Part 1.

Gaccett, I'm going to assume you are a person who things can be explained to rationally and logically, so I'm going to lay out the facts (not hyperboyle or opinion) and I'm going to lay them out clearly and directly so there can be no disagreement and no second guessing as to what the facts are.


1. GM IS going through a real bankruptcy

Bankruptcy is the company asking the court for protection so they can reorganize due to them being hopelessly unable to pay their bills. Period. This gives the company (or individual) protection against legal action for not paying debtors, and gets the court (which is a branch of the government, I might add) involved in deciding how the debtors should be paid, who should get paid, or if the company can be forced into liquidation to make these payments.

Chrysler went into bankruptcy because less than 5% of it's debtholders went against the other 95%, and all the other parties who reached an agreement. That small contengent was pushing for liquidation, and raised motions to prevent Chrysler from operating in order to reach that goal. They were tharwted when the judge made public who they were.


In the case of GM, their assets were worth far more than the company itself. GM has a market value of about $1B, yet it's assets are worth about $82B. Chrysler was in a better value versus asset ratio than General Motors, but it was still worth more liquidated than it was as a whole company.

In a conventional bankruptcy, General Motors (and Chrysler) would simply be liquidated. Chrysler's debtholders actually had assets securing their debt, so they had leverage in negotiating restructuring their debt. General Motors debtholders were mainly stock and bond holders that had no recourse. Far moreso in GM's case than Chrysler's, given a choice between losing 100% of their value versus gaining something via liquidating, GM would DEFINATELY face liquidation.

That is the one fact that is maddening whenever I see a so-called GM fan ranting about the government stepping in. The General Motors Corperation would have ceased to function last January 1st, and would have ceased operations even before the 1st regular production Camaro rolled off the assembly line last February.



Why the government got involved is that if GM (or even Chrysler) got liquidated... which would have been a certainty in both cases... the government would have been stuck with:

a) Pensions- Pensions are backed by the US government. Had GM or Chrysler gone down, it would have wiped out the Pension Protection Fund that is used to fund the pensions of companies that go out of business.

b) Wrecked state budgets- Imagine what would happen to Michigan if both GM and Chrysler shut down permanently. The state would have to pay unemployment benefits. They would have had to pay health care benefits. A massive amount of them..... while losing a massive amount of income from both personal and corperate taxes. While other states that get a portion of their income from US car makers and their related businesses including dealers and suppliers would be hit pretty hard and need federal help, Michigan would have been utterly destroyed. That would have radiated out to other states. Think of what would happen then.



2. So what if it's a government takeover? Look at the alternative!!!!

Every instance where someone bemoans that the government is taking over GM, they always ignore 2 facts:

First, GM had such massive debt over such a long period of time, that no institution would lend General Motors money and GM was unable to sell the bonds needed to fund it's operations any longer.

Second, only the Federal government has the money to get GM back on track, and has the muscle to force both the UAW and bondholders to make concessions that will save the company. GM hasn't been able to do it. Chrysler has spent most of the decade being run by people more intrested in making money than making great Chryslers.


Imagine if your entire family lent you money that you never repaid, and every credit card was maxed out, every bank loan was maxed out, and you made what amounted to only token efforts to cut your debt.

Now, imagine if you had the power to throw the entire US economy into a depression. Should someone give you money without making demands on you? Should they just leave you alone and let you drag everyone down with you?

 

General motors is going into bankruptcy with a total of about $82B in total assets and about $173B in debt. GM's market value is only $1B last week. Even the most idealistic capatalist will look at those 3 numbers and see total liquidation written all over it. Add in the fact that even on a great year with 7 divisions, GM was only able to generate $1-3 billion profit per year in the past couple of decades, and even mentally challenged people who can count know that the way to recoupe anything will be liquidation of the company and distribution of the proceeds.


The government stepped in because the Federal Government along with many State Governments would be left holding the bag to the tune of hundreds of billions if not eventually trillions of dollars over the years if those companies liquidated.

The choice boiled down to dishing out at least hundreds of billions of dollars almost immediately to deal with GM and Chrysler shutting down, or grant 50-75 billion to prop up the companies with the stipulation that all parties have to give up something and that if anything goes wrong, the taxpayer gets 1st dibs on the assets before anyone else.


3. The UAW gets everything and the government will dictate to the automakers.

This is an instance where people read a couple of lines and then let anger that their stocks were wiped out and the UAW supposedly walked away with the bank get the best of them (worse yet is the idealogs, but that's a different story).

The UAW PENSION FUND is the majority holder in Chrysler, not the UAW. In return, the UAW gets 1... I repeat...ONE board member seat. When you consider that they will own 55% of Chrysler, that doesn't seem like a great deal. Also, the UAW is intrested in selling off their share of Chrysler as soon as they can if not sooner, and that's perfectly understandable putting yourself in their position. If you worked for Ford, would YOU want your pension fund dependent on the future of Chrysler?

