with thousands of other companies in pretty well every economic sector. Restructuring the car manufacturing part of GM, including the related parts suppliers, may be the tip-of-the-iceberg easy to see part.
There is much talk about "prepackaged bankruptcy". This is a nice sounding phrase that just rolls off a press secretary's tongue or a journalist's pen. It makes the whole thing sound clean and sanitary. Reminds me of the Fed repeatedly stating that although it was helpless to prevent it, we should be confident in its ability to stand by ready to mop up the mess of a bursting asset bubble. And "prepackaged bankruptcy" makes it sound as though the Obama Administration has a well constructed plan, and is fully in control of the situation and outcomes. After all, that's what we all want to believe in these troubling times, isn't it? Well pardon me all to hell, but I remain sceptical.
I think the danger is that the complexities of letting GM fail are badly underestimated, in the same way the Administration underestimated the complexities and consequences of letting Lehman fail. I really believe this has the potential to be for Fleckenstein's "economic disaster" phase, what Lehman was to the "financial disaster" phase. And it may mark the surfacing into full view of the beginning of the "funding crisis" phase as the rest of the world realizes that the US government is sinking their economies because it is now politically impossible for it to rescue its multi-national [non-financial] companies.
More from Bloomberg this morning. "Prepackaged Bankruptcy" has morphed into "Surgical Bankruptcy", which sounds cleaner and more sanitary...:)
GM Use of Surgical Bankruptcy to Survive Will Encounter Delay (http://www.bloomberg.com/apps/news?pid=20601087&sid=a8qixhKjbdYA&refer=home)
April 2 (Bloomberg) -- General Motors Corp. (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS)’s plan to use a quick “surgical” bankruptcy as the most likely means to become a viable business is fraught with dangers of intransigence from bickering stakeholders and delay, reorganization experts said...
...More likely, the Detroit-based automaker will pursue a pre- arranged reorganization with the backing of enough workers, creditors, suppliers and dealers to smooth the way, advisers to the company and the U.S. auto task force said. This plan to control what is often an unpredictable, lengthy process may encounter surprise obstacles, bankruptcy lawyers said.
“Surgical bankruptcy is a made-up term to give people comfort,” said James Shein (http://search.bloomberg.com/search?q=James+Shein&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), a Northwestern University Kellogg School of Management professor and a turnaround expert. “Unless the court makes some really gutsy moves, we’ve got the odds of it bracketed somewhere between slim and none. Conceptually it’s a good idea, but practically it’s going to be tough.”
To give the company a “quick rinse” in a negotiated bankruptcy may not work, said Van Conway (http://search.bloomberg.com/search?q=Van+Conway&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), managing partner of Conway MacKenzie, a restructuring consulting firm in Birmingham, Michigan, that works with partsmakers. “You’re talking about stuff that’s never been done before in one of the biggest, most complicated bankruptcies ever.”...
...Neither GM nor the Obama administration presented a new offer to the committee representing creditors, a person familiar with the panel’s activities said. Creditors have not been invited to a GM bailout meeting tomorrow involving interested parties, the person said...
...“The benefit of bankruptcy that also makes it more difficult to manage is that all parties of interest have a right to be heard on every issue,” said David Feldman (http://search.bloomberg.com/search?q=David+Feldman&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), partner at Gibson, Dunn & Crutcher LLP and co-chair of the firm’s restructuring practice. “Every creditor or shareholder can stand up and object, and that makes the bankruptcy process that much less predictable” than out-of-court restructurings, he said...
Real potential to become an unholy mess that drags on in the courts for years...
Real potential to become an unholy mess that drags on in the courts for years...
i am becoming persuaded that you are right in your lehman analogy.
we_are_toast
04-02-09, 09:35 AM
but this is mere digression from the wider effect of a gm bankruptcy. will e.g. parts suppliers stop trusting their customers for payment? not just in the auto industry, but more broadly. will all deliveries be for cash, not 30 day invoicing? imagine every factory having to be run on cash instead of accrual. will supermarkets have to pay their food suppliers in cash on delivery? that would really screw things up a lot, wouldn't it? that would be analogous to the effect that lehman had in the financial system.
i've got to stop for now. i'm scaring myself.
This may be a bit too scary for you JK, but I think it fits in pretty well with what you're saying.
There’s a hidden credit crunch going, according to UBS economists Paul Donovan and Larry Hatheway — a crunch relatively unreported because it is occurring within the more opaque realms of inter-company credit.
As their note explains, companies have access to three forms of credit: Bank credit, vendor financing and credit stemming from normal terms of payment such as invoicing.
Bank credit contraction is, of course, well documented thanks to the vast amount of public data available from banks and central banks. Data regarding vendor financing or invoicing, however, is much harder to collect.
Nevertheless, anecdotal evidence points to an abrupt tightening in this form of financing, according to UBS. And, as they point out, this is relatively out of historical context:
Much more here;
http://ftalphaville.ft.com/blog/2009/04/02/54377/the-invoicing-crunch/
Like the banks this decade, the global car industry, which has been in trouble for many years, also participated in one last cheap credit driven hurrah. Not just SUVs flying out the door, but every imaginable car from every imaginable manufacturer.
I've been watching the same silly thing develop in the commercial airline manufacturing business...for years Airbus and Boeing just traded places as to which was in the most trouble, and there was an undeniable +'ive correlation between "how well" one of them was doing and the relative [de]value of their competing currencies. Troubles with the product [A380 and B787] were just a media sideshow. The real problem is too much capacity fueled by too much artificial demand [think back to those unbelievably huge orders from Middle East and Asian airlines at every Farnborough, Paris, Dubai and Singapore airshow]. As we all know, when capacity has to be reduced, invariably the largest owner of capacity ends up taking the biggest hit...
Just as an aside, here's another shoe that will drop in the transport sector. There is far too much commercial aircraft manufacturing capacity...more than the world will need for years to come, if ever again.
Airbus is still in denial. A significant depreciation of the Euro against the US $ is the only thing that can help them, and even that may no longer be enough.
Airbus Says Deliveries May Fall 15% Next Year, Touching Bottom (http://www.bloomberg.com/apps/news?pid=20601087&sid=aHIey1eXCHsU&refer=home)
April 2 (Bloomberg) -- Airbus SAS (http://www.bloomberg.com/apps/quote?ticker=EAD%3AFP), the world’s biggest planemaker, anticipates that deliveries may drop as much as 15 percent next year in a worst-case scenario before picking up again in 2011, the company’s chief salesman told analysts.
A target of 483 deliveries this year should still be achieved, John Leahy (http://search.bloomberg.com/search?q=John+Leahy&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), who is also chief operating officer, said today in a presentation to analysts...
...The assertion that output will bottom out next year is a surprise and seems implausible, said Nick Cunningham (http://search.bloomberg.com/search?q=Nick+Cunningham&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), an analyst at Evolution Securities in London who attended the briefing by Airbus parent European Aeronautic, Defence & Space Co...
...Leahy’s remarks were comfirmed by Frank Skodzik (http://search.bloomberg.com/search?q=Frank+Skodzik&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), a Frankfurt-based analyst at Commerzbank AG...
...The Toulouse, France-based company handed over 76 jetliners in the first two months, matching the year-earlier period. New orders amounted to just six planes, and with 14 contracts canceled the company had a net intake of minus 8...
[On my recent trip into the Arabian Gulf the A330 I boarded in Frankfurt for the inbound leg was on lease [to the Gulf national carrier] from India's Jet Airways, which has ordered far too many airplanes and is now parking those it cannot lease out. Flight crew was European, livery and cabin staff from the Gulf carrier. There's just too many airplanes out there.]
BiscayneSunrise
04-02-09, 10:25 AM
Real potential to become an unholy mess that drags on in the courts for years...
Which is why it won't happen.
Obama is in firm control of the situation and he needs to maintain control in order to shift GM responsibilities of health care and retirement to the Feds.
This creates his new paradigm in his exact image.
Letting things spin out of control in Ch 11 puts things in the hands of others and Obama is not the type to relinquish control.
Which is why it won't happen.
Obama is in firm control of the situation and he needs to maintain control in order to shift GM responsibilities of health care and retirement to the Feds.
This creates his new paradigm in his exact image.
Letting things spin out of control in Ch 11 puts things in the hands of others and Obama is not the type to relinquish control.
You have more confidence than I do that this Administration has some sort of comprehensive long term plan. I say this, in part, because every time I hear the President speak I get the distinct impression that his handlers haven't figured out they won the election, because he always sounds as though he is still campaigning.
Further, I have much less confidence than you that even if they have a preferred plan, that under the present circumstances, where events are overtaking them faster than they can cope, they are actually able to work such long term plan.
I think they [Fed, Treasury, White House] are continuing to throw everything they have at this crisis, in whatever case-specific, ad hoc manner is feasible in the moment, and so far there's not been any traction.
Only time will tell...
From Ritholtz's Big Picture blog...:)
http://www.ritholtz.com/blog/
Top 10 Things the Letters “GM” Stands For
10. Got More?
9. Goals missed
8. Giant Mess
7. GO MARX
6. Government Mooch
5. Grossly Mismanaged
4. Got Mechanic?
3. Gasguzzlin’ Monsters
2. Goodbye Michigan!
And the number thing the letters”G” and “M” stands for:
1. Gambled & Missed
BiscayneSunrise
04-04-09, 06:11 AM
You have more confidence than I do that this Administration has some sort of comprehensive long term plan. I say this, in part, because every time I hear the President speak I get the distinct impression that his handlers haven't figured out they won the election, because he always sounds as though he is still campaigning.
Further, I have much less confidence than you that even if they have a preferred plan, that under the present circumstances, where events are overtaking them faster than they can cope, they are actually able to work such long term plan.
I think they [Fed, Treasury, White House] are continuing to throw everything they have at this crisis, in whatever case-specific, ad hoc manner is feasible in the moment, and so far there's not been any traction.
Only time will tell...
GRG,
Obama is bailing out the banks because he has to, however, he is bailing out GM because he wants to. The nuance is that since GM is a broad based industrial company with a large middle class work force it allows him to social engineer.
