By on February 25, 2009

It’s not a question of if GM will file for C11. GM blew past “if” a long time ago. By the turn of the century, the artist formerly known as the world’s largest automaker was doomed. Still, if they had greeted Y2K by mortgaging everything (à la Ford) and used the cash to buy out dealers and kill brands and ditch models and pay off the UAW and . . . nah. By the time The General re-launched their refreshed GMT900 SUVs in May 2005, the gig was up. By that point, GM should have been in C11. In this alternate universe, GM might have had enough cash—their cash not our cash—to make it out of bankruptcy. Now, I’m not optimistic. But one thing’s for sure: this Death Watch series is, like GM, on its last legs.

The filing’s timing has nothing to do with finances: profit and loss, cash flow, capital investment, depreciation, amortization, tax schedules, that sort of thing. The moment GM cashed its first government check, its fate ceased to be a matter of commercial reality. The corporation that was once the world’s largest company, the world’s most profitable company, had instantly and irrevocably reduced itself to nothing more (or less) than a political football.

The fact that Uncle Sam’s $13.4 billion federal loan didn’t even stretch to March 31st, never mind through the end of 2009 as promised by GM CEO Rick Wagoner, is neither here nor there. GM is now, for all intents and purposes, an off-shoot of the US government. And that means GM’s on government time.

Hence the reason why GM isn’t in receivership, despite failing to satisfy the loan’s conditions (UAW concessions, a massive debt-for-equity swap amongst existing bondholders and a credible viability plan). Never mind. We’ve got a presidential task force. Meanwhile, how about a bridge loan to take GM from their current bridge loan to . . . another bridge loan.

No surprise there. You can’t very well create a new layer of federal bureaucracy without giving it a chance to do something. Witnesses must be called, lawyers consulted, inter-departmental advisors indulged, papers perused, confabs held, policy statements written, copies circulated for approval, etc. And that’s after the appointees are appointed, assistants hired, stationary commissioned, website created, budgets drafted, alliances formed, careers fortified, etc.

If the Presidential Task Force on Automobiles simply cried “basta!” and called the loan, they’d have nothing to do. A federal bankruptcy judge or judges would take over. What would be the point of that?

In fact, doing the right thing would be the exact wrong thing, politically. First, it would make the Obama adminstration seem impulsive. They just got started! Second, it would make the Obama administration seem weak. It would be a throw-in-the-towel tacit admission that the economy is in even worse shape than they won’t admit it is, and there’s not a damn thing they can do about it. Third, a C11 filing would require even MORE money from Uncle Sam than GM is currently requesting.

I’m not talking about a GM C11′s impact on the economy. Nor am I referring to the Bloomberg report pegging the legal costs of GM’s bankruptcy at a cool billion dollars. Truth be told, if the federal government is going to bankroll The General’s bankruptcy—and how could it NOT provide debtor-in-possession (DIP) financing given that there’s this presidential task force occupying precious DC real estate—the real cost of ressurrecting GM will finally emerge.

Remember: no matter how well Uncle Sam puts Humpty Dumpty back together again, the feds will have to keep GM going until the economic recovery. A year? Two years? I’m thinking $100 billion. Easy.

A USA Today poll released today reveals that 75 percent of Americans are now against loaning Detroit automakers more tax money. Just two months ago, 61 percent of the public were pro-bailout. Consider the magnitude of that swing and imagine how John Q. Public will feel if the true cost of keeping GM in the game were suddenly revealed.

How and when will that number swing back towards federal intervention for Detroit? It can’t and never. Uh-oh. Rock, GM. Obama, hard place.

Politically, there is but one answer: continue the bailout buffet diet of little (in some bizarre sense of that word) and often. In other words, “loan” GM just enough operating cash to remain in their current, zombie state. At least for now. At least until March 31st.

By then, the American public may move beyond not wanting to support GM to not giving a damn. The feds can then slip and drip: let General Motors slip into C11 without much public outcry, and then continue the drip feed under DIP.

Here’s the real bottom line: with or without DIP, GM will continue to be tied to the feds with an umbilical cord made of piano wire. The worst is yet to come.

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39 Comments on “Editorial: General Motors Death Watch 234: When?...”


  • avatar
    toxicroach

    I just hope Obama doesn’t coddle GM and Chrsyler for just long enough to force Ford into bankruptcy too.

