The latest out of Washington.

I'd rather see something like this done than see them being given billions of dollars...they need some serious changes to survive, and I'm not sure just throwing money at the problem will actually solve anything.

 

Mikey, do you know what bankruptcy is?

Setting aside the fact it would pretty much kill the auto industry, do you realize that bankruptcy means that GM & Chrysler will STILL get BILLIONS of dollars in federally backed loans.... most likely the same $14 billion that congress just turned down?

GM & Chrysler in a federally managed bankruptcy will get federally backed loans for restructuring. The Feds will still get their money back 1st if things go to liquidation.

The only benefit would be that first it would be 14 billion instead of 34 billion. The down side is that the government would be paying many more times that over to the people who would lose out.

Then we come to the final issue. Less money going to the government. That means one of 2 things: Higher taxes for those still working or China buying up more debt and controling the US even more.

No matter what happens, the Feds (meaning you and I) are going to be dishing out billions of dollars.

The question is are we going to dish it out to end our auto industry, or use it to recreate our auto industry.

 

Without bankruptcy, it will take somewhere in the neighborhood of $100-125B to truly "fix" GM.

At this point, call it whatever you like - pre-packaged bankruptcy, restructuring, happy pony fun-hour time, whatever; I don't really care. The end result needs to be the same - GM has to find a way to become liquid and solvent. The company currently is neither, and any sort of short-term fix for the liquidity problem (cash-on-hand) will be useless without serious discussion about the insolvency issue (that "little" issue of having debts approximately $70B greater than assets).

At this point, it's not a matter if GM survives as we know it today - time ran out on that option long ago. It's either a matter of transplanting the remaining viable organs into a new body that's called GM but looks like a smaller and meaner company, or else we shove the whole thing into a casket and bury it.

guionM, you're a bright guy and I really respect your insight into the industry, but you've consistently been a few months behind on this issue.

 

Lending the auto industry $14B or even $34B and saying that's that, is analagous to giving a starving Ethopian a Tic-Tac and calling yourself done.


General Motors is so far removed from being a thriving, profitable company now, that a simple bridge loan just ain't gonna do it.

A plan floating around now, has the feds tapping into the second $350B TARP fund to finance a restructuring to the tune of $50 billion. Call it bankruptcy or whatever.

 

If only GM was a bank, they would be rolling in bail out money.

 

I understand what bankruptcy is, and what it could do to the auto industry. I think Eric hit the nail on the head pretty well...GM, or any of the other auto companies can't survive how they are currently structured. I think bankruptcy gives them the best chance at a fresh start to become something new and viable again.

 

Ok, I could be way wrong on this, but if they declare bankruptcy, wouldn't a lot of suppliers have to declare as well? I guess what I'm getting at is if they do file bankruptcy, how are we going to support the suppliers? This would have an affect on the rest of the auto industry as well.

 

This, IMO, is why bankruptcy, orderly or not, managed or not, would not go well.

The best option (again IMO), for all concerned, is for the government to give a long term, low-interest loan to GM, providing them the $100-125B they truly need. There should be some strings attached, but none of the strings should be tied to product decisions -- only restructuring.

As I see it, any other option would end up costing more in the long run, and has a smaller chance of yielding a successful future for GM.

 

IMO, you can look at it two ways:

You can believe, if you throw enough money at GM, they can work things out and do some major restructuring to start making money again, without going into bankruptcy.

Or

GM needs to go into bankruptcy, so they can do some major and painful restructuring, and have the government step in with loans to keep them in Chapter 11 (not 7), and manage things so you also don't have a cascading chains of supplier bankruptcies.. aka "soft landing". It'll still be painful, but to some, they think its really the only way to get the changes necessary.

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Well, I guess there are some people that think the big 3 are beyond saving, bankruptcy, loans, or what not, and would rather painfully let them die now, rather than prolong the supposed inevitable death (in their p.o.v.) for xx amount of years. If GM went bankrupt without any gov assistance, most likely they won't be able to get a DIP loan for chapter 11, since credit is so tight, and they will have to goto chapter 7 liquidation.

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In other words, basically what Eric said above.

 

This is why I've suggested that any sort of "pre-packaged" bankruptcy for GM and Chrysler needs to involve guaranteed funding for the suppliers as well.

GM's balance sheet shows that the company owes about $70B to suppliers on the day of any given quarterly report. I don't know if the revolving amount is a bit less than that (GM might be playing a bit of a game to improve its stated cash position), but figure that there's at least $50B outstanding to suppliers at any given time.

Now, if GM can go through an "orderly" bankruptcy, then the supply base stands a chance of recovering some of that money. If GM goes into freefall, then the suppliers will never see that again. If we just want to cut fat checks to GM as part of a "it's-a-loan-not-a-bailout" plan, then figure that we'll be cutting a huge check from the US Treasury anyways.

Frankly, many suppliers need to go through bankruptcy as well. There's way too much excess capacity in the supply base that has little chance of getting used in the next 5-10 years.

If GM was a bank, it would have had to declare bankruptcy several years ago due to SEC regulations on debt-asset ratios (banks aren't supposed to run negative balance sheets like GM has done).