You are right concerning their strategy regarding the banks, it is haphazard and certain to fail.
His strategy concerning GM, (I'm trying to understand the politics of the man), is much more well thought out. In his mind, he has a very clear idea of how he wants society here in the US to evolve. GM will be his laboratory.
I believe that is his goal. He will work furiously with GM. He will likely have some short term success but, I am, like you, highly skeptical he can pull it off in the long run.
GRG,
Obama is bailing out the banks because he has to, however, he is bailing out GM because he wants to. The nuance is that since GM is a broad based industrial company with a large middle class work force it allows him to social engineer.
You are right concerning their strategy regarding the banks, it is haphazard and certain to fail.
His strategy concerning GM, (I'm trying to understand the politics of the man), is much more well thought out. In his mind, he has a very clear idea of how he wants society here in the US to evolve. GM will be his laboratory.
I believe that is his goal. He will work furiously with GM. He will likely have some short term success but, I am, like you, highly skeptical he can pull it off in the long run.
Latest from GM CEO. Does not have a particularly convincing headline or tone...
GM CEO Henderson says bankruptcy not inevitable (http://www.reuters.com/article/newsOne/idUSTRE5342CR20090405)
Sun Apr 5, 2009 1:32pm EDT
WASHINGTON (Reuters) - Bankruptcy is not inevitable for General Motors Corp, said the automaker's new chief executive on Sunday, who is under White House orders to win more concessions from bondholders and unionized workers...
..."We are planning to get the job done. Our preference would be to do it outside of the bankruptcy process," Henderson said. "If it cannot be done outside a bankruptcy process, it will be done within it."...
WASHINGTON (Reuters) - Bankruptcy is not inevitable for General Motors Corp, said the automaker's new chief executive on Sunday, who is under White House orders to win more concessions from bondholders and unionized workers...
It seems to me that most of the large GM bondholders probably have purchased CDS contracts to protect their investments.
Given AIG's role as one of the largest writers of CDS contracts, and the govt's policy of paying those contracts in full in the event that they're triggered, why would bondholders ever agree to concessions?
Scott4139
04-05-09, 07:56 PM
Don't get too scared. The treasury has a plan in place for the suppliers and at GM only 18 NA suppliers have changed terms.
We've had NO payment problems. I think the government is well aware of the mess if a payment is missed. That's why they will offer unlimited support if GM goes the bankruptcy route.
The real question is what will happen to GM's global strategy. They cannot survive as a NA company. They've outsourced to their global groups all the engineering. Similarly, Opel and GMDAT are all tied to GM here in NA.
Bankruptcy solves the dealer, supplier, capacity, etc issues. Once this is done they will be a very competitive GM. The union and bond holders are running the calculations: Bankruptcy or negotiated settlement. When the calcs are done the answer will become obvious. Fritz is playing the cards well. Wagoner took BR off the table which enboldened the union and bond holders. Frits put it back on the table where it has to be.
BiscayneSunrise
04-06-09, 03:22 AM
It seems to me that most of the large GM bondholders probably have purchased CDS contracts to protect their investments.
Given AIG's role as one of the largest writers of CDS contracts, and the govt's policy of paying those contracts in full in the event that they're triggered, why would bondholders ever agree to concessions?
I don't know if bondholders have any financial protection from bankruptcy but they certainly have a lot of powerful political people with shared interests.
Given, the heavy Democrat presence in Michigan and the rust belt, it is a virtual certainty Obama and a Democratic Congress will do whatever it takes to ensure GM's survival.
So, to Sharky's point, why would bondholders agree to concessions knowing the government is not going to allow a bankruptcy?
Latest from GM CEO. Does not have a particularly convincing headline or tone...
GM CEO Henderson says bankruptcy not inevitable (http://www.reuters.com/article/newsOne/idUSTRE5342CR20090405)
Sun Apr 5, 2009 1:32pm EDT
And the soap opera continues...
GM Said to Speed Bankruptcy Plans as Board Crafts Savings Goals (http://www.bloomberg.com/apps/news?pid=20601087&sid=af2zdGPHQ0NU&refer=home)
April 6 (Bloomberg) -- General Motors Corp. (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) is speeding up preparations for a possible bankruptcy filing even as directors seek deeper savings this week to avoid that outcome, people familiar with the plans said.
The bankruptcy readiness focuses on forming a new company from GM’s best assets (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) if necessary, said the people, who asked not to be named because the matter is private. The cost-cut discussions center on how to go beyond GM’s proposal to slash debt by 46 percent and shed 47,000 jobs in 2009, and will include talks with Treasury officials, the people said.
The moves are a response to President Barack Obama (http://search.bloomberg.com/search?q=Barack+Obama&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1)’s March 30 rejection of GM’s bid to keep $13.4 billion in federal loans. With bondholders (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) and the United Auto Workers (http://www.uaw.org/) balking at concessions, a push for more savings makes bankruptcy more “probable,” Chief Executive Officer Fritz Henderson (http://search.bloomberg.com/search?q=Fritz+Henderson&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) has said...
...GM’s preparations include looking at a so-called 363 sale, a reference to a section of the Chapter 11 bankruptcy code that would help create a new automaker from the assets and brands of GM, boosting the company’s survival chances, the people said...
Anyone who worked in the resource extraction sector in the 1980s and 1990s will be quite familiar with cost cutting, restructuring, downsizing, layoffs, and all the other trappings and paraphernalia that come when the market for your product collapses, and shows no sign of coming back any time soon.
As one who is more familiar with the fallout from that saga than I would prefer to admit, the task of cost cutting that the GM Board and management are now facing is monumental. They are dealing with the exact same problem that every deep and rapid cost cutting exercise faces...the only way to cut costs immediately is to cut the people. Lots of them. Every other alternative has built in lags that are now probably too lengthy for GM to survive.
Cutting deeply into the staff org chart is an extremely difficult thing to do. I've been in the "smoke filled room" with my colleagues, and the despised management consultants who were doing their best to keep the whole matter clinical, trying to redraw the organization charts and hit some "headcount" target laid down from above. It's like playing the Grim Reaper, because these are real people's lives and livelyhood that you're dealing with. When the cuts need to be so extreme because the future of the corporation is at risk, you are no longer dealing with poor performers or people that have reached their level of incompetence...those people are already gone. You are dealing with long time work colleagues, people that you have mentored, people that you personally persuaded to join your organization when you recruited them, people you may have had to depend on during the last work related crisis.
Although they have to take responsibility for putting themselves in the position they are in, I have some sympathy for what the people at GM now have to do to satisfy the folks in D.C. At best I can see them coming up with some sort of "plan" for how the cost reductions will be achieved, but that's all I think it will be...a plan. I seriously doubt they can implement it. And that's why I am so convinced there will [ultimately] be a bankruptcy.
And the soap opera continues...
GM Said to Speed Bankruptcy Plans as Board Crafts Savings Goals (http://www.bloomberg.com/apps/news?pid=20601087&sid=af2zdGPHQ0NU&refer=home)
April 6 (Bloomberg) -- General Motors Corp. (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) is speeding up preparations for a possible bankruptcy filing even as directors seek deeper savings this week to avoid that outcome, people familiar with the plans said.
The bankruptcy readiness focuses on forming a new company from GM’s best assets (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) if necessary, said the people, who asked not to be named because the matter is private. The cost-cut discussions center on how to go beyond GM’s proposal to slash debt by 46 percent and shed 47,000 jobs in 2009, and will include talks with Treasury officials, the people said.
The moves are a response to President Barack Obama (http://search.bloomberg.com/search?q=Barack+Obama&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1)’s March 30 rejection of GM’s bid to keep $13.4 billion in federal loans. With bondholders (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) and the United Auto Workers (http://www.uaw.org/) balking at concessions, a push for more savings makes bankruptcy more “probable,” Chief Executive Officer Fritz Henderson (http://search.bloomberg.com/search?q=Fritz+Henderson&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) has said...
...GM’s preparations include looking at a so-called 363 sale, a reference to a section of the Chapter 11 bankruptcy code that would help create a new automaker from the assets and brands of GM, boosting the company’s survival chances, the people said...
Anyone who worked in the resource extraction sector in the 1980s and 1990s will be quite familiar with cost cutting, restructuring, downsizing, layoffs, and all the other trappings and paraphernalia that come when the market for your product collapses, and shows no sign of coming back any time soon.
As one who is more familiar with the fallout from that saga than I would prefer to admit, the task of cost cutting that the GM Board and management are now facing is monumental. They are dealing with the exact same problem that every deep and rapid cost cutting exercise faces...the only way to cut costs immediately is to cut the people. Lots of them. Every other alternative has built in lags that are now probably too lengthy for GM to survive.
Cutting deeply into the staff org chart is an extremely difficult thing to do. I've been in the "smoke filled room" with my colleagues, and the despised management consultants who were doing their best to keep the whole matter clinical, trying to redraw the organization charts and hit some "headcount" target laid down from above. It's like playing the Grim Reaper, because these are real people's lives and livelyhood that you're dealing with. When the cuts need to be so extreme because the future of the corporation is at risk, you are no longer dealing with poor performers or people that have reached their level of incompetence...those people are already gone. You are dealing with long time work colleagues, people that you have mentored, people that you personally persuaded to join your organization when you recruited them, people you may have had to depend on during the last work related crisis.
Although they have to take responsibility for putting themselves in the position they are in, I have some sympathy for what the people at GM now have to do to satisfy the folks in D.C. At best I can see them coming up with some sort of "plan" for how the cost reductions will be achieved, but that's all I think it will be...a plan. I seriously doubt they can implement it. And that's why I am so convinced there will [ultimately] be a bankruptcy.
Is it a real risk, or just a threat to achieve the cost cuts...tick, tick, tick...
GM shares skid on bankruptcy preparation news (http://www.reuters.com/article/pressReleasesMolt/idUSTRE53642N20090407)
Tue Apr 7, 2009 4:49pm EDT
NEW YORK (Reuters) - Shares of GM fell almost 12 percent on the New York Stock Exchange to end at $2.00...
