GM: Ready to Emerge from Bankruptcy

By Richard Read

While most of America was enjoying a long holiday weekend full of cookouts and fireworks, Judge Robert Gerber was overseeing a very different sort of explosive activity in Manhattan: the conclusion of the General Motors (GMGMQ.PK) bankruptcy trial. Late last night, Gerber ruled in favor of General Motors' request to sell off bad assets and shift good ones to a new company (owned, for the time being, mostly by the federal government). Doing so, Gerber argued, would "prevent the death of the patient on the operating table." Which is perhaps the most optimistic metaphor we could expect, given the circumstances.

This is a major coup for GM, and for Obama's auto industry task force, which brokered the deal. As recently as last week, some at General Motors were expressing doubt that the bankruptcy trial could wrap before the government's imposed liquidation deadline of July 10. With this ruling, and the appended four-day stay (allowing for one last round of challenges to be filed), the company is on track to meet that deadline head-on.

That's not to say there wasn't significant opposition to the deal in court. Numerous arguments were submitted against the proposal - -including one filed by an organization called the "Unofficial Committee of Family & Dissident GM Bondholders" -- insisting that GM could follow a more traditional Chapter 11 bankruptcy, which would give shareholders more control over the restructuring. Gerber was clearly unconvinced that such a path would go smoothly. As he wrote in his 95-page opinion:

GM cannot survive with its continuing losses ... and without the governmental funding that will expire in a matter of days.... As nobody can seriously dispute, the only alternative to an immediate sale is liquidation -- a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates.... In the event of a liquidation, creditors now trying to increase their incremental recoveries would get nothing.

As it stands, the U.S. government is now set to control 60% of the new GM, with the UAW (17.5%), Canada (12.5%), and bondholders (10%) rounding out the slate. There is talk of conducting an IPO for the new company as soon as 2010. How that might affect government ownership in the company and the repayment of federal loans has yet to be worked out, but for now, General Motors has some breathing room in which to celebrate.

Comments

[Mad Hedge F...:]

That was quick! It’s not often that the investor’s relations department of a company you follow sends you an e-mail telling you their stock is worthless. Neverless, that was the message I received from General Motors (GMGMQ) yesterday. Since the company filed for chapter 11, it has traded between $0.25 and $2.25, and has often been the best percentage gainer of the day ($0.50 to $0.75 is a 50% move up). No doubt, most of this is hedge fund buying of stock to close out short positions. Otherwise, the bean counters may force you to carry the positions for years, tying up capital and deferring your performance bonus. But then again, there are always some dummies out there who think the stock is cheap at $0.25, on its way back up to $150.

Jul 06 12:35 PM

[Pottermus:]

Actually a company owned by the government and the UAW should realize unbelievable returns. For somebody.

Jul 06 12:47 PM

[David Ristau:]

Recent GM sale got a lot more press than an even more interesting story of GM building its new small cars in Michigan.

From The Oxen Group:

"Now, there is one factor that probably tipped things in favor of Michigan — money. The state offered $779 million in tax credits over 20 years, $130 million in federal funds for worker training and another $102 million came from local political districts. Reportedly, that dwarfed anything the other two states came up with. So why doesn’t GM just come out and say it was all about the money? It seems like that would be a whole lot better than clamming up and encouraging rumor mongers (like me) and conspiracy theories.One is also inclined to ask how a state as flat broke as Michigan can come up with that kind of dough. I suppose the answer is that they have a friend on the Potomac.An even more pertinent question might be why is this car being built in the United States at all. Remember, originally the car was to be built in China and imported until the UAW raised a stink, rallied its friends on Capitol Hill and caused the company to back down."

David Ristau

President, The Oxen Group
theoxengroup.com

Jul 06 01:05 PM

[303820:]

WE,D HAVE A PROBLEM IF THE CAR WAS TO BE BUILD IN CHINA OR A TOYOTA REPUBLICAN STATE LIKE TENNESSEE...AN ANTI AMERICAN, ANTI GM STATE AND ITS LEADERS THE LIKE OF B.CROOK-ER ...IT WAS A NO BRAINER!

WOULD YOU VISIT SOMEONE THAT HAS BEEN BAD MOUTHING YOU?

Jul 06 02:32 PM

[spald_fr:]

By the end of the year, the Federal Govt will pump a total of $100B into that patient on the operating table, Government Motors.

Cars so nice you'll pay for them twice.

Jul 06 03:19 PM

[BlueOkie:]

Obama has paid the first installment to the Labor Unions who help elect him. Wonder what the next will be? Maybe card check? How about healthcare where unions need not follow the rules?

Jul 06 03:45 PM

[David White:]

Nothing is ever that quick. There are already legal challenges to the sale, even after the judge's ruling. Plus the parts suppliers, dealerships, etc. probably haven't really gotten into the act yet. The only relatively sure thing is that GM stockholders have been wiped out.

Jul 06 09:15 PM

[billddrummer:]

The rest of us will be wiped out as well.

Did you know that GM lost $37,000 for every car it sold in 2008?

Jul 06 11:10 PM

[Loup:]

When are we going to see drastic price reductions in vehicles commensurate with the drastic drop in legacy costs to build them??

Jul 07 11:38 AM

[Grahamite I...:]

Does anyone have any idea as to when the new GM will be created?

Jul 08 07:56 PM