By on November 13, 2008

Today’s New York Times’ story on GM’s travails begins by highlighting the bailout bullet train– and then switches track. “Momentum is building in Washington for a rescue package for the auto industry to head off a possible bankruptcy filing by General Motors, which is rapidly running low on cash. But not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.” Yes, it’s GM CEO Rick Wagoner’s worst nightmare: as TTAC predicted, momentum is growing for a GM C11. Obviously, any such suggestion depends on GM continuing to do business post-bankruptcy. And that’s a bridge [loan] too far for most MSM pundits.

“A study of 6,000 consumers last summer by CNW Marketing found that 80 percent of them said they would switch companies if G.M. or Ford filed for bankruptcy protection in the United States,” The Times dutifully reports. “Suggesting that only G.M. loyalists would stand by the automaker.” Anyone want to guess who sponsored that study? (“Clients include major automobile manufacturers, banks and lending institutions, Wall Street brokerage firms and consultants.”) Or what questions were asked? ‘Cause guesses is all we got.

Time has its own take on the Gray Lady’s C11 postulating piece. “Is General Motors Worth Saving?” the headline asks. Granted, reading the piece reveals that it’s a rhetorical question. Writer Eddie Guy is Motown’s kinda guy, arraying the usual suspects in defense of Detroit’s claim on the public purse. Still, his concluding ‘graph grabs you by goolies.

“If that’s ultimately where Detroit ends up, is it worth the price to get there? Put another way, does GM deserve to be bailed out or left at the mercy of the market and almost certain death? “The University of Chicago training in me says the market should prevail,” says Schrager. “But the Chrysler bailout was a success, and, gosh, I’d love to save it.” That sentiment is not shared by everyone, and it goes to the heart of the central economic debate facing the country — between hard-nosed capitalists, who believe the market should decide, and public-policy types who view the economy as something far more organic than a balance sheet.”

CNNMoney is firmly in the sway of the anti-C11 GM camp, as indicated by the headline of its polemic: “Why GM can’t survive bankruptcy.” In fact, Chris Isidore is ready to call it a day by paragraph three: “The bottom line: Unlike the experience of United, Delta and Northwest airlines, a GM bankruptcy could spell a quick end to the company’s operations.” GM, Isidore reckons, couldn’t get post C-11 debtor-in-possession (DIP) financing. So that’s that.

Most experts, even some of those who believe that GM would ultimately be able to find the financing it needs, agree that there is far less DIP financing available today because of the credit crisis. “A year ago we had 30 DIP lenders; you could count on about 20 of them showing up in any big case. It was a buyer’s market from a debtor’s perspective,” said Jack Williams, a bankruptcy law professor at Georgia State University and an ABI resident scholar. “Now we have three or four, maybe five, and they’re all very careful.”

I just got off the blower with Chris. The CNN scribe simply doesn’t believe GM could survive a C11– even if the U.S. government provided the required DIP (which he admits would be an elegant solution for Democrats: they screwed-it-up, we saved them). “The only people who will benefit from a GM C11 will be the lawyers and accountants,” Isidore says.

If Barney Frank’s bailout machinations don’t deliver Detroit’s desired result, we’re about to find out if he’s right. Meanwhile, the battle is joined.

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31 Comments on “Bailout Watch 177: Big Mo Grows for GM C11...”

  • avatar

    So GM has a lock on about 4% of the consumer market even if declares bankruptcy…

  • avatar

    “If your car company would be bankrupt, could not honor your warranty, would not sell you any spares, and be nowhere in case you hit someone and your lawyer sues them for product liability, would you – in all honesty – buy a car from them? We mean, really.”

    ( ) Hell, no
    ( ) Under no circumstances.
    ( ) Of course not
    ( ) No effing way
    ( ) No
    ( ) Maybe. If it’s free?

  • avatar

    GM really needs to change and a change only bankruptcy will give them b/c it all of a sudden puts an objective party in control – no longer Wagoner and his band of miscreants running the former giant into the ground (and according to Wagoner and Lutz it’s everyone elses’ fault for that – no responsibility from this management and the main reason why giving any to these bozos will never work).