  • avatar
    cardeveloper

    when asked if Chrysler or GM would require any additional money, they answered what?

    eggzactly.

    I fully supported believed in the loans, until they returned for more. Time to cut em loose.

    Taking Chrysler and GM into bankruptcy will drive Ford into bankruptcy too. Suppliers are losing the edge.

  • avatar
    TexN

    When? Not soon enough.

  • avatar
    Cicero

    GM is now, for all intents and purposes, an off-shoot of the U.S. government.

    Here is what we have to look forward to.

  • avatar
    Stu Sidoti

    Robert: I sense that like a lot of us, you are getting weary of this little circus act sideshow on Capitol Hill. Please stay vigilant and on top of these issues for us as you have always done. I feel strongly that TTAC is the one place I can come to and know what is happening Right Now with these kinds of issues. Just as the Web replaced Print for up to the minute information, TTAC is replacing many other automotive business news sites in my views precisely because you and your contributors stay right on top of the issues. The GM-Chrysler bailout circus Part Deaux is JUST starting up, so we out here in reader-land, neeeeed you to keep bringing it, especially since so much of this round is being done behind closed doors.

  • avatar
    Guillaume9

    One of my favorite adages is certainly applicable to that question: THE SOONER THE BETTER!

  • avatar
    ihatetrees

    Now, I’m not optimistic. But one thing’s for sure: this Death Watch series is, like GM, on its last legs.

    I agree. (Of course, I also agreed with Mr Elias about GM’s imminent tanking – 6+ weeks ago).

    If the Presidential Task Force on Automobiles simply cried “basta!” and called the loan, they’d have nothing to do. A federal bankruptcy judge or judges would take over. What would be the point of that?

    Of course, if we get Judge (DelphiFor3plusYears) Drain on board, GM will probably re-emerge just in time for Obama’s re-election or defeat.

  • avatar
    walksatnight

    What I wonder is when does the clock run out on Nissan? There are way too many car companies in Japan – clearly Toyota and Honda make it but it will be interesting to see how many of the others merge or fold up.

  • avatar
    truthbetold37

    Nissan? What about Mitsubishi, Subaru?

  • avatar
    esg

    I can’t stomach listening to Wagoner. He is unbelievable in his speech abilities. I guess it would be considered a talent to spew so much crap without really saying anything. What an empty suit Red Ink Rick is. Boot his ass out. He is not part of the solution, but a key ingredient of the problem. He needs a new hairdo too.

  • avatar
    mach1

    On the battlefield, they practice triage for the wounded. Some will die no matter what the medics do so they are allowed to die. Some will live without further attention and some will live only if timely aide is provided.

    It seems to me that Chrysler is in the first triade. Based on the foreshadowing of the Death Watch predictions and recent events, GM may well be in the first triade as well. That leaves Ford as a potential survivor. The crucial question is “Can they make it on their own?”

    A quick but orderly death for Chrysler would be both humane and would preserve capital to bolster Ford and the supply base as needed,

  • avatar
    lw

    You’ll need to change it to the GM Zombie watch…

  • avatar
    unleashed

    Remember: no matter how well Uncle Sam puts Humpty Dumpty back together again, the feds will have to keep GM going until the economic recovery. A year? Two years?

    Hopefully no longer than until the first Tuesday of November 2010 – U.S. Congressional Elections.

    Recovery… What recovery???

    By 2010 the U.S. debt might grow as large as 4-5 Trillion.
    Then say Good Bye to America the way we know it now.

  • avatar
    mel23

    I think it’s worse than that. How long ago would GM have gone down if not for all the stuff they’ve been able to sell over the years? Locomotive business, Detroit Diesel, etc. And how much money has Ford dumped on PAG both in acquisition and attempts to fix these black holes? GM would already be long gone, and Ford might have had enough to scrape by. Academic now. GM is toxic and incestuous at the top. There is not an ounce of self correction there. All I read about how the Feds. are behaving leads to a BR, either prepack or normal. It seems they’re just trying to make a choice. But the first choice has to be to dump Wagoner and the board.

    Assuming our empire continues beyond this little economic downturn, there will be some fascinating studies about the cleansing effect it had. All the parasitic financial structure that contributed nil to building anything, artifacts like GM and lots of others we may not see at this point.