The Federal Governments of both the US and Canada will own up to 70% of GM. Yet again, despite this, will only have 1 seat on the board of directors whose main job will be to keep an eye on the finance side.


These are the actual facts.


Sure, some people will look at this as the government coming in a mandating small Hybrids. But those very same people ignore the fact that the government called GM's Volt (a car GM held as everything but a cure to the common cold) [b]NOT economically feasible[/i].

Those people also fail to realize that the government hasn't forced out any auto executives outside of Rick Wagoner, which in retrospect actually was an understandable move. GM was hopelessly in debt. Rick Wagoner (meaning well, by the way) refused to consider bankruptcy, and picked the usual GM go slow approach seemingly in order to make things move smoother. Also, the numbers he sent to the Feds simply didn't add up and weren't realistic. Alan Mually would have reassigned the numbers cruncher to the janitorial staff if they gave him numbers like Wagoner sent in.



The bottom line is that whether or not you like or hate the government, or if you like or hate the UAW, or if you are left or right of the political spectrum, it all simply doesn't matter in this case.

The UAW gains significant ownership of 2 US car companies. But they have had to take packages that 1 year ago they would haven't even imagined. Plus their entire pension is tied up in these companies turning around.

The Feds gain ownership in 2 car companies in exchange for taxpayer money. But the conditions imposed to get that taxpayer money were based entirely on debt restructuring and viability in adverse market conditions.

There are going to be people on the fringe who are going to attempt to demand that the government use it's leverage to force hybrids, or pie-in-the-sky enviromentally friendly cars on the auto industry.... just like there are fringe people here that think the UAW should be hered up and shot, and seemingly would rather watch GM and Chrysler collaspse than see a taxpayer dime go towards attempting to save them.

But in both instances, like the rest of the world, things tend to run on money not idealogy. If something can be done in a way that makes money, it will be done. If something does not make money and loses money, it will not be done or will not be done for long. Even here in California, some of the more boneheaded ideas (ie: "Cool Paint" mandate... look it up) tend to fall apart due to money or personal freedom issues. (California is also being forced to give up it's CO2 emissions lawsuit and the Feds are creating a standardized emissions system which the automakers are applauding).

 

Existing bankruptcy laws be damned right?

 

Evidently, senior, secured debt holders were told to go pound salt while those holding unsecured, subordinated debt walked away with a windfall. One of those groups represent a large voting block while the other doesn't. Hmmm......

 

These debtholders are neither senior nor secured. Look at GM's Chapter 11 filing and please stop posting untruths.

The senior debtholder is the one providing the bankruptcy financing, i.e. the government.

 

Now, what's next.

General Motors simply will not get out of bankruptcy as quick as Chrysler.

Chrysler's problem was relatively simple and straighforward. Chrysler was a truck company that made cars on the side. Chrysler did an excellent job with the LX cars, but the rest of it's lineup was genarally subpar in refinement next to what is the standard today. Might be acceptable in a rough and tumble Jeep, but hardly acceptable in a Sebring or Avenger compeating in the highly competitive midsize segment. Chrysler also never got around to replacing the Neon, missing out on sales when fuel prices went skyward. Finally, Chrysler simply didn't have the global network of resources that Ford and GM had. Chrysler's debtholders had secured assets backing up their debt, which is why next to GM, it was easy getting 95% of them on board a restructuring, while GM's went into revolt last week, and in the end only 50% got on board.


Outside of the mindless debt piled up, General Motors problem has always been in it's organization. It's product approval process was geared to finding reasons NOT to produce a new vehicle. It was unwilling to consider killing off brands. It took as little as 18 months to develop a new car, but it would take 5 years or more to simply make a decision on making a new car. GM has always treated it's dealer network with kid gloves and all but pampered them next to Ford, let alone Chrysler. At GM, tradition trumped good ideas. Both John DeLorean and Bob Lutz will go down in GM history as 2 of the greatest executives GM ever had........ and they both had to resort to being underhanded, or endrunning in order to get things done that should have been common sense.

But while Chrysler will almost certainly be producing cars and trucks again by the end of the month, the New Chrysler won't be in business till at least the end of next year. Chrysler has no new product scheduled till then because all new product development was put on hold last year save the 300 (and by association, the Charger) and some powerplant improvements. By the end of next year, we'll see the new 300 & Charger, and the 1st Fiat based Chrysler cars.


General Motor's reorganization will be far longer, and will be a bit different. GM will split in 2, with the "good GM" acting in the role of Fiat at Chrysler. An entity that will "buy" certain parts of GM, and leave the rest to be settled amongst the various parties. The good GM will certainly include Chevrolet (over 50% of the current GM's sales), Buick (GM's successful China brand), Cadillac, and GMC (2 very profitable lines). While Opel is sold off, Holden and Daewoo are still part of the GM that's left.