    A lot of people just don’t understand bankruptcy (I used to work on cases as a law clerk). When you file for it you automatically have a stay – creditors cannot make a run on the assets, in the beginning you run the company and all its operations almost as normal yet you get to hold off on all payments. Almost every airline has gone through Ch11 and survived and yet are still struggling but not as badly as if we’d just thrown money to prevent as such (remember how regulated they were and how much money we gave them?) Somehow the concern that people wouldn’t fly went away quickly and sales continued even under protetion.

  • avatar

    Their business model is not viable. Period. Any discussion that comes after that is window dressing. Their business model is not sustainable. GM was built for a 50% market share with two domestic competitors who had similar cost structures. Those days are LONG gone.

  • avatar

    TexN:A spare and precise observation. That is all that needs to be said. You nailed it.

    And we are STILL not hearing any plan for going forward from Waggy and Company, just “give us the money so we can continue as usual until that year of wonder and magic: 2010”.

    Sort of like Charles Keating and Lincoln Savings ; “They need to leave me alone so I can run my S&L”.

  • avatar

  • avatar

    GM may not be able to survive Chapter 11, but it seems even less likely to survive without filing for bankruptcy protection. At some point doesn’t “desperate bailout” have the same negative connotations as “bankruptcy” for car buyers? Does anyone here believe that a bailout package for GM would do anything more than delay, at taxpayer expense, an inevitable bankruptcy filing? Bankruptcy now with a possible bailout chaser to avoid Chapter 7 seems to be the better of bad options here.

  • avatar
    Megan Benoit

    You guys have some kindred spirits over at IBDEditorials. They had a great article yesterday on how the big 3 going bankrupt would help the auto industry. Wonder if they read TTAC…

  • avatar

    The best way to save GM is to stimulate the overall auto market. The best way to stimulate the overall market and reduce fuel consumption is to offer a federal rebate for base model cars. A $3000 rebate on Aveo and on Cobalt, on Focus and on Caliber.

  • avatar

    Paging Mr. Lang — you have a call on the Red Phone. No, the Red phone.

    C11 or C7, there’ll be a lot of cars to market. So who’d buy a car from a bankrupt manufacturer? Me and lots of other people–if the bargains are too good to pass up. How cheap would it be?

    — Continued availability of parts (presumably, C11 would leave GM operating for a while at least, and anyway the number of GM cars on the road will ensure after-market suppliers step in);
    — Third party warranty firms will write coverage if GM warranties are voided or aren’t trusted; then–
    is it a fair guess that ordinary Impalas, G6’s, LaCrosse’s and such would be going for about 2/3 sticker price? Maybe less?

  • avatar

    I also believe the reality of GM’s situation, coupled with the overall economic mess, job uncertainty, etc. is going to lead to HORRIFIC sales numbers through the winter. I read in the past few days that Wagoner expects GM’s 4th quarter loss to be more in line with their 1st quarter loss which I believe was around $1B. Is he nuts or just a liar? My guess is the year-over-year monthly sales declines are going to continue to be in the -40-50% range. That type of result is going to lead to $1.5B-$2B in MONTHLY losses!

  • avatar

    The fact that Americans are preferring cars from non-American brands is a painful truth.
    Many of those cars are built by Americans, in America – as the brands have transplanted to US soil for their manufacture.

    Giving 50 billion (Obama’s latest – wait for 75 billion from someone) to Detroit means that competition is suddenly out the window as a deciding factor in Capitalism. OK, we’ll just have to make a note of that, then. But it’s reshaping the playing field in a way that will have serious repercussions:

    1. Detroit will get a quick fix, will burn through the stash and will change nothing.

    2. The other brands will make it that much harder for US cars to get sold abroad, unless they receive similar benefits.

    Capitalism seems to be a word that’s out of fashion these days.

  • avatar

    Well, Matt51, your idea might work except GM just shuttered GMDaewoo in South Korea for at least 45 days – they produce the Aveo.

  • avatar

    Doesn’t talk of bankruptcy hurt sales more than actual bankruptcy? You get all the bad press and loss of sales from wary buyers without the sales from discounted cars and the ability to restructure. Maybe I’m overestimating the oblivious consumer.

    It’s nice to see this C11 idea gaining traction in the mainstream media, as it’s painfully clear that “saving” GM means it will either be dead or need another bailout in 5 years. The company needs to be cured of bad management, not just treated for its symptoms.

