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  • #61
    Re: what will be the effects of a gm bankruptcy?

    Originally posted by jk View Post
    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"


    “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 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.

    Comment


    • #62
      Re: what will be the effects of a gm bankruptcy?

      Originally posted by GRG55 View Post
      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"


      “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 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.

      Comment


      • #63
        Re: what will be the effects of a gm bankruptcy?

        Originally posted by Sharky View Post
        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??

        Comment


        • #64
          Re: what will be the effects of a gm bankruptcy?

          Originally posted by jk View Post
          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)and...and...
          Last edited by GRG55; 05-20-09, 04:04 PM.

          Comment


          • #65
            Re: what will be the effects of a gm bankruptcy?

            Originally posted by GRG55 View Post
            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"


            “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 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

            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...




            Comment


            • #66
              Re: what will be the effects of a gm bankruptcy?

              Originally posted by GRG55 View Post
              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)and...and...
              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

              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...

              Comment


              • #67
                Re: what will be the effects of a gm bankruptcy?

                Originally posted by GRG55 View Post
                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

                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?

                Comment


                • #68
                  Re: what will be the effects of a gm bankruptcy?

                  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."

                  Comment


                  • #69
                    Re: what will be the effects of a gm bankruptcy?

                    Originally posted by metalman View Post
                    what happens if we... god forbid... run out of money to pay all the lawyers?
                    It's an ill wind that blows no good .
                    Most folks are good; a few aren't.

                    Comment


                    • #70
                      Re: what will be the effects of a gm bankruptcy?

                      Originally posted by BiscayneSunrise View Post
                      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.
                      Greg

                      Comment


                      • #71
                        Re: what will be the effects of a gm bankruptcy?

                        Originally posted by GRG55 View Post
                        ...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]:
                        JUNE 3, 2009
                        Filings Reveal Depth of Problems

                        General Motors 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?

                        Comment


                        • #72
                          Re: what will be the effects of a gm bankruptcy?

                          Originally posted by jk View Post
                          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.
                          GM finally decides to "promote from without"...:p
                          GM CEO Henderson departs in shakeup by board

                          Tue Dec 1, 2009 7:59pm EST

                          DETROIT (Reuters) - General Motors Co's chief executive, Fritz Henderson, abruptly resigned on Tuesday, after the company's board decided it wanted to chart a new course for the restructuring automaker.

                          Henderson was asked by the board to step down at a meeting in Detroit after being on the job for just eight months, according to a person with direct knowledge of the matter...

                          ..."The board decided -- and Fritz agreed -- that given where we are, it was time to make some changes," GM spokesman Chris Preuss said at a hastily arranged news conference...

                          ...With his move to become GM's interim CEO, all three U.S. automakers are now headed by outsiders to Detroit...

                          ...But GM's faltering efforts to sell off its laggard brands dominated Henderson's short tenure and tarnished his reputation as a dealmaker and raised questions about the company's strategy...

                          ...Then last month, GM's board shifted course on a planned sale of the company's European Opel unit, rejecting a deal that Henderson had backed and helped broker...

                          [I hardly think the Board can claim Henderson wasn't changing things fast enough , when it was the Board that nixed the sale of Opel]
                          imo, too early to determine if the original thesis of this thread is invalid...


                          Comment


                          • #73
                            Re: what will be the effects of a gm bankruptcy?

                            Originally posted by BiscayneSunrise View Post
                            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.
                            Mid-term election coming, and the spin begins...

                            Car Czar: Billions lost with GM is 'best stimulus around'

                            FORTUNE -- General Motors, fresh off two profitable quarters, is planning a public offering expected to raise as much as $16 billion. Does this mean election-year vindication for President Obama's much-maligned decision to take control of the Detroit automaker?

                            Maybe not. Watch for a round of late-summer political thunder as lawmakers latch onto the fact that despite this first step toward reducing a 61% government stake in the automaker, taxpayers still stand to lose billions on the bailout. "We never said we were going to be made whole," Steven Rattner, the investment banker who led the administration's restructure of GM and Chrysler, tells Fortune. "I think the administration would rather lose money and get out sooner."


                            "We saved a million jobs," adds Rattner, whose upcoming book, Overhaul, chronicles Washington's controversial foray into Detroit. "If the government loses $10 to $20 billion, that's one of the most effective stimulus programs around."...

                            ...Billions? Try tens of billions. For this IPO to come close to covering the taxpayer investment, GM's market value would need to exceed $70 billion, according to Wall Street estimates. Not surprisingly, there are concerns being raised that even this initial foray is premature, possibly depriving taxpayers of a higher return. The company has had only two quarters of profitability and capital markets remain tumultuous.

                            Rattner, co-founder of the private equity firm Quadrangle Group, acknowledges that GM is not exiting at the top. "It's a tad early" for an offering, he says, though he points out that he doesn't expect the actual offering to take place until mid-November. "The IPO market is terrible at the moment," he says. "It's a pretty suboptimal time to go public."...

                            ...No matter how big the turnaround at the carmaker, the Detroit rescue -- like the bank bailouts-- remains hugely unpopular with voters and has helped fuel a populist, anti-incumbent backlash this election year. Angry voters watched President Obama fire GM's CEO, put government officials in charge of overseeing the company's restructuring, and bring the total taxpayer tab to $50 billion, including a bridge loan approved by President Bush.

                            A successful IPO, even if it happens after the election, can help the White House make the case that its formula for Detroit worked -- unless, that is, voter start asking the question, as investors profit: "So, how much will this end up costing us?"

                            Comment


                            • #74
                              Re: what will be the effects of a gm bankruptcy?

                              They better hurry on that IPO, before the market tanks.

                              Comment

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