Treasury Directs GM to Get Ready for Bankruptcy 23 comments
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The NYT is reporting that Treasury Department officials have directed General Motors (GM) to begin laying the groundwork for a bankruptcy proceeding by June 1. According to the Times, they want to be prepared to go through a “surgical” bankruptcy.
One plan under consideration would create a new company that would buy the “good” assets of G.M. almost immediately after the carmaker files for bankruptcy.
Less desirable assets, including unwanted brands, factories and health care obligations, would be left in the old company, which could be liquidated over several years.
Treasury officials are examining one potential outcome in which the “good G.M.” enters and exits bankruptcy protection in as little as two weeks, using $5 billion to $7 billion in federal financing, a person who had been briefed on the prospect said last week.
The rest of G.M. may require as much as $70 billion in government financing, and possibly more to resolve the health care obligations and the liquidation of the factories, according to legal experts and federal officials.
All of that may look good on paper but the reality is that once the case enters the court, the administration, the company and the creditors are subject to the dictates of the judiciary. I suspect that any trustee is going to feel more than a little political pressure to watch out for the interests of the government. That same trustee is also going to be sensitive to any charges that he or she is acting in less than an impartial manner so the eventual outcome is highly uncertain regardless of how well planned.
The article also contains an interesting aside concerning GM’s pension plan.
One delicate issue for federal officials is the fate of G.M.’s employee pension plans, which could become the responsibility of the federal pension agency if G.M. seeks their termination.
G.M. faces an unfunded liability of about $13.5 billion for its plans, which had $84.5 billion in assets and $98 billion in liabilities as of Dec. 31. That amount could sink the pension agency, requiring its own bailout before a G.M. case could be resolved.
The White House has at least one option to protect the plan.
The Supreme Court, in a landmark 1990 case, ordered the LTV Corporation, a steel maker, to take back responsibility for its pension plans after it emerged from bankruptcy protection.
That illustrates beautifully how complex this issue has become. Were it only the bankruptcy of a very large company it would be difficult enough but the political ramifications are enormous. If the UAW does see pension benefits reduced substantially and permanently, they are going to feel as if their friends sold them out. Should the administration opt for some ad hoc solution that preserves benefits at the expense of normal procedure then it is certain to run into severe criticism.
GM can become a nightmare for the Obama administration. They cannot abandon the company and the unions entirely to the tender mercies of the bankruptcy courts but anything they do to mitigate the damage is going to entail collateral damage to some other constituency. I rather suspect they wish that the Bush administration had done the dirty work for them. At the same time, the Bush administration might very well have game planned this from the outset.
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Yes! GM applied for and was granted loans funded by the taxpayer.
Does this mean that as a Taxpayer I now make the decisions on GM's direction?
Bankrupsy proceedings are never as easy as some of the recent reports make it out to be. What creditor gets to go after the good GM and witch ones get stuck with the bad GM. Settling the question of assets is not as easy as good GM/ bad GM. The curent structure has GM factories such as Assembly plant making cars for Chevy, Pontiac, Saturn, and Buick using common platforms and common parts. The same for Powertrain, engines and transmitions buid at one site go into several models assembled at one or more assembly plants. The same for the stamping of body panels from one facility that are shipped to several assembly plants.
So the question is: What plants go with the Good GM and what plants go with the Bad GM? Is the Obama administration going to make those decisions? Sure looks like it.
Why is the Obama administration getting so involved in the operating decisions of GM? One would say to protect the Taxpayer's intrest (investment).
With $13.5 Billion dollars GM is not the biggest risk for the government. The Banks and AIG have received well over $450 Billion dollars todate. With most of the reports comming out of the banking sector indicate that the government will never see 90% of that money back. So ,, is this Risk Management ? or is it good old fashion politics? "look what I did for you"
On the campaign trail it was all about corporate abuse, and CEOs. So far we have focused on tearing down GM, but what about the banks and AIG? Is it posible that the administration have No Clue on how to deal with them? After all. Who realy knows what goes on behind the scenes at the banks and AIG? Clearly not the Obama administration. No one in the administration has the expertise to " FIX " the banks and the other scheme financial institutions. They are scared to death of what schemes the financial genius will come up with next.
So what makes them experts in the Auto industry?
Driving a car.
Look out folks.
Act 1 - the Company files for Ch 11 and sabotages the pre-pak so that it goes through normal Ch 11.
Act 2 - the Company files a request with bankruptcy Judge to void all of its union contracts
Act 3 - the Company files a request with the bankruptcy Judge to remove its legacy benefit plans and hand them over to the PBGC
Act 4 - the Company files a request with the bankruptcy Judge to terminate 2,500 dealer contracts in the various states
Act 5 - the Company renegotiates with the bondholders
Imagine a GM without a union and having its debts exchanged for equity. It may actually be able to make a profit.
