Editorial: General Motors Death Watch 226: First to Blink

Ken Elias
by Ken Elias

First to blink, first to lose. That’s what GM’s creditors know. As does Ron Gettelfinger, the United Auto Workers (UAW) boss. And that’s why there isn’t enough time between now and February 17th– the congressional deadline for the next federal loan installment for GM– for General Motors to craft a workable deal to save this company. No one is going to blink. So no one will cave, and nothing gets done. Then what?

The loan terms of the bailout specified a raft of requirements that GM has to meet or else Treasury might call its loan and force the General to face a bankruptcy Judge. There are two key terms of GM’s federal loan agreement that will definitely not be met.

First, the unions have to meet wage/benefit parity with the foreign transplant non-unionized work force. That’s a non-starter for the UAW. In fact, two hours after the bailout was announced, Ron Gettelfinger announced his itention to get the new Democratic President and Administration to amend that “unfair term.” Why would the union boss offer GM concessions that he seeks to overturn? He wouldn’t And won’t.

In any case, active UAW members’ direct wage and benefits are already close to parity with the transplant workers’. The important differences involve work rules, job classifications, and a telephone book’s worth of nonsense that makes union workers more unwieldy (read: costly) than transplant workers. The loan terms seek to sweep all of this away.

But UAW members believe they have the right to these job protections– even at the taxpayers’ expense. And if all those hundreds of pages of the union contract disappear, what’s the point in having a union? Legally, the UAW must put any changes to its existing GM contract to a member vote. Which it would lose. Unless, as always, there’s a quid pro quo.

The UAW (and its media supporters) likes to point to its “historic health care giveback”: the agreement placing GM retiree health care obligations into a union-run benefit association (a.k.a. VEBA). That little “concession” cost GM approximately $10b in cash. Of course, GM doesn’t have the cash, and never will– unless the American taxpayer antes up some more Benjamins. Meanwhile, The General already deferred its first payment (with interest accruing).

The Treasury Department inserted terms in the bail out loan agreements requiring the UAW to take stock in the new GM for half of the VEBA cash contribution owed. But it’s harder to skim stock than cash, and lots of stock won’t pay the medical bills coming due for retirees either. So the debt for equity swap is simply not going to happen.

The second key loan agreement term: a two-thirds debt-for-equity swap imposed on GM’s financial creditors. Nope.

If you add up the General’s debt liabilities (auto operating company related), the figure approaches $66b. Subrtact the Government’s bailout loan of $13.4b and the UAW VEBA liability of $10b (two creditors that want cash payment, not stock), and GM still carries $43b of debt.

Then there’s $7b in current debt (debt owed in less than a year), consisting of short term obligations and current portion of long term debt. The chance that short term creditors will take a long term position in General Motors is ludicrous. Especially when Uncle Sam is on the hook, and considering the Treasury Department’s cavalry rescue of GMAC.

That leaves long term debt of $36b comprised of various unsecured bonds of varying maturities, foreign currency denominated debt, bank debt, convertible debt (at strike prices that will never be seen again), and other debt-like items such as capitalized leases and muni bonds. Somehow, GM has to get approximately $25b of this grab bag of debt converted to equity.

Convincing these parties to agree to swap for debt for equity is impossible. There are various priority considerations, the fact that stock of a new GM might just be worthless, and that muni bond holders and lessors have zero interest in stock. Bank lenders with collateral, bond holders with near term due dates, and smart hedge fund owners of GM’s public debt will hold out until the very end.

There’s no chance to arrange any kind of equity exchange on reasonable grounds outside of bankruptcy court. It just ain’t gonna happen without that filing. We know it, the government knows it, and bankruptcy and reorganization experts know it. The only ones who don’t get it is GM itself.

“Inside sources at GM” have spent the last couple of days “suggesting” to the press that The General won’t need any more money beyond the $13.4b bailout from the Treasury (and another $6b for GMAC). GM CEO Rick Wagoner joined his union boss to make the announcement on TV this morning.

Sure, $20b in government money would be enough to buy the survival of GM (and GMAC)– provided U.S. auto sales hit the low end forecast (between 10.5 and 12.0m units) AND the other guys takes the hit. But no one will blink.

And even if GM doesn’t need more money, it’s still a basket case of a company run by the executives who dug the hole. There is only one solution: bankruptcy. Let’s get on with it already.

Ken Elias
Ken Elias

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  • Npbheights Npbheights on Jan 09, 2009

    This is the car that Rick Wagoner should have driven to the bailout hearings. Check out the LICENSE PLATE! Very appropriate. www.youtube.com/watch?v=l-pI5YDzw4M&feature=related"

  • Anonymous Anonymous on Mar 31, 2009

    [...] wobei man hierbei aber klären muss, welche Schulden genau einen nun wirklich interessieren. Laut dieser Quelle sind es an Geldschulden insgesamt 66 Mrd. Dollar. AFAIK ist das für einen Automobilhersteller [...]

  • Wolfwagen Is it me or have auto shows just turned to meh? To me, there isn't much excitement anymore. it's like we have hit a second malaise era. Every new vehicle is some cookie-cutter CUV. No cutting-edge designs. No talk of any great powertrains, or technological achievements. It's sort of expected with the push to EVs but there is no news on that front either. No new battery tech, no new charging tech. Nothing.
  • CanadaCraig You can just imagine how quickly the tires are going to wear out on a 5,800 lbs AWD 2024 Dodge Charger.
  • Luke42 I tried FSD for a month in December 2022 on my Model Y and wasn’t impressed.The building-blocks were amazing but sum of the all of those amazing parts was about as useful as Honda Sensing in terms of reducing the driver’s workload.I have a list of fixes I need to see in Autopilot before I blow another $200 renting FSD. But I will try it for free for a month.I would love it if FSD v12 lived up to the hype and my mind were changed. But I have no reason to believe I might be wrong at this point, based on the reviews I’ve read so far. [shrug]. I’m sure I’ll have more to say about it once I get to test it.
  • FormerFF We bought three new and one used car last year, so we won't be visiting any showrooms this year unless a meteor hits one of them. Sorry to hear that Mini has terminated the manual transmission, a Mini could be a fun car to drive with a stick.It appears that 2025 is going to see a significant decrease in the number of models that can be had with a stick. The used car we bought is a Mk 7 GTI with a six speed manual, and my younger daughter and I are enjoying it quite a lot. We'll be hanging on to it for many years.
  • Oberkanone Where is the value here? Magna is assembling the vehicles. The IP is not novel. Just buy the IP at bankruptcy stage for next to nothing.
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