OK, it’s pretty clear how this is going down . . . On June 1, GM will file for Chapter 11. The Presidential Task Force on Automobiles will help the company split into “good” GM and “bad” GM. The “good” GM will probably consist of Chevrolet and Cadillac, including the factories and management that produce some (all?) of the brands’ models. It will raise money from a public equity sale ($15 billion?) and investment banks ($10 billion?). It will use the money to buy the cherry-picked assets from the diseased company. The “good” GM will get up and running in a relatively short time; TTAC’s Ken Elias makes it 90 days or so. The owners of the “bad” GM—abandoned dealers, the United Auto Workers, suppliers, etc.—will squabble over their payouts into perpetuity. So, Ken and I have a bet. I say the PTFOA will direct that US taxpayers get a share of the new, good GM, as compensation for “our” $22.8 billion worth of worthless loans. Ken says Uncle Sam will write if off. Legally, Ken’s right: the feds can’t jump to the head of the creditors’ queue. But I say they will. What say you?
76 Comments on “Ask the Best and Brightest: Will Uncle Sam Write-Off GM’s $22.8 Billion “Loans”?...”
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They wrote it off the second they gave it to them…
I say the PTFOA will direct that U.S. taxpayers get a share of the new, good GM, as compensation for “our” $22.8b worth of worthless loans.
I agree. The bondholders can object, but with the government engaging in some first-class saber-rattling, the bondholders are losing leverage by the day. Just a week or so ago, the talk was paying them something in the range of 15 cents, which pretty much translated into very few bondholders not be in a losing deal. Now, we’ve moved on to converting all of it to equity, which means that they get zero. As in nothing.
I suspect that Uncle Sam will figure out how to carry his loans into the new asset, but repayment will be slow and inadequate, if it happens at all. I’m guessing that it would be a condition for providing new money, which is needed for avoiding Chapter 7. I have my doubts about the Chapter 11 filing, but as time goes on, the odds of it go up. Obama’s task force seems less adverse to it than were Bush’s team, and the timing for filing it is getting better by the day.
There’s no way this ends anywhere near as clean as either of you think. “The 10 largest unions alone have given politicians about $280m since 1990, with about 95% going to Democrats” (Financial Times). The politicians won’t hand over control of so much money to a bankruptcy court. I say GM lives on the hand-outs for years and continues its slow decline.
I’m predicting the loans stay on the books of the New GM – for no other reason then political cover “See, they DO HAVE to pay us back…”
The devil in the details will be the payback terms and conditions. Even as a new corporation it will still be on financial life support – any debt they issue will be junk status – and priced accordingly.
So, instead of raising debt privately and having to pay a 15% yeild, they simply ‘borrow’ from the Gov’t at 4% – as if they were a Triple A rated firm.
Added up over tens of billions of dollars that is a huge subsidy.
Even so, the chances of a second trip to BK Court is 50/50 at best. Then it will get ugly. This whole exercise that we are witnessing is just Act 1.
Somehow, the money goes to the VEBA. I don’t know how they do this, but there will be some scheme to make the unions whole in order to
payoffprotect thepatsiesworkers.I trust people to do what is in their best interests. Therefore, I trust the Democrats to do whatever is necessary to protect the UAW, including taking the rest of us to the cleaners if that’s what it takes to ensure the UAW gets all the goodies they negotiated.
This is gonna be a sh*tstorm.
Personally, I don’t ever see a penny of this money ever being paid back. Chaguelyons says it best when he referes to the political contributions of the unions to the Democrats over the years. There is no way Obama or any other Democrat can do what really needs to be done with the Unions because of these donations. The taxpayers of America will be throwing money at the UAW and GM (Government Motors) for years to come always spinning that what a great investment it is in jobs all across the country.
At some point, I hope the “foreign” automakers get tired of paying off a competitor and do something, anything to put a stop to this. Canada will do no better because as long as Uncle Sam keeps pumping up the business Ottawa will have to follow. How sad this has become.