U.S. carmakers at 70 percent risk of bankruptcy: Moody's (http://www.reuters.com/article/businessNews/idUSTRE5364EL20090407)
Tue Apr 7, 2009 11:56am EDT
DETROIT (Reuters) - Moody's Investors Service said it still sees a 70 percent chance of bankruptcy for Detroit's automakers, given the difficulty of winning sweeping concessions from creditors out of court...
..."Given the lack of progress achieved and the additional progress that will be required in the revised plans, this threat will need to be seen as credible in order to compel adequate movement on the part of stakeholders," Moody's said in a note dated Monday...
Is it a real risk, or just a threat to achieve the cost cuts...tick, tick, tick...
i think they'll need a judge to get the bondholders and unions to accept what they have to accept.
BiscayneSunrise
04-08-09, 04:29 AM
No argument here that Ch 11 is the quickest and cleanest way to go.
As a member of the airline industry, I can say that bankruptcy was painful, both emotionally and financially, but there is no doubt in my mind the airline industry is much stronger and well positioned in this current environment.
The big question here is a political one. Where no one cared about the airlines and they were left to fend for themselves; GM, the UAW, the plight of hundreds of communities is very much on the radar of every politician.
Everyone knows bankruptcy is best. And as GRG points out on a different thread will likely be an inevitable part of the final flush. But just as the FIRE economy isn't going down without a fight neither will the interests at GM. GM is seen as the flagship of American manufacturing by many, and given the political ramifications, government interventionists will try to avoid its' demise at almost any cost.
Given that it seems clear the banksters are in control - perhaps the real question that needs to be asked is who GM owes money to?
Because ultimately this issue gives GM similar characteristics to Citi.
In a bankruptcy - the obligations of GM are going to get crammed down. This means losses for not just shareholders but debt holders.
If said debt holders are the banks, I would have a hard time seeing this happening. If on the other hand it is more of the public (i.e. pensions etc) then less of a concern.
Otherwise the banksters would clearly throw good money (taxpayers) after bad in order to preserve the bond holders as they have in numerous other bank examples.
If said debt holders are the banks, I would have a hard time seeing this happening. If on the other hand it is more of the public (i.e. pensions etc) then less of a concern.
Otherwise the banksters would clearly throw good money (taxpayers) after bad in order to preserve the bond holders as they have in numerous other bank examples.
I suspect that the big investment banks are among the largest bond holders.
It's hard to imagine that most large holders of GM debt don't also have CDS coverage. I wouldn't be surprised if it ends up going something like this:
1. GM declares bankruptcy
2. The CDS contracts are triggered
3. Bond holders file claims with the CDS writer. Of course we know who the larger writer was: AIG.
4. AIG can't pay the claims, so they appeal to the government, who has already made it clear that they will pay 100%.
5. Bond holders get 100% of the value of the bonds from AIG (indirectly from the American public), regardless of any lingering settlement value.
6. As part of bankruptcy settlement, bond holders are reimbursed an additional 20% of value.
Net: they end up making more than the bonds are worth.
With that as a possible scenario, would bond holders agree to an up-front haircut? No way.
i think they'll need a judge to get the bondholders and unions to accept what they have to accept.
Apparently they've decided to consult someone from the field of fashion before they go to the judge...
...The Obama group also includes...people from fields such as fashion who are studying alternative ways for GM to run its business...
Could it be they fired Rick Wagoner for dressing badly? I almost put this item in the "You Can't Make This Stuff Up" thread when I read that...:D
GM Meeting With Treasury Team on Deeper Cost Cuts (http://www.bloomberg.com/apps/news?pid=20601087&sid=azzY9KorXmhM&refer=home)
April 8 (Bloomberg) -- General Motors Corp., facing a potential June 1 bankruptcy without new debt cuts, is meeting this week and next with a team from the U.S. Treasury to craft a revised plan to save the company...
...GM Chief Executive Officer Fritz Henderson, who took over last week after President Barack Obama asked Rick Wagoner to step down as CEO and chairman, has said he’s racing to get an agreement with bondholders, unions and others to avoid a government-ordered bankruptcy. If he can’t reach an accord, GM has said it will accept a U.S.-led filing for court protection.
The Obama group also includes Xavier Mosquet, senior partner and managing director of Boston Consulting’s Detroit office, and people from fields such as fashion who are studying alternative ways for GM to run its business...
metalman
04-08-09, 03:44 PM
Apparently they've decided to consult someone from the field of fashion before they go to the judge......The Obama group also includes...people from fields such as fashion who are studying alternative ways for GM to run its business...
Could it be they fired Rick Wagoner for dressing badly? I almost put this item in the "You Can't Make This Stuff Up" thread when I read that...:D
GM Meeting With Treasury Team on Deeper Cost Cuts (http://www.bloomberg.com/apps/news?pid=20601087&sid=azzY9KorXmhM&refer=home)
April 8 (Bloomberg) -- General Motors Corp., facing a potential June 1 bankruptcy without new debt cuts, is meeting this week and next with a team from the U.S. Treasury to craft a revised plan to save the company...
...GM Chief Executive Officer Fritz Henderson, who took over last week after President Barack Obama asked Rick Wagoner to step down as CEO and chairman, has said he’s racing to get an agreement with bondholders, unions and others to avoid a government-ordered bankruptcy. If he can’t reach an accord, GM has said it will accept a U.S.-led filing for court protection.
The Obama group also includes Xavier Mosquet, senior partner and managing director of Boston Consulting’s Detroit office, and people from fields such as fashion who are studying alternative ways for GM to run its business...
'make all the cars pink and sell them to the french. they still have money to buy cars'.
http://media.sheknows.com/articles/bruno.jpg
No argument here that Ch 11 is the quickest and cleanest way to go.
As a member of the airline industry, I can say that bankruptcy was painful, both emotionally and financially, but there is no doubt in my mind the airline industry is much stronger and well positioned in this current environment.
The big question here is a political one. Where no one cared about the airlines and they were left to fend for themselves; GM, the UAW, the plight of hundreds of communities is very much on the radar of every politician.
Everyone knows bankruptcy is best. And as GRG points out on a different thread will likely be an inevitable part of the final flush. But just as the FIRE economy isn't going down without a fight neither will the interests at GM. GM is seen as the flagship of American manufacturing by many, and given the political ramifications, government interventionists will try to avoid its' demise at almost any cost.
The media are dealing only with the obvious fallout, such as pensions. Certainly losing a portion of their pensions is what happened to airline company retirees, as you indicated. And I assume these are defined benefit pensions and, if so, the UAW has to take some responsibility as this is what they persisted on maintaining for their members over the years of decline in the US auto industry. Gonna be interesting to see how the governments handle this...all those taxpayers with no pensions will not be too keen to fund pensions for UAW retirees.
However, it's all the sub-surface complexity, the stuff that none of us can see, that should be the real concern of a GM bankruptcy.
GM Pensions May Be ‘Garbage’ With $16 Billion at Risk (http://www.bloomberg.com/apps/news?pid=20601109&sid=aazS4bEfFmzs&refer=home)
April 8 (Bloomberg) -- Den Black, a retired General Motors Corp. engineering executive, says he’s worried and angry. The government-supported automaker is going bankrupt, he says, and he’s sure some of his retirement pay will go down with it...
...As the biggest U.S. automaker teeters near bankruptcy, workers and retirees like Black are bracing for what may be $16 billion in pension losses if the Pension Benefit Guaranty Corp. has to take over the plans, according to the agency. As many as half of GM’s 670,000 pension-plan participants might see their benefits trimmed if that happened, an actuary familiar with the company’s retirement programs estimates.
The possibility that GM might dump its pension obligations is likely to intensify debate over the treatment of executives of companies that receive U.S. aid. GM Chief Executive Officer Rick Wagoner, ousted by the Obama administration last month, may receive $20.2 million in pensions, according to a regulatory filing...
...Dealing with pensions may be one of the thorniest issues facing President Barack Obama in a GM bankruptcy. Unions including the United Auto Workers rallied behind his candidacy, spending $52 million to help elect him last year, according to Washington-based OpenSecrets.org, which tracks campaign spending...
...GM’s pension system had a $20 billion shortfall as of Nov. 30, 2008, based on numbers the company provided the PBGC, said Jeffrey Speicher, a PBGC spokesman. By law, the agency would be able to make up only $4 billion of that, he said.
“The rest would be lost,” Speicher said in an interview...
metalman
04-08-09, 05:25 PM
...GM’s pension system had a $20 billion shortfall as of Nov. 30, 2008, based on numbers the company provided the PBGC, said Jeffrey Speicher, a PBGC spokesman. By law, the agency would be able to make up only $4 billion of that, he said.
“The rest would be lost,” Speicher said in an interview...
'lost'?
stolen.
GRG thanks for all the stories.
OMG. This just gets worse and worse. Pensions, fashion experts. It's like every sticking chicken is comming home to roost. I think when it's all over, it would have been cheaper to not bail ANYONE out. Send every American $100,000 instead.
GRG thanks for all the stories.
OMG. This just gets worse and worse. Pensions, fashion experts. It's like every sticking chicken is comming home to roost. I think when it's all over, it would have been cheaper to not bail ANYONE out. Send every American $100,000 instead.
You think it's bad down there? Up here in Canada what the politicians and the car companies are colluding to do to fleece the Canadian taxpayer yet again is completely obscene.
Have a look at this:
GM, Chrysler ask for billions in Canadian aid (http://www.cbc.ca/money/story/2009/02/20/carbailouts.html)
General Motors has outlined a restructuring plan that would cut its Canadian workforce to 7,000 and seek as much as $7 billion from the federal and Ontario governments...
...GM didn't specify how much it will ask for, but Reuters quoted federal Industry Minister Tony Clement as saying the company is asking for between $6 and $7 billion...
$7 B of cash for 7000 jobs. You don't even need a calculator to do that math to figure out the per job cost.
It's so utterly unbelievable I cannot believe the government, which has showered money on these companies to help them upgrade plants and production lines for years, hasn't told them to take a hike.
And on top of this, the companies are angling for the government to bail out their unfunded pension liabilities and, in the case of Chrysler, forgive a large, unpaid, overdue tax bill.