  • avatar
    PeteMoran

    @ RF

    Being picky I know, but “the world’s most profitable company”? Hasn’t that title always been held by Exxon?

  • avatar
    Luther

    When will Rick Wagoner get promoted to GS-15?

    I hope the idiot-voter’s DC Mafia funds GM until they release the Pontiac Pelosi 5000 GTS turbo with the Teddy Kennedy RiverGuard(TM) option.

  • avatar
    jkross22

    I thought this was the era of politics of change? Oh right, that’s only when Obama was running for office.

    Now, it’s George Bush redux.

  • avatar
    Ken Elias

    GM was the world’s largest and most profitable company (and the first to reach $1 billion in earnings IIRC at some point in the 1950s). The power and influence of GM cannot be understated during its glory years.

    Exxon today is the combination of Standard Oil NJ (which was using the Exxon name) and Mobil Oil (which itself was formerly Standard Oil NY). Its market cap of $360 billion far exceeds that of GM now.

  • avatar
    PeteMoran

    @ Ken

    Thanks. Downhill run for a while then eh?

  • avatar
    Robert Schwartz

    The question is can any part of GM survive as a going concern?

    I think that their time is very close to up. Not even enough left for a tag sale.

  • avatar
    Stein X Leikanger

    When the car honchos flew to D.C. on their first trip of contrition, I think I wrote in here that bailing out GM would cost 200 billion dollares Americanos, at least. Hey, why can’t I high-ball, when they were obviously low-balling?
    Remember that hearing – it got drowned in “did you fly commercial?” But the car geniuses were actually predicting that December sales would go up, and that by March of next year they’d be OK. “Please, can we have our money now?”

    Now I think that 200 billions won’t be enough. Whatever margin there ever was in building cars has gone out the window, at the exact time that consumers won’t accept a price hike in order for car companies to fix the bottom line.
    Years, a lot of years, before GM is for real out of the red. And until then, consider Project Rescue GM about as smart as building a tunnel under the Atlantic. Yes, a sinkhole.

    (And consumers aren’t dumb. They’ll figure out that the cars already on the road will be a lot better than the stripped down stuff the car makers will be putting on the roads in order to make money. Which is why aftermarket is starting to look good, with prices ticking up. This, of course, compounds the car makers’ troubles.)

  • avatar

    The anger will only increase as other companies fail, layoff and cutback on hours. When the general population realizes that their employer will not get a bailout they will eventually demand a halt to the GM bailout. Give it 6 months to a year tops. Thats when it will be politically impossible to give them any more money. Give it a little time. How long did British Leland last?

  • avatar
    GS650G

    Alan clearly looked best , Bob looked like a robot, and Rick looked like a punching bag. Check out the blink rate on that boy.

  • avatar
    highrpm

    @esg, Rest assured that from all of these Death Watches, the one thing you can be certain of is that if Wagoner actually reads TTAC, he is now asking his underlings if his hairdo really is outdated?

  • avatar
    jerry weber

    It should be clear by now that the first (loan) to GM was about one quarter’s worth of losses. Not the first installment on getting a better GM. These losses will accelerate, as GM by it’s own admission last year in Congressional hearings admitted: If the public thinks we are bankrupt, our sales will totally collapse. Well the public knows they are bankrupt, and further the Saturn, pontiac, hummer, and saab owners know they are proud owners of (worth-less) orphans. If this doesn’t keep sales diving even when other companies level off, I don’t know what will.

  • avatar
    dougjp

    Cicero, GREAT link! That’s what I’m trying to say, a Pelosi! The definition of anything that destroys enjoying life as we knew it!

    And the ad for the “Pelosi” could be a remake of the Robocop Pacer ad from Speed Channel’s predecessor, Speedvision, where the maniac cop takes the keys away from every Pacer on the road.

  • avatar
    menno

    Re: British Leyland (i.e. the British ratepayers/taxpayers to us Americans bailing out the private industry as it made losses while not getting anything in return during earlier times of profits – the “best of” socialism for the wealthy and the “worst of” capitalism for the working stiffs, in other words). It lasted about 15 years like that.

    Renault in France was nationalized for even longer.

