Thứ Ba, 2 tháng 6, 2009

GM's Inglorious Conclusion

At long last GM has gone bankrupt and was booted from the DOW along with Citigroup. The world did not end as former CEO Wagoner suggested would happen. Indeed the markets seemed to be cheering the news. Let's take a look at some headlines.

GM Files Bankruptcy to Spin Off More Competitive Firm
General Motors Corp., the largest manufacturer to go bankrupt, filed for court protection with a government-financed plan intended to create a viable company that can compete in world markets.

The U.S. government will extend $50 billion of loans to the 100-year-old automaker and plans to convert that into a 60 percent stake in the reorganized company, according to a filing in U.S. Bankruptcy Court in New York. GM today missed a deadline to show that it could reorganize outside of court and reported debt of $172.8 billion, more than twice its assets.

“Any suggestion that an American corporate icon like GM could file for bankruptcy would have been laughable a few years ago,” said Lynn Hiestand, a lawyer specializing in restructuring with Skadden, Arps, Slate, Meagher & Flom LLP.
U.S. Gets Majority Stake in New GM
The United States will invest another $30 billion during and after the GM bankruptcy process, bringing the U.S. commitment to $50 billion. Following that infusion, "the U.S. Treasury does not believe or anticipate that any additional assistance to GM will be required," a senior administration official said Sunday night, calling the restructuring a "permanent" solution.

Under the proposed restructuring, about 60 percent of the new GM would be owned by the United States, about 12 percent by the governments of Canada and Ontario, a union health trust would own 17.5 percent, and the company's current bondholders would get 10 percent.

"The proposal seems to favor the rights and claims of the UAW, a political ally of the current administration and a powerful lobbying force in Washington, over the rights and claims of the company's diverse group of bondholders," according to a letter from 20 House members, led by Rep. Jeb Hensarling (R-Tex.), to Treasury Secretary Timothy F. Geithner. "Contractual rights of investors are being trampled by the government under the rationale of 'extraordinary circumstances.' "

A critical legal issue is whether the bondholders might be able to get more for their debt if the company were simply liquidated, the proceeds distributed among those with claims.
The first critical issue is fairness. And by that measure bondholders were robbed. The next critical issue is the taxpayer investment of $50 billion into GM that will never be repaid.

GM to Announce Tentative Hummer Sale
GM has been studying strategic alternatives for the brand for a year, and has settled on a buyer that could take over the brand by the end of the third quarter, these people said. GM will continue producing Hummer H2 and H3 trucks and SUVs at plants in Louisiana and Indiana for the buyer.

GM is withholding the name of the buyer until a later date, and will only say on Tuesday that this investor is committed to continuing to develop the Hummer portfolio and build alternative-fuel models for the brand at some point. The purchase price will also be withheld.

If GM had not found a buyer by early June, Hummer would likely have been killed in bankruptcy court, one person involved in the deal. GM found an investor for its Opel brand over the weekend -- Magna International Inc. -- and is seeking buyers for Saturn and Saab.
Anyone dumb enough to buy the Hummer deserves to follow GM into bankruptcy.

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.

A liquidation analysis by the turnaround and advisory firm AlixPartners LLP, which is also providing a chief restructuring officer to GM, estimated that GM would have paid back its banks 23 cents to 77 cents on the dollar on the $6 billion it owed them.

The Treasury, on the hook for $20 billion, would have gotten back 12 cents to 24 cents. Bondholders, the UAW's health-care trust and other unsecured creditors would have received nothing.
A Saga of Decline and Denial

The above is a long, interesting read with enough details to suggest Wagoner was incompetent.

For the New GM, A Final Challenge to Please Drivers
America will soon have a new auto maker, "The New GM" -- or as some will call it, "Government Motors." Politicians, financiers and lawyers created it. American consumers will decide whether it succeeds.

The New GM will be a shadow of what the once-mighty old General Motors Corp. used to be. But it will be a really big shadow -- with more brands, more models, more dealers and possibly more market share than any other player in the U.S. industry. It will have a diverse ownership: the U.S. Treasury, the governments of Canada and the province of Ontario, a collection of bond investors and the United Auto Workers.

Mr. Henderson vowed that the New GM, freed of many of the health-care and debt-service obligations that sucked up its capital, will now "increase our investment in new technology" and no longer waste effort on cars that aren't "best in class."