Maybe when the Chevy Volt sells its first 1 million cars will some of the money be paid back—–
TJR
I can’t wait to see the “GOOD GM” DEATHWATCH #1!
I wouldn’t count on this being paid back, we’re basically giving money to GM and Chrysler.
For Chrysler, the Fiat deal doesn’t seem to be happening very quickly, and even if it does I don’t see how Chrysler gets out of this alive. The Fiat based products would probably take a couple of years to get here, and what’s supposed to happen to the company in the meantime? There’s no way Fiat plans to piss away billions to kee Chrysler from going down between now and then, and as a taxpayer I’ll be downright pissed if the government dumps one more dime of my money into that piece of shit organization. How does a dead company pay back our tax money? They don’t.
For GM, I think it all depends on what happens with the C11(-ish) restructure. If they do it right, then it should put them in fighting shape, ready to make a profit again, almost immediately. Well, once their obligations as per BK court (or the intefering PTFOA) are dealt with. I suspect, however, that as with anything involving federal intervention, the whole thing’s going to get muffed up and GM’s going to walk out of the BsB (that’s bullshit bankruptcy) with nearly as much dead weight as they go into it with. Maybe as a smoke an mirrors deal they drop a couple of brands, or somehow find a buyer for Hummer and Saab (HA!), but keep their UAW obligations, many of their dealership agreements, and just generally shave very little cost out of their daily operations. The result would be leaving, still, very little room to make a profit. Add to that the continued need for incentives to move their cars off of dealer lots and a country full of people so pissed off at GM for taking us into the shitter with them, and you get a company that may be alive, but barely, and hardly able to pay back billions of dollars in loans. So, IMO, if it’s done the way that I suspect it’s going to happen, GM’s not paying us back either.
Bend over and grab your ankles, taxpayers, we probably aren’t getting this money back.
The presidential task force has already stated clearly that union concessions are a condition for moving forward. The viability statement made that clear, requiring “Approval of the Labor Modifications (Compensation Reductions, the Severance Rationalization and the Work Rule Modifications) by the members of the Unions.” It also requires “Receipt of all necessary approvals of the VEBA Modifications other than regulatory and judicial approvals; provided, that the Borrower must have filed and be diligently prosecuting applications for any necessary regulatory and judicial approvals.”
The UAW’s position is weak; it has even less leverage than do the bondholders. Everyone is going to get crammed down. Jobs will be lost, the contracts will be renegotiated, and all the rest.
The bond holders have every right to demand as much liquidation value as possible. Now that Obama & Co. is going to deny that right by shielding the only valuable part of GM from the bond holders.
This is Communism.
I lived in China for 17 years. I know what Communism is about. Communist party leaders are not natural born odd-balls. Communism happens when people try to take the seemingly easy but actually evil path of seizing private properties.
Funny that some TTACers kept talking about Chinese government is going to seize all the GM’s properties. Well, that didn’t happen, and we are watching the American government doing that.
You need to ask yourself: “What could possibly go wrong?”
I don’t have the time nor the energy to figure it out. But, the idea that this whole process will work smoothly, seems to me, to be very questionable.
I can see hordes of angry creditors converging on the bankruptcy court. I assume that the PTFOA thinks they can use Jedi Mind Tricks to control the proceedings, but it might not be possible.
Oh, well. It should be fun to watch. Pass the pop-corn, and if you are getting up, please bring a cold one back from the fridge.
And who, pray tell, will buy the “good GM” cars?
I’m I missing something here?The unions pump money into thier party/canditate of choice.The money is then used to get the party/canditate elected.
So now the unions need help,and they call thier markers in.This sure ain’t something new
The unions invited thier date to the dance,and they paid for the ticket.You dance with the one you brung.
mikey, only thing wrong is that the unions are only a minority population among all people that voted for Obama.
Say, you pay 10% for the girl’s ticket, why do you feel entitled to have her the entire night?