Ohhhhh Canada...:p
BiscayneSunrise
04-09-09, 04:51 AM
Misc Thoughts:
Every case was slightly different but typically, defined benefit pensions at the airlines were terminated and the assets transferred to the PBGC. PBGC payouts are capped between $24-35,000 annual. Since airline pensions were so rich, (pilots, for instance, were getting 6 figure annual pensions) payouts to employees from the PBGC range from 20 to 100 cents on a dollar
Even as early as 2003, the PBGC was complaining about its increasing responsibility and was asking for a bailout. haven't heard much about that lately but PBGC investments can't be doing very well now, so stand by for that big bailout next.
The GM bailout is being driven by political considerations. Who the bondholders are, how they are insured, the costs involved along with the ultimate efficacy are secondary. For, that matter, you could make the same argument about bank bailouts being political
Maybe GM can create a Jerry Lewis edition of the Hummer and sell it to the French. Who knows, maybe that could be the very thing that could save GM :D
Apparently they've decided to consult someone from the field of fashion before they go to the judge...
...The Obama group also includes...people from fields such as fashion who are studying alternative ways for GM to run its business...
Could it be they fired Rick Wagoner for dressing badly? I almost put this item in the "You Can't Make This Stuff Up" thread when I read that...:D
GM Meeting With Treasury Team on Deeper Cost Cuts (http://www.bloomberg.com/apps/news?pid=20601087&sid=azzY9KorXmhM&refer=home)
April 8 (Bloomberg) -- General Motors Corp., facing a potential June 1 bankruptcy without new debt cuts, is meeting this week and next with a team from the U.S. Treasury to craft a revised plan to save the company...
Pressure is still on. The Administration knows this is going to be a mess, and would appear to be carefully trying to prepare the fragile markets for what is the most probable outcome...
Surgical’ Bankruptcy Possible for G.M. (http://www.nytimes.com/2009/04/13/business/13gm.html?_r=1)
Published: April 12, 2009
DETROIT — The [I]Treasury Department (http://topics.nytimes.com/top/reference/timestopics/organizations/t/treasury_department/index.html?inline=nyt-org) is directing General Motors (http://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-org) to lay the groundwork for a bankruptcy filing by a June 1 deadline, despite G.M. (http://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-org)’s public contention that it could still reorganize outside court, people with knowledge of the plans said during the weekend...
...The goal is to prepare for a fast “surgical” bankruptcy, the people who had been briefed on the plans said. G.M., which has been granted $13.4 billion in federal aid, insists that a quick restructuring is necessary so its image and sales are not damaged permanently.
The preparations are aimed at assuring a G.M. bankruptcy filing is ready should the company be unable to reach agreement with bondholders to exchange roughly $28 billion in debt into equity in G.M. and with the United Automobile Workers (http://topics.nytimes.com/top/reference/timestopics/organizations/u/united_automobile_workers/index.html?inline=nyt-org) union, which has balked at granting concessions without sacrifices from bondholders...
BiscayneSunrise
04-13-09, 09:54 AM
Hmmmm. I know I said there are a lot of political considerations here so there wouldn't be a bankruptcy. I will admit the sounds of the battle drums are getting louder.
It will be interesting to see what kind of backlash there may be from rust belt Democrats and labor unions if this comes to pass.
I have always told my labor union friends that they are mistaken if they think the Democrats are their friends. Democrats may throw labor a bone occasionally, but in the toughest of decisions, labor always loses. I guess unions were wrong if they thought Obama would "change" things.
Even as early as 2003, the PBGC was complaining about its increasing responsibility and was asking for a bailout. haven't heard much about that lately but PBGC investments can't be doing very well now, so stand by for that big bailout next.
i read somewhere that the pbgc decided to shift their investments to improve their returns, so they moved all into equities. when? ......wait for it.....................sept 08.:rolleyes:
Hmmmm. I know I said there are a lot of political considerations here so there wouldn't be a bankruptcy. I will admit the sounds of the battle drums are getting louder.
It will be interesting to see what kind of backlash there may be from rust belt Democrats and labor unions if this comes to pass.
I have always told my labor union friends that they are mistaken if they think the Democrats are their friends. Democrats may throw labor a bone occasionally, but in the toughest of decisions, labor always loses. I guess unions were wrong if they thought Obama would "change" things.
Getting louder still...if the MSM is to be believed.
GM creditor cracks show as bankruptcy looms (http://www.reuters.com/article/ousiv/idUSTRE53D70I20090414)
Tue Apr 14, 2009 5:55pm EDT
NEW YORK (Reuters) - The risk of a General Motors Corp (GM.N (http://www.reuters.com/finance/stocks/overview?symbol=GM.N)) bankruptcy is rising, causing bondholders to pursue independent strategies to protect their interests if GM's survival battle moves to bankruptcy court, two sources close to the government talks with GM said on Tuesday...
...Until now, a 10-member bondholder committee has shown a united front, but cracks may be starting to show, leading to independent bankruptcy strategies, according to two sources familiar with the group...
...GM creditors specifically have expressed frustration over the lack of direct communication from the U.S. government or from GM in their talks.
"Bankruptcy court is a big unknown, and saying that we'll be in and out within two months doesn't sit right," said one person close to the bondholder committee, referring to the "surgical bankruptcy" scenario U.S. officials have described as an option for the automaker...
..."The government seems on track to direct this to a controlled bankruptcy," said Shelly Lombard, senior high-yield analyst with research firm Gimme Credit headquartered in New York. "The key question is how can bondholders extract value. They don't have a lot of leverage or options other than lawsuits."...
"Surgical bankruptcy"? Are we sure about that...:p
BiscayneSunrise
04-15-09, 05:53 AM
Surgical bankruptcy is probably a meaningless term. a Ch 11 filing will probably be anything but. If done correctly, in bankruptcy, GM will be free to slash and burn as they see fit. This will take time, though. United Airlines was in bankruptcy for 3 years, a record amount of time. United management needed the time, both to ensure there was nothing left on the table and to allow time for creditors to slowly accept the reality of their situation.
Using the airlines as a template, GM will shrink significantly; 50% or so, whole divisions will be eliminated ( no surprise there), sacred cows will be slaughtered, shareholders will be wiped out, defined benefit pensions will likely go to the PBGC, suppliers will be pressured to both cut prices and forgive accounts payable.
Not part of the airline template but likely to happen is that the retiree health care obligations will pass to the government. (Just brainstorming here)
The bondholders are still likely to come out somewhat OK. I'm not sure what they are worried about anyway, after all, GM debt is trading at about 20 cents on a dollar anyway, right?
All I have to say is that the judge assigned to the case better have the highest strength of character to think clearly despite the onslaught of political pressure that will come his way.
Remembering the theme of a transformational depression, we are witnessing the economic engine of an entire region of the country, and the work of several generations being plowed under to prepare for the next economic era.
Hmmmm. I know I said there are a lot of political considerations here so there wouldn't be a bankruptcy. I will admit the sounds of the battle drums are getting louder.
It will be interesting to see what kind of backlash there may be from rust belt Democrats and labor unions if this comes to pass.
I have always told my labor union friends that they are mistaken if they think the Democrats are their friends. Democrats may throw labor a bone occasionally, but in the toughest of decisions, labor always loses. I guess unions were wrong if they thought Obama would "change" things.
There seems a well organized communications effort underway to systematically shape expectations for the government's preferred outcome for GM. And this is the first indication I have seen for how they are going to deal with the issue you raise above...
Auto Workers Essential to GM’s Future Said to Trump Bondholders (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFVs_Evap1Yo)
April 15 (Bloomberg) -- A United Auto Workers (http://uaw.org/) union retiree health-care fund will probably get preferential treatment over other unsecured claims in a General Motors Corp. bankruptcy or restructuring, people familiar with the plans said.
The Detroit automaker needs a cooperative union to build its cars and trucks once the automaker is restructured and that gives workers more leverage than other claimants, the people said, who asked not to be named because plans aren’t set. GM (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) is seeking the cuts to keep $13.4 billion in U.S. loans and win more aid as it restructures.
“The bondholders are getting excoriated in the press as the evil people that are holding up the process,” said Evan Flaschen, chair of the financial restructuring group at Bracewell & Giuliani LLP in New York, who isn’t involved in the case. “It’s easy to cast them in a bad light versus the employees you need to run the business going forward.”
At stake is the future of $20.4 billion in health-care obligations for about 522,000 GM (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) workers, retirees and their dependants and $27.5 billion in unsecured claims from thousands of bondholders ranging from individuals to large institutional investors including university endowments, insurance and pension funds.
The Obama administration last month said GM’s plans to return to profit weren’t aggressive enough and ordered new Chief Executive Officer Fritz Henderson (http://search.bloomberg.com/search?q=Fritz+Henderson&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) to cut $47 billion in unsecured claims by more than the 59 percent the automaker proposed in February.
GM bonds (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) have lost about half their value since Obama said a bankruptcy may be needed to cut GM’s debt. The automaker’s $3 billion of 8.375 percent notes maturing in 2033 have fallen to 9 cents on the dollar to yield 91 percent from 18 cents on March 27, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
“I don’t think there’s much incentive for anyone to make serious concessions until either you’re in Chapter 11 or it becomes clear that the government is going to bail everyone out,” said Andrew Rahl (http://search.bloomberg.com/search?q=Andrew+Rahl&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), co-leader of Reed Smith LLP’s bankruptcy group in New York. “It would be a more elegant solution to have those changes ordered by a judge” in bankruptcy.
GM must slash the UAW health-fund obligations to less than the $10.2 billion and bond debt (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) to less than $9.2 billion -- amounts proposed in the now-rejected plan -- or face a government-backed bankruptcy.
Bondholders haven’t been involved in the automaker’s restructuring discussions since CEO Rick Wagoner (http://search.bloomberg.com/search?q=Rick+Wagoner&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) was replaced, and they haven’t been presented with a new plan, according to people familiar with the talks who declined to be identified because they are private...
BiscayneSunrise
04-15-09, 06:12 AM
High stakes poker being played here.
If GM has to slash health care obligations and debt by 50%. How does one do that exactly? The government can lean on the UAW but the bondholders are a much more disparate group. Like herding cats.