    As for which Japanese auto makers will survive, I think the same – Toyota (which includes part-ownership of Daihatsu, Hino truck, Subaru now that GM sold their stake, obviously Lexus and Scion), Honda (which also sell Acura), but add on to the list Suzuki (top-seller IN Japan, top-seller also in the huge and growing Indian market, good market in China and elsewhere in the world, and still with a presence in North America as well as a part-owned Canadian factory, useful in case the NAFTA trade doors to the outside world slam shut/close partially).

    Not sure about Mazda.

    Not sure about Mitsubishi.

    Not sure about Nissan.

    Perhaps a Suzuki-Mitsubishi combo could help survivability, or maybe even adding in Mazda. Doubt Nissan will merge, they already have a big French partner in Renault. They’ll either sink, or swim.

    Suzuki-Mitsubishi makes a lot of sense; sell all vehicles as Suzuki (which means one name for all vehicles and marine motors, a la Honda) and merge the Suzuki and Mitsubishi dealerships.

    For the US, that’d potentially mean a full vehicle line-up something like this:

    MiEv electric car (ex-Mitsu) by 2010-2011
    Swift sub-compact (perhaps built in Illinois)
    SX4 compact crossover and sedan
    Colt Plus Hybrid (my idea) – to compete with Insight/Prius – the basic car is already in production, and Mitsubishi own 50% of a big battery mfr….
    Lancer compact (perhaps built in Illinois)
    Lancer Evolution (Evo) sports compact
    Grandis tall station wagon (ex-Mitsu) (these are getting to be quite popular, and it’s already in place, available with VW turbo-diesel, too)
    Kizashi mid-sized (replacing the Galant)
    Grand Vitara compact SUV
    Outlander compact SUV (perhaps built in Illinois)
    XL7 SUV (Canada) (perhaps replaced with a Kizashi-based crossover?)
    Equator pickups (Nissan-produced in the US)

    I suspect the Eclipse and Eclipse Spyder would have to go away, but could potentially survive if there was a sufficient business case for keeping them (but, probably not – Hyundai and Kia will be bringing coupe’s into the US at a sharper price-point)

    The only overlap would be the Grand Vitara and Outlander, both of which are decent vehicles and both of which have some following.

  • avatar
    windswords

    mach1:

    “On the battlefield, they practice triage for the wounded. Some will die no matter what the medics do so they are allowed to die. Some will live without further attention and some will live only if timely aide is provided.

    It seems to me that Chrysler is in the first triade.”

    Actually it works this way: You have two patients. One is wounded and needs a little blood transfusion ($) and you can send him to stay with his European relative (FIAT) to recuperate. This is Chrysler. The other is more gravely wounded (8 trumatized divsions instead of three), and needs massive amounts of blood ($) to make it. And they have no relatives to help them in recovery. As a matter of fact they pissed off the same guy (FIAT) that’s going to help the first patient. This is GM. So what’cha gonna do?

    It is far easier to save Chrysler than GM. It costs less money. It’s easier to manage and track the process. The business is easier to turn around than the stumbling giant that GM is. GM is like that fat guy that is having all kinds of medical problems because of his obesity. Do you really want to spend big buck$ on making him healthy again, when the chances are he will still be in trouble just a few years down the road?

    For those of you who subscribe to the “Let’s sacrifice Chrysler so that GM will live”: It won’t so any good. Even if Chrysler’s market share was split evenly between GM and Ford, IT WILL NOT SAVE GM. And you know what? It won’t split evenly. Ford will get more and the transplants will get some. GM will get a little bump.

    Here is a better idea: Sacrifice GM. It’s so big that there will be plenty of market share for Ford and Chrysler. They will both be viable companies – even if half of GM’s market share goes to the transplants and the other half is split between Ford and Chrysler.

    Here’s another way of looking at it. You have three guys on a lifeboat. A skinny kid (Chrylser) a medium built man (Ford), and a big assed fat slob (GM). You have a very limited amount of food and water. You have to choose one to toss in the drink. Who do you throw overboard?

  • avatar
    Strippo

    Kill GM and Ford and Chrysler still dies, because its portfolio of brands is terminally weak. Nothing can change that. Nothing.

  • avatar
    TVC15

    http://www.youtube.com/watch?v=wm9pNmBFZHw

    Pretty much sums it up.