Regards
If Obama is smart, he will wash his hands of the deal and point out that his actions are constrained by the boundaries of the law and the courts - or something like that. Although the unions may be an important source of financial support, it is not likely that GM's bankruptcy will have a significant effect on actual voting demographics in swing states like Ohio, Indiana, or Michigan. It's fair to say he did all he could do.
If Obama is foolish, he will try to prop up GM until his political capital itself goes bankrupt.
Either way, GM has been toast for a long time. Wait 'till the $9,000 cars from China arrive in 2011.
"Old" GM and "old" UAW are dead. The only question is whether anyone other than a bankruptcy trustee has the fortitude to bury them. I tend to doubt it. The Obama adminstration can't and GM management won't, so it's the courts and Chapter 11 as the only rational player in this theater of the absurd.
Just to think that this is the best of the solutions on the table.
Looks like General Motors will be out of business and replacing it will be Government Motors. Instead of losing billions of investors' money, it will be taxpayers'.
This isnt going to fly. The Fed needs to hand out bailout money AFTER a functional plan has been presented instead of assuming one will be made in the future. Knowing the handout is already underway, theres no reason for bondholders and UAW to give in.
In many cases, the common share holders are wiped, junior bond holders are next to get wiped and senior debt holders will most likely get some pennies on the dollar. The gov usually has the highest priority of being paid back in full.
GM stock is still trading at penny prices (approx $1B in market cap) because ppl like to speculate. If you are Toyota, you may want to buy 100% of the shares of GM for cheap cheap price of $1B, take a photocopy of the technologies, destroy the originals and liquidate the company. Pretty sweet deal if you ask me.
On Apr 13 05:32 PM anarchist wrote:
> I am ignorant about how chapter ll works, do all bond and stock holders
> end up with worthless paper? If so why are people still buying GM
> stock? I see where it ticked up few pennies after hours.
www.wealthalchemist.co.../
It looks like an electric rickshaw.
Every party tried to buy time and prolong their pay checks. Now this ball of wax is looking more like $70B+. It is the same old delay tactic. They wouldn't tell us in Q4 the price tag but instead doled it out piece by piece. Wagoner should have been recruited by Hollywood - someone in the WP wrote an article saying that he "sacrificed himself for the good of the company...". What a good actor, good to the last drop! Soapy.
On Apr 13 07:55 PM chleoku wrote:
> they should have done this earlier, back in Q4. What's taking so
> long?
>
> www.wealthalchemist.co.../
1.5 million cars excluding the 1.2 million that are probably in the junkyard is still a hefty 300k cars x say 5 thousand is still a nice whopping $1.5 billion more in added losses. Gee GM execs, the hits just keep coming all the way to the end don't they. Would they disclose this unless they expected going bankrupt or just kep their customers driving dangerous cars until they all went to the scrap yard?
What a bunch of lying crooks. What other goodies are hiding in that dirty back room we can't see?
She is completely brain-dead when it comes to economics... ALWAYS on the wrong side of the argument.
It's government's job to boost demand?
Another example: her "solution" to Michigan's economy was to create a "more educated" work force. So she sunk a bunch more money into the universities... which students attend, get their degrees, and promptly bolt the state.
So she wants to create demand instead of reducing and improving the quality of supply in the auto arena, and wants to create excess supply of "more educated" workers in a state where the demand doesn't exist.
The Segway "Roadkill" would be a more appropriate name
Great! Although, I was passing a semi on the right lane and I think I might have hit a Segway Puma again. Hard to say for sure. Those darn things come up on you pretty fast. What's for dinner?
Someone wrote elsewhere is SA last year saying that almost the entire U.of Mich. Department of Manufacturing and Industrial Engineering is full of oriental faces and the head of the department commutes between the U.S. and Shianahi on business.
There you go, we have the engineering societies and associations advocating that there is a severe shortage of engineers in the United States --- sounds like the death roll inmates advocating the abolishment of the death penalty.
Sad, very sad, getting to be more tragic though.
On Apr 14 10:59 AM rm wrote:
> [The governor of Michigan was just on CNBC saying that instead of
> putting GM through bankruptcy, the government should figure out solutions
> to boost demand for GM products... ]
>
> She is completely brain-dead when it comes to economics... ALWAYS
> on the wrong side of the argument.
>
> It's government's job to boost demand?
>
> Another example: her "solution" to Michigan's economy was to create
> a "more educated" work force. So she sunk a bunch more money into
> the universities... which students attend, get their degrees, and
> promptly bolt the state.
>
> So she wants to create demand instead of reducing and improving the
> quality of supply in the auto arena, and wants to create excess supply
> of "more educated" workers in a state where the demand doesn't exist.