As the person in your article points out, bankruptcy is the more elegant solution. The problem with these pre-negotiated settlements is that they still leave a mess on the table. Sure, the UAW may agree to more cuts but they will insist on protecting jobs (i.e. keeping inefficient factories open).
High stakes poker being played here.
If GM has to slash health care obligations and debt by 50%. How does one do that exactly? The government can lean on the UAW but the bondholders are a much more disparate group. Like herding cats.
As the person in your article points out, bankruptcy is the more elegant solution. The problem with these pre-negotiated settlements is that they still leave a mess on the table. Sure, the UAW may agree to more cuts but they will insist on protecting jobs (i.e. keeping inefficient factories open).
And it doesn't look that good this morning for Chrysler either. Fiat CEO Sergio Marchionne is widely credited with turning around that formerly moribund car company, and I would imagine that creates quite a different dynamic here. Unlike, say, Ken Lewis at Bank of America, Marchionne will be reluctant to put Fiat at risk with a bad deal, thus undoing all he has accomplished.
Fiat CEO warns Chrysler unions: cut costs or we walk (http://www.reuters.com/article/newsOne/idUSTRE53C4GY20090415)
Wed Apr 15, 2009 8:23am EDT
MILAN (Reuters) - Fiat SpA's chief executive, facing a two-week deadline to work out a partnership with Chrysler LLC, warned the troubled U.S. carmaker's unions he would ditch the idea unless they agreed to cut labor costs.
In a clear message to U.S. and Canadian unions, Sergio Marchionne told Wednesday's Globe and Mail newspaper a deal on the partnership had only a 50-50 chance of succeeding because of lack of progress in talks with union leaders.
"Absolutely we are prepared to walk. There is no doubt in my mind," Marchionne said in an interview posted on the Toronto newspaper's website.
The Chrysler unions had to agree to match the lower labor costs of plants run by Japanese and German carmakers in the United States and Canada, he said, adding that Canadian unions were especially resistant to the idea...
And it doesn't look that good this morning for Chrysler either...
Chrysler's debt could derail Fiat deal, bailout funds (http://www.usatoday.com/money/autos/2009-04-14-chrysler-fiat-merger-bailout_N.htm)
DETROIT — With the clock ticking to sign a merger deal with Italian automaker Fiat, Chrysler is struggling to shed a majority of its debt by getting the holders to take shares in trade.
It's a stumbling block that could delay or derail the proposed partnership, which the government has ordered completed by May 1. If Chrysler can't meet that deadline, the government has said, it will get no more bailout money. That likely would push it into filing Chapter 11.
Standard & Poor's last week cut its ratings on Chrysler and said it doesn't believe it would survive bankruptcy...
...Chrysler's situation differs from General Motors' (GM) (http://stocks.usatoday.com/custom/usatoday-com/html-quote.asp?symb=gm). GM also has massive debt, but much of it is unsecured. Chrysler is saddled with a huge, for its size, load of $6.8 billion in first-lien-secured debt alone. Those debt holders have more leverage to hold out for a better debt-restructuring deal.
They know that in a bankruptcy, they have first dibs on any money, even if it means selling off Chrysler in pieces...
BiscayneSunrise
04-15-09, 06:46 PM
I was going to add some thoughts in my last post about chrysler but wanted to stay succinct.
Why Fiat would want to buy Chrysler is anyone's guess. Almost having sunk Daimler, Chrysler has to have a great big scarlet letter on its forehead. Even the Italians can't be that crazy. Except for Jeep and the Chrysler 300, there is very little of worth at Chrysler.
Options: A Chrysler liquidation with Jeep and the 300 going to the highest bidder (In my mind, the Chrysler 300 would be killer in China, re-branded as a Buick)
Or perhaps a forced merger between GM and Chrysler. After all, if the the Gov't is going to screw up the auto industry, they might as well go all the way. :D
I was going to add some thoughts in my last post about chrysler but wanted to stay succinct.
Why Fiat would want to buy Chrysler is anyone's guess. Almost having sunk Daimler, Chrysler has to have a great big scarlet letter on its forehead. Even the Italians can't be that crazy. Except for Jeep and the Chrysler 300, there is very little of worth at Chrysler.
Options: A Chrysler liquidation with Jeep and the 300 going to the highest bidder (In my mind, the Chrysler 300 would be killer in China, re-branded as a Buick)
Or perhaps a forced merger between GM and Chrysler. After all, if the the Gov't is going to screw up the auto industry, they might as well go all the way. :D
It's probably the US dealer and distribution network that is of interest, plus perhaps as you say selected brand value such as Jeep. Let's face it, the Jeep brand was the only thing of real value that came out of American Motors [unless one is still pining for a Pacer]; and it's probably most responsible for Chrysler surviving as long as it has.
As Obama said...some "glimmers of hope"...
Chrysler-Fiat talks intensify, Saturn deal eyed (http://www.reuters.com/article/newsOne/idUSTRE53D2HQ20090415)
Wed Apr 15, 2009 7:54pm EDT
DETROIT (Reuters) - Fiat SpA Chief Executive Sergio Marchionne turned up the heat on talks with struggling U.S. automaker Chrysler on Wednesday as General Motors Corp confirmed a possible buyer for its Saturn network.
An investor group that includes private equity firm Black Oak Partners LLC and some Saturn dealers has approached GM about buying the assets of the Saturn brand and distribution network...
...Marchionne said he saw no reason why Fiat and Chrysler could not complete a proposed alliance by the end of April, a target set by the U.S. auto task force that must decide whether to provide more government aid to the Detroit automaker.
"I intend to reach a good conclusion," Marchionne told reporters at a news conference in Zurich, adding that Fiat has other options as well...
Like the banks this decade, the global car industry, which has been in trouble for many years, also participated in one last cheap credit driven hurrah. Not just SUVs flying out the door, but every imaginable car from every imaginable manufacturer.
I've been watching the same silly thing develop in the commercial airline manufacturing business...for years Airbus and Boeing just traded places as to which was in the most trouble, and there was an undeniable +'ive correlation between "how well" one of them was doing and the relative [de]value of their competing currencies. Troubles with the product [A380 and B787] were just a media sideshow. The real problem is too much capacity fueled by too much artificial demand [think back to those unbelievably huge orders from Middle East and Asian airlines at every Farnborough, Paris, Dubai and Singapore airshow]. As we all know, when capacity has to be reduced, invariably the largest owner of capacity ends up taking the biggest hit. And that's one important reason why GM is taking the brunt of this.
If GM goes down it will affect the economies of much of the world. How? Well you answered a good part of that yourself jk. And I agree, it is scary.
GM is a huge, global company, that not only owns a lot of car assembly capacity around the globe, but is contractually entangled through its various businesses, including finance, with thousands of other companies in pretty well every economic sector. Restructuring the car manufacturing part of GM, including the related parts suppliers, may be the tip-of-the-iceberg easy to see part...
The complexities of the entanglements in just the auto manufacturing part of GM are finally getting some ink...
GM seeks provision for its suppliers
By Julie MacIntosh in New York
Published: April 16 2009 23:32 | Last updated: April 16 2009 23:32
General Motors (http://markets.ft.com/tearsheets/performance.asp?s=us:GM) is prepared to argue that hundreds of its suppliers are “critical vendors” who require timely payments if it seeks bankruptcy protection, setting the stage for what would be the most sweeping attempt ever to win special treatment for such contractors, people close to the matter say.
...There is much talk about "prepackaged bankruptcy". This is a nice sounding phrase that just rolls off a press secretary's tongue or a journalist's pen. It makes the whole thing sound clean and sanitary. Reminds me of the Fed repeatedly stating that although it was helpless to prevent it, we should be confident in its ability to stand by ready to mop up the mess of a bursting asset bubble. And "prepackaged bankruptcy" makes it sound as though the Obama Administration has a well constructed plan, and is fully in control of the situation and outcomes. After all, that's what we all want to believe in these troubling times, isn't it? Well pardon me all to hell, but I remain sceptical.
I think the danger is that the complexities of letting GM fail are badly underestimated, in the same way the Administration underestimated the complexities and consequences of letting Lehman fail. I really believe this has the potential to be for Fleckenstein's "economic disaster" phase, what Lehman was to the "financial disaster" phase. And it may mark the surfacing into full view of the beginning of the "funding crisis" phase as the rest of the world realizes that the US government is sinking their economies because it is now politically impossible for it to rescue its multi-national [non-financial] companies.
The discussion is finally getting serious:
A Quick Bankruptcy for G.M.? Not So Fast (http://www.nytimes.com/2009/04/17/business/economy/17auto.html?_r=1&adxnnl=1&ref=business&adxnnlx=1239941670-91aFPp68fcqPjPj9FilfNg)</NYT_HEADLINE>
Any hope of a high-speed bankruptcy by General Motors (http://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-org) faces a serious obstacle: a judge — not the Obama administration, not G.M. (http://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html?inline=nyt-org) management and not the company’s creditors — would reign in court.
A bankruptcy judge would be required by law to listen to unions, whose members fear for their jobs, benefits and pensions. And the judge would have to pay attention to creditors, including bondholders frustrated by how much they stand to lose if G.M. is broken up into “good” and “bad” companies as the administration is planning. Even a judge sympathetic to the administration — and the administration would look for a sympathetic court — might be reluctant to rubber-stamp that plan.
“Once you’re in, nobody knows where it’s going because anyone can come into court and say no, no, no,” said Sandra E. Mayerson, head of the insolvency practice in the New York law office of Squire, Sanders & Dempsey. “I’ve had preplanned bankruptcies that we thought would be out in 90 days but we were in for a year.”...
...Bankruptcy cases often drag on far longer than anticipated, slowed by unexpected obstacles to reorganization. The auto-parts company Delphi, once a unit of G.M. and now a supplier, has languished in bankruptcy proceedings for four years, twice as long as originally planned, for example...
...Even if a judge went along with the government’s plan to split the company, (http://www.nytimes.com/2009/04/01/business/01bankruptcy.html) that judge would want plenty of legal cover. Gathering and presenting evidence that the split-up is the best option would take time...