Unlike Chrysler, GM won't have to wait a year and a half for new models. GM has continually been developing new products throughout. GM has at least 4 new models that will reach production between now and the time Chrysler's new cars kick in as long as the bankruptcy proceedings don't unravel (which the government's 70% ownership is supposed to prevent).



The government involvement in the auto industry is in fact essentially a takeover. Both companies were headed for liquidation that would have no doubt ended their existence let along taking an economy already in a recession and wrecking it. But it pays to not have amnesia about what brought these 2 companies to where they are today. Most of what did it has been brought up here on this very site over the years, and reading the Auto Task Force report was like reading a summary of criticisms I've read both here and other sites on the way certain elements of the auto industry have been run.

But while the takeover may be tough to swallow, keep in mind that neither would be here today if it wasn't for that, and we'd be alot worse. We all know people on this very site who have lost jobs in the auto industry, especially at GM. Now imagine every single last person here working at GM being unemployed since before spring.

Every... single.... one.... of....them.

That's scary to us... but even moreso to them!!!

The UAW has no intrest in keeping ownership of Chrysler. In fact, many are scared ****less about that. The US government has no intrest in running GM or Chrysler, and with 1 person on the board out of a dozen or more, and that person being a finance person means that you'd need some imagination seeing it as government control.

But at the same time, expect government conditions to the loans.

*Wages have to be kept under certain guidelines.
*Large bulk spending over a certain amount must be approved.
*None of the money can be used for operations outside of the country.

Before they even get the loans, there were other conditions.

But it's hardly a takeover where the goverment will run the company, making decisions, and making the cars that people don't want. Only in the minds of conspiracy theroist.

Even the UAW... whose pensions depend on both GM and Chrysler becoming profitable again.... wouldn't allow it.

 

If one stops for a logic test for just a momemnt, you begin to realize that statements like this and their implications don't hold a drop of water.

You are talking about a court of law. A high visability decision that will no doubt be crawled over by every legal scholor and every bankrupcy class from now till the end of the United States' existence.

You can bet your *** it's within existing bankruptcy laws.

Regardless as to what so-called internet experts tell you.

 

Once again, in case you missed the posts I made above, senior secured debtholders wanted to get the most return on thier debt as possible. That would only come about through liquidation.

That large voting block... again, if you missed my post or skipped over parts... gave up a not just most of the rules they had and substantial pay they already have gotten, but their PENSIONS were converted to essentially company stock.

 

This is really the best possible scenario for GM.

They were headed towards bankruptcy even without this recession. No business even GM's size can sustain the money and market share loss for so long. They have been burning through cash and savings while their credit rating dipped to the point that only the US Govt. would lend to them. The VEBA payments and legacy costs alone would have sunk the company even in good times.

While it's hard to say there is any good luck involved in any of this. I think GM is quite lucky in that the recession hit and masked what was really an inevitable end. They also got lucky that US Gov't INC crossed the line into the private sector and with generally accepting public opinion. Had GM floundered for several more years and filed for bankruptcy in better times and under a less forgiving proactive government they would have just been liquidated and that would be it. Now they get an opportunity to cut brands, dealers, jobs and debt with the 2 governments holding the bag and standing behind them.

I can't help but think of the saying; As goes General Motors so goes the country. Because the US of A really has the same debt to income ratio of GM but nobody can bail us out nor preside over a nation in bankruptcy court.

 

It absolutely holds water, you just choose to ignore it. In the Chrysler's case especially, those secured bondholders were basically told to bend over and take it even though they had more rights to the money than say those UAW pension funds or health care funds. The federal government came in and dictated who was privileged over one group or another, versus deferring to existing laws. And when those who owned the secured debt balked at the idea of taking less on the dollar than those who held unsecured debt were getting, the administration had the gall to go on prime time TV and labast them for doing so.

 

That's an archaic notion.

 

That may be but even you can see the similarity in the financial positions of GM and the USA.
http://usdebtclock.org/

So who is going to declare US bankrupt?

 

I'm not saying one way or the other, but that link means nothing to me. It's just a bunch of blinking numbers with no real info.

But even so, just to break it down in the most simplistic way possible, relating a country to a company is not entirely accurate.

 

Guy, any particular reason you chose to make a separate thread for this?

I'd like to merge the two. Any objections?

 

Those Chrysler bondholders purchased their bonds for pennies on the dollar. They were looking for more of a profit than they were offered. the initial government offer was still profitable for them I don't weep for them.

In a bankruptcy, it's majority (debtholder) rule. The government wound up with the largest share of debt, so they were able to dictate the terms of the bankruptcy.