GM has said this before. Now it will have to deliver.
Pray tell, why should GM have to deliver now? Obama has already thrown $50 billion at GM, what's another $50 billion more to win union votes?

Obama: Nationalization of GM to be short-term
In a defining moment for American capitalism, President Barack Obama ushered General Motors Corp. into bankruptcy protection Monday and put the government behind the wheel of the company that once symbolized the nation's economic muscle.

The fallen giant, the largest U.S. industrial company ever to enter bankruptcy, is shedding some 21,000 jobs and 2,600 dealers. Sparing few communities, the retrenchment amounts to one-third of its U.S. work force and 40 percent of its dealerships.

"We are acting as reluctant shareholders because that is the only way to help GM succeed," Obama said of the temporary nationalization of the 100-year-old company.

"What I have no interest in doing is running GM," Obama said. His only goal, he said, was to get GM back on its feet and then "to get out quickly."
Take a look at the lead sentence of this article. The writer of this story clearly does not know the difference between capitalism and toenail fungus.

The Ad Campaign for a ‘New’ G.M.

Can General Motors make up for decades of mistakes and misfires in a minute?

That is the ambitious goal of a 60-second commercial to begin running on television on Wednesday. The spot is already available on a Web site (gmreinvention.com) and on YouTube.

The commercial was created by Deutsch, an advertising agency owned by the Interpublic Group of Companies that handles assignments for G.M. like producing campaigns for the (soon to be divested) Saturn division.
GM Reinvention



Does anyone find that music extremely scratchy and irritating? That sound is god awful to me. Speaking of which I find those on-star ads extremely irritating as well. I will immediately turn the station when I hear one. So does my wife who even drives a GM.

Booted From The DOW

At long last GM is booted from the DOW.

GM, Citigroup Replaced in Dow by Cisco, Travelers

By replacing GM with Cisco, Dow Jones & Co. has removed automakers from the best-known benchmark for U.S. stocks, saying in an e-mailed statement that computers are as central to the economy as cars were in the previous century.

Cisco, the world’s largest maker of computer-networking equipment, joins Microsoft Corp., International Business Machines Corp., Intel Corp. and Hewlett-Packard Co. in the Dow, boosting its technology weighting from about 17 percent.

Travelers, the second-biggest U.S. commercial insurer, joins JPMorgan Chase & Co., American Express Co. and Bank of America Corp. among financial companies in the Dow. Its higher price than Citigroup’s will boost the benchmark’s financial weighting to about 10 percent from about 7 percent. Financials make up about 14 percent of the S&P 500, a broader benchmark.

The choice of New York-based Travelers restored an insurer to the Dow average, which had lacked one since the removal of AIG.
No One Could Have Predicted This

Let's return one more time to the opening snip:

“Any suggestion that an American corporate icon like GM could file for bankruptcy would have been laughable a few years ago,” said Lynn Hiestand, a lawyer specializing in restructuring with Skadden, Arps, Slate, Meagher & Flom LLP.

Really?

Flashback Wednesday, November 16, 2005

Inquiring minds are reading Can GM Be Saved?

...the real debate is not whether GM will go bankrupt, but whether said bankruptcy occurs sooner rather than later.

The real question then should be how to handle the upcoming bankruptcy in the most equitable manner possible rather than wasting money trying to prevent it.

...

GM is currently on collision course with bankruptcy anyway so it may as well happen in a manner that protects the most people. The 5 step program above would protect both GM pensioners and US taxpayers. No doubt union members will object to step number 4, but a reduction in the power of the UAW would appear to be a foregone conclusion anyway.

...

Finally, the union may as well lock in a good deal for its pensioners right now as opposed to a poor one later that might also affect taxpayers to the tune of $30-100 billion or so.

...

the Mish plan to save GM in a "fair and equitable manner" was a purely theoretical exercise that favored pensioners while ignoring huge implications to GM stockholders and bondholders. In that regard it can not be viewed as a serious proposal.

...

Here is the bottom line: No matter what CEO Wagner believes about bankruptcy, it seems likely the market or the PBGC or perhaps even a new law protecting pension benefits over bondholders will force him to change his mind. If history is any guide, not only will GM go bankrupt, but pensioners will get the shaft and taxpayers will end up footing some of the bill.
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Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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