...Allowing the automaker to sell off the good assets would essentially sidestep the rest of the bankruptcy process, lawyers said, especially the nettlesome requirement that creditors approve a plan of reorganization. Once blessed, that tactic would be alluring to other troubled companies.
“If you could do this, it’s too cheap a trick — everyone would do it,” said Lynn M. LoPucki, a law professor at the University of California, Los Angeles. “There would be no other kind of bankruptcy remaining.”...
...“It’s going to be about the union and the pensions,” said Ms. Mayerson, the bankruptcy lawyer. “And I don’t see any way that this is a quickie bankruptcy. After all, it took them 30 years to get into this mess.”
<NYT_AUTHOR_ID>
GM readies all-equity offer for debt-sources (http://uk.reuters.com/article/motoringAutoNews/idUKN1733369920090418?sp=true)
Sat Apr 18, 2009 1:30am BST
DETROIT/NEW YORK, April 17 (Reuters) - The Obama administration has directed General Motors Corp to prepare a new restructuring plan that would pay off bondholders and the automaker's major union in stock in exchange for $48 billion in debt, people briefed on the plan said on Friday.
The U.S. Treasury, which has provided $13.4 billion in emergency funding to keep GM operating since the start of the year, has indicated that it could also convert those taxpayer-backed loans into GM stock, the sources told Reuters.
GM, which is working to complete a restructuring that could include a bankruptcy filing, plans to make the new proposals to bondholders and the United Auto Workers union within the next two weeks, the sources said...
...The stock-based payout to GM's major union and its bondholders would represent much deeper concessions for both groups than the terms they had been offered under the GM bailout loans approved by the Bush administration...
...It was not clear what specific terms the UAW would be offered, but both people briefed on the plan said the union's higher payout relative to bondholders would be maintained.
An equity-based debt exchange would make the union, the U.S. government and GM's existing bondholders all major stockholders in the recapitalized automaker.
Peter Kaufman, president of investment bank Gordian Group LLC, said GM bondholders would only agree to the terms of the deal under discussion if they feared they would do worse without such an agreement headed into a bankruptcy for GM.
"I continue to maintain that any deal that happens outside bankruptcy will result in an nonviable GM," he said. "Why would bondholders take this deal? Only if they feared that a worse deal would ensue in Chapter 11."...
...The UAW, which has made a series of concessions to GM since 2005, has defended its proposed higher payout ratio of 50 percent versus roughly 33 percent for bondholders as justified by its prior actions...
BiscayneSunrise
04-18-09, 07:23 AM
An unholy mess that only gets more complicated with each successive attempt to patch the previous failed attempt at rescue.
As an interesting aside, I ran into a fellow at the local gym who is retired UAW. A millwright.
He was with AC Delco which was spun off into Delphi. Delphi assumed the various UAW related obligations but the UAW added a clause that said if Delphi went bankrupt within 4 years, those responsibilities would revert back to GM.
Well, Delphi filed for bankruptcy just a few months before the 4 year window closed and all those obligations reverted back to GM.
I guess the takeaway is that no matter what sort of clever attempt is made to avoid these debts, it will end up in tears.
Especially tragic, that the government would force creditors to take worthless equity. But it does fit with my sense that the Obama administration will go to extreme lengths to avoid Ch 11.
years ago i told a friend of mine that gm equity was worth nothing, since more than its entire value had been pledged to the pension and health plans. unfortunately, the same statement applies to the u.s.a.
p.s. the bondholders, like the stockholders, deserve nothing. if i could see it without any detailed analysis, so could anyone else. they took a risk. they lost. the union should also get nothing- they helped kill the golden goose. equity in the newly restructured enterprise should go to the u.s. gov't and any new investors. end of story.
BiscayneSunrise
04-18-09, 02:32 PM
years ago i told a friend of mine that gm equity was worth nothing, since more than its entire value had been pledged to the pension and health plans. unfortunately, the same statement applies to the u.s.a.
p.s. the bondholders, like the stockholders, deserve nothing. if i could see it without any detailed analysis, so could anyone else. they took a risk. they lost. the union should also get nothing- they helped kill the golden goose. equity in the newly restructured enterprise should go to the u.s. gov't and any new investors. end of story.
Hard to argue with that sentiment. Buying GM bonds or equity really wasn't investing but speculation. As for the union employees, they should be happy to escape with their jobs. The real victims will be the widows and orphans holding GM debt, who didn't know any better.
years ago i told a friend of mine that gm equity was worth nothing, since more than its entire value had been pledged to the pension and health plans. unfortunately, the same statement applies to the u.s.a.
p.s. the bondholders, like the stockholders, deserve nothing. if i could see it without any detailed analysis, so could anyone else. they took a risk. they lost. the union should also get nothing- they helped kill the golden goose. equity in the newly restructured enterprise should go to the u.s. gov't and any new investors. end of story.
Maybe. I don't know what the exact terms are of the US government "loan" to GM, but unless the other bondholders are subordinate to that loan then the US government is [or should be] just another creditor waiting in the line. And if the US government loan is at the head of the line, if I was a secured bondholder I would be reading the fine print to see if the US government jumping the que was remotely legal. This could be tied up in the courts for a long, long time...
Maybe. I don't know what the exact terms are of the US government "loan" to GM, but unless the other bondholders are subordinate to that loan then the US government is [or should be] just another creditor waiting in the line. And if the US government loan is at the head of the line, if I was a secured bondholder I would be reading the fine print to see if the US government jumping the que was remotely legal. This could be tied up in the courts for a long, long time...
i suggested the u.s. get equity because it was clear that gm was already bankrupt when the gov't gave it some cash to limp along and work on restructuring. i view this as, essentially, debtor in possession financing.
years ago i told a friend of mine that gm equity was worth nothing, since more than its entire value had been pledged to the pension and health plans. unfortunately, the same statement applies to the u.s.a.
p.s. the bondholders, like the stockholders, deserve nothing. if i could see it without any detailed analysis, so could anyone else. they took a risk. they lost. the union should also get nothing- they helped kill the golden goose. equity in the newly restructured enterprise should go to the u.s. gov't and any new investors. end of story.
Agree, but this should apply equally to the zombie banks.
And equally, if the banks are worth saving through wholesale infusion of taxpayer dollars, why not an American manufacturing entity which employs hundreds of thousands (directly and indirectly)?
What gets my goat is the double standard.
Retained toxic assets are worth buying out; retained pension and health care obligations are not.
Agree, but this should apply equally to the zombie banks.
And equally, if the banks are worth saving through wholesale infusion of taxpayer dollars, why not an American manufacturing entity which employs hundreds of thousands (directly and indirectly)?
What gets my goat is the double standard.
Retained toxic assets are worth buying out; retained pension and health care obligations are not.
i absolutely agree about the banks, insurers, et al. if they made bad choices- and they did - their stockholders should be wiped out, bondholders too.
i am sorely disappointed in obama's decisions and choices of economic advisors. [jim nickerson, don't chime in here! i know what you think!:D]
This is truly ridiculous. Can someone...anyone...come up with a coherent explanation as to why a company owned by a private equity firm, that will not support it with any further cash, deserves yet more money from the taxpayers?
Is Chrysler "too big to fail"? :rolleyes:
U.S. to give Chrysler, GM new aid (http://www.reuters.com/article/newsOne/idUSTRE53K0KU20090421)
Tue Apr 21, 2009 4:52pm EDT
WASHINGTON (Reuters) - The Obama administration will make about $500 million available to Chrysler LLC through the end of this month as it seeks to reach an alliance with Fiat, and up to $5 billion through May to help General Motors Corp restructure outside of bankruptcy, an independent oversight report on the Treasury Department's corporate rescue fund said on Tuesday...
...The administration's task force does not believe Chrysler can stand alone and is brokering meetings this week in Washington and Detroit to see if a deal with Fiat is possible.
The administration has offered up to $6 billion to help finance the alliance that would give Chrysler access to Fiat's small car technology and the Italian automaker a platform for building light trucks and a robust network for selling its vehicles in the United States...
It would be ironic if Ford ends up going under because it didn't seek "free money" while Chrysler and GM survive... :p
"The administration has offered up to $6 billion to help finance the alliance "
The US guvm'nt has decided to play at being industrialists.
They should have asked the Swedes how well they did restructuring the Swedish shipbuilding industri, which eventually disappeared entirely, mostly to Asia, in a puff of smoke.
...There is much talk about "prepackaged bankruptcy". This is a nice sounding phrase that just rolls off a press secretary's tongue or a journalist's pen. It makes the whole thing sound clean and sanitary. Reminds me of the Fed repeatedly stating that although it was helpless to prevent it, we should be confident in its ability to stand by ready to mop up the mess of a bursting asset bubble. And "prepackaged bankruptcy" makes it sound as though the Obama Administration has a well constructed plan, and is fully in control of the situation and outcomes. After all, that's what we all want to believe in these troubling times, isn't it? Well pardon me all to hell, but I remain sceptical...
The game of "chicken" continues. Too bad Geithner and Bernanke can't just threaten the bondholders with immediate unemployment, as the Treasury & Fed are alleged to have done with Bank of America's CEO and Board...:rolleyes:
On the other hand, I suppose we should not underestimate the influence the Administration may be able to exert over the courts/judges as they force a bankruptcy...the argument that "normal rules need to be suspended/ignored/overlooked/adjusted for the greater public good" seems to work quite well these days.
GM Bondholder Group Says Offer Isn’t ‘Reasonable’ (http://www.bloomberg.com/apps/news?pid=20601087&sid=ag9kucLpy1eU&refer=home)
April 27 (Bloomberg) -- General Motors Corp. bondholders (http://www.bloomberg.com/apps/quote?ticker=GM%3AUS) find the automaker’s offer to exchange their $27 billion in debt for equity unreasonable and said they should be treated more equitably with labor unions.
“We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another,” the ad hoc committee of GM bondholders said today in a statement...
...“This is an offer that’s designed to fail,” said Kip Penniman (http://search.bloomberg.com/search?q=Kip%0APenniman&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), an analyst at fixed-income research firm KDP Investment Advisors in Montpelier, Vermont. “To get 90 percent of them to agree to such a deal where there’s no cash, no other debt and pure equity while leaving the union VEBA arrangement unchanged from previous considerations is absurd.”...