  • avatar
    menno

    Interesting idea, windwards. But honestly; Chrysler is too far gone to save, anyway.

    Better to let both of the mortally wounded go / toss them out of the boat and hope that the one remaining (Ford) can recuperate, even if it has to share 1/2 of the extra “food” now available, with the folks in the “next” lifeboat (transplants).

    In plain English; survival of the fittest makes for a stronger gene-base for the next generation. Cruel as it sounds, that’s how nature works, too.

    This is pretty much what Henry Ford (the first) said in regards to a recession after World War I. Let ALL of the car companies fail, including his own, and let his fortune go too….. he’d pick up sticks, start over and do it all again.

    Certainly, he was not alone in this optimistic attitude. The founder of General Motors himself, one William Crapo Durant, was kicked out of GM by banksters (he himself was a wall street wheeler-dealer so don’t feel too sorry for him), went and started Chevrolet Motor Company which he wheeled and dealed into a forced merger with GM (thereby taking over GM again), was kicked out by the duPont family and banking interests later, started Durant motors (which might have still been with us but for the depression).

  • avatar
    akear

    It is interesting to note GM troubles really started when they globalized. GM naively assumed that car buying tastes around the world were similar. Apparently, Americans did not like the G8, G6, Aveo, Cobalt, and GTO. Some of these cars did not even reach 50% of the sales of the cars they replaced. I mean, if the G6 can’t outsell the Grand Am what is the point!

  • avatar
    windswords

    menno,

    You may be right. I don’t agree that Chrylser is too far gone (on it’s own, yes, with government help and an alliance with FIAT and/or Renault/Nissan, no). But my point is 1.) that you can’t save GM by ditching Chrysler and 2.) that if you were picking one based on the least government effort and money to make viable again you would pick Chrysler, not GM. The loss of GM and the market share pickup by Ford and Chrysler would sustain them for a few years at least. For Ford it might be indefinately, at least till the next Nasser screws it up again.

    3 false notions based in fantasy:
    Killing Chrysler will save GM.
    Merging Chrysler with GM is a good idea.
    The 300 is based off the old E Class platform :-).

  • avatar
    fallout11

    Given that the Federal Reserve Bank is now publicly stating that the current market “downturn” will last until at least 2011, and that recovery, if and when it comes, will be very slow and weak, we can reasonably expect GM to be asking for a handout frequently and with an ever-larger bucket for years to come. They cannot and will not return to profitability when total US sales < 10 million by their own admission (to Congress), and that is the state of the nation for several more years at a MINIMUM. Oops! GM = American Leyland.

  • avatar
    folkdancer

    Thank you windswords. Great new way to look at things.

    Just wished that Chrysler made something worth while now so we could build on it.

  • avatar
    TxTransplant

    The patient has already died, however Dr’s. Obama, Pelosi and Reid must act as if the extraordinary life saving measures they have insisted upon are working, lest the townsfolk realize that the new Emporer and his minions have no clothes.

  • avatar
    George B

    Would it make sense to spend bailout billions making Chrysler and GM retirees into federal workers with federal retirement benefits? Takes away one of the ongoing costs we’re probably stuck with anyway without the inefficiency of UAW and management skim off the top. Bypass the company and the union and spend the money paying off the workers directly.

  • avatar
    wsn

    cardeveloper said:

    Taking Chrysler and GM into bankruptcy will drive Ford into bankruptcy too. Suppliers are losing the edge.

    No really, even a C11 supplier would be able to supply Ford, knowing the parts will be paid in full.

    In the worst case, give Ford a bridge loan for that. Such a loan should only be given to a viable business. Ford, as the only American car maker, can be very viable with all the conquest sales.

    Oh, yeah, GM and Cryslie should just go to C7. They only account for 30% of the market, and that market has just shrunk by 30%. Perfect fit.

  • avatar
    wsn

    George B said:

    Would it make sense to spend bailout billions making Chrysler and GM retirees into federal workers with federal retirement benefits? Takes away one of the ongoing costs we’re probably stuck with anyway without the inefficiency of UAW and management skim off the top. Bypass the company and the union and spend the money paying off the workers directly.

    Why should the tax payers pay for the pension of a bankrupt company?

    When did that start? I thought employees of Enron lost everything, pension included.


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