  • avatar
    Stu Sidoti

    I have a question for anyone who understands Presidential Powers and Executive Order rules.

    I’m guessing that if there’s anyway Obama can avoid letting 1,2 or all 3 of the Detroit3 go down on his watch, he will do whatever he can within his powers to try and ‘save’ them. So if President-Elect Obama has Executive Order privileges, what if any of those privileges could he use to help get funds to the automakers? Anything? Anyone? Bueller?

    If the anti-bailout groundswell reaches Congress next week, and if they do not agree with Pelosi, Reid et al, that fiacso is going to make for some interesting TV…

  • avatar

    The 80% survey is bullshit.

    The people taking the survey probably assumed that bankruptcy means that GM would shut its doors and the warranties would be toast. Especially with the slanted questions that the biased survey likely had.

    The truth is that a huge number of companies have survived and thrived with Chapter 11.

    When people see GM dealers (at least Chevy and Cadillac) remain open after the Chapter 11 they will be greatly reassured.

    With regard to warranties, the Bankruptcy court would likely allow GM and Ford to keep their warranty reserves to honor existing warranties, and future warranties could be done through independent third parties.

    From Circuit City’s Chapter 11: “Circuit City Advantage Protection Plans(R) are product warranty and service plans sold by the company on behalf of unrelated third parties who are the primary obligors. As a result, these warranty and service plans are not subject to change as a result of the company’s Chapter 11 filing.”

    As a matter of principle I will not buy a car from a big 3 manufacturer on the government teat, but, if the warranty can be assured, I just might buy the new Camaro from a Chapter 11 GM.

  • avatar

    Oft ignored is the fact that the car market is utterly saturated. Anyone in my area with a job and desire has a fairly new something, small Honda to big whatever, depending on budget and need. OK, the real problem is that you need a decent credit rating, not just a pulse, to get money now.

    Most of these two or three year old cars has another good three to five years.

    They succeeded in drowning themselves. Used car values are silly low for decent vehicles. A used 3 series with the small motor is under 20K.

    Every day I walk past my local Chrysler dealer (the GM side quietly left six months ago) and marvel at the non-moving inventory, save mixed used cars, which are probably carrying them at this point, and do move.

    Where is the huge market for all these wonderfully demographically boutiqued vehicles ?

  • avatar

    As a matter of principle I will not buy a car from a big 3 manufacturer on the government teat

    I’m sure you’re not alone. So where’s the survey on whether one would buy a car from a manufacturer so poorly run that it requires taxpayer handouts without end to survive?

  • avatar

    Given a lot of GM’s quality perception problems, not to mention the sketchy-dealer reputation so richly deserved over years of customer penetrations, why would anyone not buy a GM car due to service concerns alone? That problem is already there in the first place I think.

    Also, I can get support for my Saturn and so can Saturn dealers, they just call Opel; which isn’t bankrupt and I think makes a slim piece of coin every year. Same goes for my Daweoo, I mean, Chevy Aveo. I can call Subaru or its pseudo-mothership Toyota and get “support” for my “Saab” these days as well. And if my truck breaks down, I just head down to Skeeter’s trailer-house (preferably while a big NASCAR race is on the TV) and pick through what’s on his front lawn for whatever parts I may need to effect my repairs.

    I don’t what see what the problem here is with support. You don’t need GM North America to support GM products. We haven’t for a long time now, because GM North America gave up on that effort a long time before this C11 talk, and ironically that’s one of the reasons there’s all this C11 talk. I see a pattern here.

    Oh, and great irony of ironies last night. I’m watching the Bail-Out-Now crew on MSNBC last night and they cut to commercial break. What is it? Toyota. Get the most reliable cars on the road, built in Texas and Ohio, at zero percent financing. Hmmm….

  • avatar

    I don’t believe that RW will file for CH11. He’s going call the government’s bluff and push GM all the way to the point of no return. He has shown that he is not interested in vastly re-structuring and shrinking GM, he desperately wants to preserve the status quo. I believe he’ll allow GM to run out of cash and have a call on their debt to force the government, perhaps under Obama by then, to step in with untold billions. And I believe that the government will do so.