Why do I get the feeling that the "rule of law" is a scharade lightly masking the fact that several mafia-style organisations are fighting like vultures & hyenas over a carcass?
BiscayneSunrise
04-28-09, 03:11 AM
someone emailed me, saying that he thought a gm bankruptcy might be a real catastrophe. i wrote a reply, below, and then thought to post it here for discussion. i'm interested in others' thoughts about how serious the consequences of a gm bankruptcy might be. is the scenario i picture realistic or just doomer porn?
jk,
I responding to your original post because I think the thread has drifted from your original question: What will be the effects of a GM bankruptcy, how serious and is it doomer porn?
So, let's talk about what we do know and then we can extrapolate
Whether GM files or not, or has the government order its' dismantling, it seems the outcome will be similar:
- Feds will continue to subsidize GM.
- Saab, Hummer, Pontiac: goners
-Swedish (Saab) autoworkers lose jobs en masse.
- GM market share drifts down to 10-15%
- 21,000 factory job cuts already announced; more to come.
-Specific sites have yet to be announced but factory closings will no doubt devastate certain communities.
- Dealers will be shuttered. Many dealers are bundled as Pontiac/Buick/GMC. These are the 3 mainstream GM brands that are the most likely to go so these dealers won't have a another brand to fall back on.
- GMC may hang in there as the heavy truck brand but there will be no need for GMC dealerships to be located in suburban areas. GMC dealerships will be re-located to the industrial sections of town. If they really wanted to be innovative, make GMC sales, virtual only.
-Saturn and Hummer dealerships will close.
-The real estate of these closed dealerships will remain vacant for sometime.
- In many smaller communities, the auto dealers are some of the greatest philanthropists. Not so, anymore.
- GM's main customer will be the government agencies and rental car companies.
- Bondholders will receive a big haircut, maybe another 50% from their current lows. Any GM equity they or the unions receive will be likely worthless.
-Debt owed to the government is unlikely to ever be repaid.
- Political ramifications: When Republicans stand aside and let companies go bankrupt, laying off thousands of people, in the minds of many people, executives and Republicans are evil people destroying the American way of life; unions are outraged.
However, now that President Obama is directly overseeing the dismantling GM, resulting in many tens of thousands of people (maybe even hundreds of thousands) being laid off, organized labor and the left is mute. Will there be a backlash?
BiscayneSunrise
04-28-09, 03:51 AM
http://www.freep.com/article/20090428/BUSINESS01/904280333
Two items of note: a shutdown of Pontiac would result in a potential loss of 124,000 jobs at the dealerships alone.
Pontiac dealer quoted in the article said he would remain in business as a used car dealer.
To shed dealerships, experts say GM needs bankruptcy
One estimate says 124,200 jobs to go
BY MARY FRANCIS MASSON • FREE PRESS BUSINESS WRITER • APRIL 28, 2009
Post a Comment RecommendPrint this pageE-mail this articleShare this article
Without filing for bankruptcy, General Motors cannot get rid of the 2,600 dealerships the company says must close for it to stay viable, automotive experts say.
"I don't see how they are going to shed those dealers without bankruptcy," said Karl Brauer, editor-in-chief at Edmunds.com, an automotive industry publication.
On Monday morning, Fritz Henderson, GM's CEO, , said the company will kill the Pontiac brand and reduce its dealer body by 2,641 by 2010 under a revised business plan.
Automotive analyst Mark Rikess of the Los Angeles-based Rikess Group said GM can get rid of the dealers by buying them out of franchise agreements -- but the company lacks the cash to do that. It also could terminate franchises with underperforming dealers -- but such moves likely would be tied up in court for years.
However, if GM files for bankruptcy, it can void franchise agreements, Rikess said.
Brauer said that when GM eliminated the Oldsmobile brand with the 2004 model year, it cost the company about $1 billion to settle with dealers.
The National Automotive Dealers Association said there are 2,627 Pontiac franchises nationwide, but only 27 of those dealerships sell only Pontiacs.
The association estimates that if 2,641 dealerships are closed in 18 months, 124,200 employees will lose their jobs and GM will lose $51 billion in sales revenue.
Rikess said he doesn't expect GM to move on dealership reductions until a decision is made about bankruptcy, and the federal deadline for that is June 1. But it's clear that dealerships must go, he said, because the current network boosts GM's clerical, legal, shipping and other costs.
Toyota has about 1,400 U.S. dealerships, but GM has more than 6,300.
As domestic automakers' market share has dropped, sales per dealership have fallen behind those of such brands as Toyota and Honda, which also generally have newer stores than GM, Ford and Chrysler.
"They are three times larger than they should be," Rikess said of GM's dealer system. "They need a leaner distribution network."
Part of that network is two generations of the Shelton family, who have sold Pontiacs for 51 years.
Russ Shelton, president of Shelton Pontiac Buick GMC in Rochester Hills, had a 1965 GTO convertible as a young man.
Even now, his Pontiacs outsell the Buicks 2-1, he said. Pontiac sales make up 40% of his business, so when he loses the brand, he said he will have to consider cutting staff.
Shelton said he doesn't understand how the dealerships cost GM so much money -- "they really don't service us," he said.
"I'm certainly not going to close down a dealership. We've got a successful used-car operation," Shelton said. "So much has transpired. You just shake your head and wait for the next news conference."
Without filing for bankruptcy, General Motors cannot get rid of the 2,600 dealerships the company says must close for it to stay viable, automotive experts say.
What they don't say is the reason why GM can't get rid of the dealerships without bankruptcy. It's because laws were passed some time ago that made it very difficult for the automakers to close dealerships.
Yet another example of how government intervention in business inevitably has unintended consequences.
BiscayneSunrise
04-28-09, 05:04 AM
What they don't say is the reason why GM can't get rid of the dealerships without bankruptcy. It's because laws were passed some time ago that made it very difficult for the automakers to close dealerships.
Yet another example of how government intervention in business inevitably has unintended consequences.
Exactly
(text added to make 10 character limit)
someone emailed me, saying that he thought a gm bankruptcy might be a real catastrophe. i wrote a reply, below, and then thought to post it here for discussion. i'm interested in others' thoughts about how serious the consequences of a gm bankruptcy might be. is the scenario i picture realistic or just doomer porn?
-------------------------
why do you think a gm bankruptcy, especially if it's mostly prepackaged, will cause catastrophic fallout? or rather than "why," let me ask "how?"
i share your sentiments about how misdirected all the rescue/bailout efforts have been, but i think we are playing out the "it has to get worse before anything serious can be done" scenario. ej predicted 20% unemployment. that's pretty damn bad. so far i think itulip's specific predictions have been overly optimistic, just as they say. they're called doomers, but their predictions are on the bright side when the events come to pass.
i think that the bad news is just hitting main street. so maybe that's the lehman-gm parallel. in bill fleckenstein's terms, this is a triple header- financial disaster, economic disaster, funding crisis. the financial problems perhaps peaked with lehman's failure. it feels like the gov't has made clear now that, after lehman, nobody significant IN THE FINANCIAL SYSTEM will be allowed to collapse.
the heart of the crisis then moves from the financial system into the real economy. perhaps the peak will be gm's bankruptcy, with its attendant job losses at both gm and its suppliers, dealers, and assorted camp followers. i think even a prepackaged bankruptcy will have to include shutting many factories and laying off many workers, and cutting wages and/or benefits for remaining employees. pontiac, gmac and perhaps buick divisions will disappear. i say perhaps for buick because it's big in china. maybe it will only remain as an asian brand.
but this is mere digression from the wider effect of a gm bankruptcy. will e.g. parts suppliers stop trusting their customers for payment? not just in the auto industry, but more broadly. will all deliveries be for cash, not 30 day invoicing? imagine every factory having to be run on cash instead of accrual. will supermarkets have to pay their food suppliers in cash on delivery? that would really screw things up a lot, wouldn't it? that would be analogous to the effect that lehman had in the financial system.
i've got to stop for now. i'm scaring myself.
Looks increasingly likely we are going to find out. I simply cannot believe that the government being so prescriptive, as GM is now indicating [see link below], won't have seriously negative long term consequences for the US economy...
GM: Bankruptcy "More Probable" (http://www.calculatedriskblog.com/2009/05/gm-bankruptcy-more-probable.html)
“Certainly the task that we have in front of us is large, but we know that we can get it done. Today it’s more probable that we would need to resort to a bankruptcy process. But there’s still a possibility and an opportunity for it to be done outside of a bankruptcy.”
GM Chief Executive Officer Fritz Henderson
The NY Times is live blogging (http://dealbook.blogs.nytimes.com/2009/05/11/live-blogging-the-gm-conference-call/) the conference call, but there doesn't sound like much news.
GM received three bids for Hummer, and expects a sale by the end of May.
On the bonds: Mr. Henderson said the Treasury told G.M. to offer its bondholders up to a 10 percent stake in the company in return for the $27 billion in debt that they hold but did not give a reason why. Bondholders have said the stake is too small compared to what others are receiving.
Looks increasingly likely we are going to find out. I simply cannot believe that the government being so prescriptive, as GM is now indicating [see link below], won't have seriously negative long term consequences for the US economy...
GM: Bankruptcy "More Probable" (http://www.calculatedriskblog.com/2009/05/gm-bankruptcy-more-probable.html)
“Certainly the task that we have in front of us is large, but we know that we can get it done. Today it’s more probable that we would need to resort to a bankruptcy process. But there’s still a possibility and an opportunity for it to be done outside of a bankruptcy.”
GM Chief Executive Officer Fritz Henderson
The NY Times is live blogging (http://dealbook.blogs.nytimes.com/2009/05/11/live-blogging-the-gm-conference-call/) the conference call, but there doesn't sound like much news.
GM received three bids for Hummer, and expects a sale by the end of May.
On the bonds:Mr. Henderson said the Treasury told G.M. to offer its bondholders up to a 10 percent stake in the company in return for the $27 billion in debt that they hold but did not give a reason why. Bondholders have said the stake is too small compared to what others are receiving.
isn't this pretty much the same thing that hung up the chrysler reorganization? looks like we'll find out what a bankruptcy court has to say about it.
it used to be said [originally by charlie wilson], that what was good for gm was good for the country. now it's what is good for gs.
reallife
05-11-09, 04:41 PM
What they don't say is the reason why GM can't get rid of the dealerships without bankruptcy. It's because laws were passed some time ago that made it very difficult for the automakers to close dealerships.
Yet another example of how government intervention in business inevitably has unintended consequences.
Yes, but what industry group do you think lobbied for dealer protection legislation??
isn't this pretty much the same thing that hung up the chrysler reorganization? looks like we'll find out what a bankruptcy court has to say about it.
it used to be said [originally by charlie wilson], that what was good for gm was good for the country. now it's what is good for gs.
From the "It ain't over, 'til it's over" file...
(If Chrysler is this much of a mess, just imagine how much bigger and messier a GM bankruptcy becomes)
Wednesday, May 20, 2009
Not So Fast: Indiana State Pension Fund Seeks To Block Chrysler 363 Sale, White & Case Retained (http://zerohedge.blogspot.com/2009/05/not-so-fast-indiana-state-pension-fund.html)
and...
Monday, May 18, 2009
Angry Chrysler Dealers Demand Rights (http://zerohedge.blogspot.com/2009/05/angry-chrysler-dealers-demand-rights.html)
and...
How Is Chrysler Closing Dealerships? Not Nicely, And Maybe Not Well, Either (http://www.nakedcapitalism.com/2009/05/how-is-chrysler-close-dealerships-not.html)
Looks increasingly likely we are going to find out. I simply cannot believe that the government being so prescriptive, as GM is now indicating [see link below], won't have seriously negative long term consequences for the US economy...
GM: Bankruptcy "More Probable" (http://www.calculatedriskblog.com/2009/05/gm-bankruptcy-more-probable.html)
“Certainly the task that we have in front of us is large, but we know that we can get it done. Today it’s more probable that we would need to resort to a bankruptcy process. But there’s still a possibility and an opportunity for it to be done outside of a bankruptcy.”
GM Chief Executive Officer Fritz Henderson
The NY Times is live blogging (http://dealbook.blogs.nytimes.com/2009/05/11/live-blogging-the-gm-conference-call/) the conference call, but there doesn't sound like much news.
GM received three bids for Hummer, and expects a sale by the end of May.
On the bonds:
Mr. Henderson said the Treasury told G.M. to offer its bondholders up to a 10 percent stake in the company in return for the $27 billion in debt that they hold but did not give a reason why. Bondholders have said the stake is too small compared to what others are receiving.
Tick, tick, tick...
GM bankruptcy nears as bondholders shun tender offer (http://www.reuters.com/article/ousiv/idUSN2236757120090527?sp=true)
Tue May 26, 2009 9:30pm EDT
DETROIT/NEW YORK (Reuters) - General Motors Corp has failed to persuade enough bondholders to accept a debt-for-equity swap, setting the stage for the largest-ever U.S. industrial bankruptcy within days.
The event marks a critical disappointment for GM, the largest U.S. automaker and once considered the bellwether of U.S. manufacturing.
"I would say this is a sound rejection of an unsuitable offer," said Pete Hastings, a credit analyst at Morgan Keegan who has followed GM. "I have been saying for some time that this thing was dead on arrival and we were just waiting for the doctor to pronounce it dead. Now that's happened."...
...Reuters sources said GM could file for bankruptcy some time after midnight Tuesday, but before June 1...
...A person familiar with Obama administration's thinking on the matter said the White House was continuing to engage with bondholders to reach agreement...
From the "It ain't over, 'til it's over" file...
(If Chrysler is this much of a mess, just imagine how much bigger and messier a GM bankruptcy becomes)
Wednesday, May 20, 2009
Not So Fast: Indiana State Pension Fund Seeks To Block Chrysler 363 Sale, White & Case Retained (http://zerohedge.blogspot.com/2009/05/not-so-fast-indiana-state-pension-fund.html)
and...
Monday, May 18, 2009
Angry Chrysler Dealers Demand Rights (http://zerohedge.blogspot.com/2009/05/angry-chrysler-dealers-demand-rights.html)
and...
How Is Chrysler Closing Dealerships? Not Nicely, And Maybe Not Well, Either (http://www.nakedcapitalism.com/2009/05/how-is-chrysler-close-dealerships-not.html)
And now for something completely predictable...
[or maybe this should be filed under "Nobody wins but the lawyers", since this thing is undoubtedly going to be working its way through the US courts for years to come]
Pension funds lose Chrysler fight in district court (http://www.reuters.com/article/innovationNews/idUSTRE54O4M320090526?pageNumber=2&virtualBrandChannel=0&sp=true)
Tue May 26, 2009 7:29pm EDT
NEW YORK (Reuters) - A U.S. federal judge denied a request by a dissenting lender group to delay bankrupt automaker Chrysler LLC's sale hearing and remove the bankruptcy case to district court.
After a federal court hearing in Manhattan on Tuesday, U.S. District Judge Thomas Griesa said he would deny a motion by a group of Indiana pension funds that the government did not have the authority to provide funds to Chrysler for its proposed sale. The funds had asked the judge to prevent Chrysler's scheduled sale hearing in bankruptcy court on Wednesday from going forward, but the judge also denied that request.
Judge Griesa said that once the bankruptcy judge rules on Chrysler's sale, the objecting parties should have a "fair" opportunity to appeal that decision...
...Judge Griesa's ruling, however, foreshadowed a likely future legal battle in the case, as he said the objectors to Chrysler's sale should have a fair opportunity for an appeal of the bankruptcy court's ruling.
"I'm convinced that the issues you raise are issues," Griesa told the pension funds in court...
metalman
05-26-09, 10:22 PM
And now for something completely predictable...
[or maybe this should be filed under "Nobody wins but the lawyers", since this thing is undoubtedly going to be working its way through the US courts for years to come]
Pension funds lose Chrysler fight in district court (http://www.reuters.com/article/innovationNews/idUSTRE54O4M320090526?pageNumber=2&virtualBrandChannel=0&sp=true)
Tue May 26, 2009 7:29pm EDT
NEW YORK (Reuters) - A U.S. federal judge denied a request by a dissenting lender group to delay bankrupt automaker Chrysler LLC's sale hearing and remove the bankruptcy case to district court.
After a federal court hearing in Manhattan on Tuesday, U.S. District Judge Thomas Griesa said he would deny a motion by a group of Indiana pension funds that the government did not have the authority to provide funds to Chrysler for its proposed sale. The funds had asked the judge to prevent Chrysler's scheduled sale hearing in bankruptcy court on Wednesday from going forward, but the judge also denied that request.
Judge Griesa said that once the bankruptcy judge rules on Chrysler's sale, the objecting parties should have a "fair" opportunity to appeal that decision...
...Judge Griesa's ruling, however, foreshadowed a likely future legal battle in the case, as he said the objectors to Chrysler's sale should have a fair opportunity for an appeal of the bankruptcy court's ruling.
"I'm convinced that the issues you raise are issues," Griesa told the pension funds in court...
what happens if we... god forbid... run out of money to pay all the lawyers?
thunderdownunder
05-26-09, 10:34 PM
The Spin - "The White house continues to engage with bondholders to reach agreement"
The anti spin - "listen guys its like this - accept it and the inevitable further down grade in the value of the shares we are offering you through GM's generous offer or there are vacant rooms in Gitmo you may use. Is That clear - CRYSTAL CLEAR." :D
ThePythonicCow
05-27-09, 12:15 AM
what happens if we... god forbid... run out of money to pay all the lawyers?
It's an ill wind that blows no good :).
BiscayneSunrise
06-02-09, 06:07 AM
Which is why it won't happen.
Obama is in firm control of the situation and he needs to maintain control in order to shift GM responsibilities of health care and retirement to the Feds.
This creates his new paradigm in his exact image.
Letting things spin out of control in Ch 11 puts things in the hands of others and Obama is not the type to relinquish control.
in this post I stated unequivocally that GM would not go bankrupt. My reasoning was that Obama would lose the control he wanted to remake the car industry.
I was certainly wrong the short term outcome but the underlying feature is still lots of government control of the auto sector.
Still, a glaringly wrong prediction on my part.
...If GM goes down it will affect the economies of much of the world. How? Well you answered a good part of that yourself jk. And I agree, it is scary.
GM is a huge, global company, that not only owns a lot of car assembly capacity around the globe, but is contractually entangled through its various businesses, including finance, with thousands of other companies in pretty well every economic sector. Restructuring the car manufacturing part of GM, including the related parts suppliers, may be the tip-of-the-iceberg easy to see part...
From the WSJ [emphasis mine]:
<SMALL>JUNE 3, 2009</SMALL>
<!-- ID: SB124390140895474595 --><!-- TYPE: Autos - Industry --><!-- DISPLAY-NAME: --><!-- PUBLICATION: The Wall Street Journal Interactive Edition --><!-- DATE: 2009-06-03 00:01 --><!-- COPYRIGHT: Dow Jones & Company, Inc. --><!-- ORIGINAL-ID: --><!-- article start --><!--CODE=INDUSTRY SYMBOL=DAA-->Filings Reveal Depth of Problems (http://online.wsj.com/article/SB124390140895474595.html)
General Motors (http://online.wsj.com/public/quotes/main.html?type=djn&symbol=GM) Corp.'s $82.2 billion in assets and $172 billion in liabilities spell out the extent of its problems and sheer breadth of the 101-year-old giant's bankruptcy.
In a torrent of filings at the U.S. Bankruptcy Court in Manhattan, GM's mind-numbing scale is evident: It has 463 subsidiaries and has built 450 million cars and trucks over the years. It employs 235,000 people world-wide. This includes 91,000 in the U.S., which it pays $476 million each month, and 493,000 retirees with various benefits. It spends $50 billion a year buying parts and services from 11,500 vendors in North America...
Anybody want to make a wee wager that this proves to be just the "1st bailout" of General Motors?
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