  • avatar

    Sadly, I think you’re right. Under the worst case scenario for GM, they go under and RW walks away a centi-millionaire. If GM “wins”, RW keeps his multi-million dollar job and he is a “hero” for getting over on Uncle Sam and us taxpayers. Sickening.

  • avatar

    Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company the shitcanning of Rick Wagoner and the entire miserable lot of GM upper management that turned the world’s once most-profitable company into a smoking crater.”


  • avatar


    I think you might be right as well. One big difference that is an impediment to that now though is the cat’s out of the bag. Everyone’s talking and looking at GM’s books and it is becoming apparent to most observers that Red Rick’s prognostication about GM running out of cash in 2009 is actually kind of optimistic by a whole calendar year. The speed of events at this point and the scrutiny GM is under might be too much for him to manipulate at this point. We can only hope.

  • avatar

    no_slushbox, I’m pretty sure those “warranty reserves” are simply bookkeeping entries to recognize future liabilities of warranty claims. That is, there’s no separate pot of cash for the exclusive purpose of backing warranties. (Say, that’s like Social Security, isn’t it!) My guess is warranty-holders will be unsecured creditors just like many, many others.

    As for the analogy to Circuit City, there’s a distinction. CC was peddling service contracts issued by third parties. The D3 are the obligors on their original product warranties. Those extended service plans the dealers push so hard may be issued by D3 subsidiaries, but even then it seems they’d be caught up in a parent company’s bankruptcy.

    So I’d like to hear from a bankruptcy attorney: what’s the law on warranty preservation, and if statutes don’t govern it, what do judges allow on behalf of warranty-holders?

  • avatar

    TexN: centi-millionaire

    centi- means 1/100 (0.01), you must mean hecto- which means 100 (or were you being ironic?)

  • avatar

    As I posted on another thread “Stupid is as stupid does!” My bad. I was trying to point to the $100M Dick Wagoner has already stashed under his mattress. Thanks for the correction!

  • avatar
    John Horner

    I read Chris Isidore’s piece on CNN and also noticed him sidestepped the possibility of both a C11 filing AND government investment. It seems that he left out the possibility of the gov’t being the DIP lender simply because of his own feeling that GM can’t survive a C11 filing. Thanks for getting him to fess up to the truth Robert!

    It smacks of intellectual dishonesty to build an editorial on a premise (no DIP financing = no survival = thus C11 is an impossible path) which intentionally leaves out one of the very real options simply because you don’t like the possibilities that option raises. If the feds get involved in a GM bailout, C11 and booting out the bosses has to be a fundamental part of the game plan. Democrats shouldn’t have any trouble doing this. Since when did a democrat ever get voted out of office for firing executives and forcing a massive company to restructure? In fact, why aren’t those accountability obsessed Republicans calling for Wagoner’s head? AIG, Fannie and Freddie all got new bosses and Citigroup is about to.

  • avatar
    John Horner

    Chapter 11 reorg does not mean the company will not honor warranties or other obligations. Heck, the airlines even preserved customer frequent flier accounts when they were busy telling the stockholders, tough luck.

  • avatar

    50merc: It will be up to the judge and debtor in possession whether to honor the old warranties, there is no black letter rule.

    Regardless of that, there are independent third parties that the big three can use to underwrite their post bankruptcy warranties, reassuring post bankruptcy customers that their warranty will be safe.

    Right now third party automotive warranties are a scam for sucker customers, but if a third party warranty was the manufacturer’s warranty then the size customer base would demand that it be a legitimate warranty.

    The point is: Post Chapter 11 dealerships will be open and legitimate warranties will be available – if the products are good then customers will still buy. The GM funded survey is crap.

    With bailouts and no Chapter 11 restructuring, on the other hand, the US auto industry will slowly crumble and disappear – American Leyland.

  • avatar
    Usta Bee

    To Rick Wagoner:

    Click your heels together 3 times and say…”There’s no place like home, there’s no place like home”.

  • avatar


    Actually you raise a good point:

    If you buy a GM now and GM goes Chapter 11 there is a decent probability that you will get screwed and end up with no warranty. It will depend on the actions of the BK judge and debtor-in-possession.

    On the other hand, if you get a post Chapter 11 GM with a warranty underwritten by a well capitalized independent company your warranty will be safe.

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