This is a nice analysis of what’s likely to happen in the best possible case, and I agree with RF on this one–the PTFOA will require a repayment. To quote MikeinCanada, ‘I’m predicting the loans stay on the books of the New GM – for no other reason then political cover “See, they DO HAVE to pay us back…”’
But the best possible case may not happen, and in any event it will depend on who’s in charge of the ‘new’ GM. If it’s the same uninspired crew (who will probably want to keep Buick and Pontiac as a ‘niche brand,’ whatever that is), then it’s only a matter of time until both ‘old’ and ‘new’ are BK. My litmus test is what they call the new improved version. If there’s anything resembling General Motors in the title it’s doomed. If it’s something like “Chevrolet Cadillac Motor Co.” it has a chance.
I think the government in it’s current arrogant state will jump to head of the queue only to be sued by very strong teams of lawyers that will cost us, taxpayers, huge amounts of money. And there is no escape from it. It is not a war or national emergency – it is redistribution of wealth. Those schmacks who were holding to their shares will be sacrificial lamb, but bondholders will put government sheisters to shame with Wachtel level firms and will be paid from government coffers at our expense. There was a reason Fed was very dissatisfied with bondholders resistance to convert their papers to worthless shares.
@wsn I agree with you 100%.But you can’t knock the unions fot trying to squeeze the biggest bang for thier buck they can get.
I’ve never been a strong Union man.Right now they are the only friends we have.Here in Oshawa even the retired salary guys are kind’a union friendly these days.
Its kinda weird in a way,cause for the first time ever all GM employees have a common bond.
Fact is hourly,salary,retired, active,and thousands of dependents and those living on surviver benifits,are all gonn’a get fu–ked.
Its one thing to stand on the bridge,having a beer and waiting for the train wreck.You a have a whole different perspective,when your a passenger.
There will be no write-off. We will be payed back, but it will take a long time.
And who, pray tell, will buy the “good GM” cars?
Lots of folks, I would think. Hell, a lot of people buy the bad GM cars – just not enough so GM can make money.
If “Good” GM will make cars like the Malibu and CTS, and improve their remaining lineup, I don’t see why they should have trouble moving the metal – if metal is moving at all.
wsn :
April 13th, 2009 at 1:29 pm
The bond holders have every right to demand as much liquidation value as possible. Now that Obama & Co. is going to deny that right by shielding the only valuable part of GM from the bond holders.
This is Communism.
I lived in China for 17 years. I know what Communism is about. Communist party leaders are not natural born odd-balls. Communism happens when people try to take the seemingly easy but actually evil path of seizing private properties.
Funny that some TTACers kept talking about Chinese government is going to seize all the GM’s properties. Well, that didn’t happen, and we are watching the American government doing that.
GM would have failed back in December if the government hadn’t loaned it the money, and the bondholders would be in even worse shape.
The government isn’t “seizing” anything that has any value here. GM has a value in the negative tens of billions of dollars.
Plus, the government seizes private property all the time in a non-communistic fashion, unless building a freeway (by buying up the properties on the route via eminent domain) makes one a communist.
“GM will probably consist of Chevrolet and Cadillac”
Chevrolet, Cadillac, and GMC.
I doubt that Obama/Democrats are stupid enough to try and run an auto company but the “bad GM” will be paid for by the taxpayers just like the bank’s “toxic assets”.
autonut :
April 13th, 2009 at 2:10 pm
There was a reason Fed was very dissatisfied with bondholders resistance to convert their papers to worthless shares.
———————————————
Well, since Fidel Castro is retired, why not hire him as the Fed chair?
He is very experienced with state seizing private properties.
Geotpf :
April 13th, 2009 at 3:09 pm
GM would have failed back in December if the government hadn’t loaned it the money, and the bondholders would be in even worse shape.
The government isn’t “seizing” anything that has any value here. GM has a value in the negative tens of billions of dollars.
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1) Your reasoning would have been valid if during the first bailout the government placed itself as the first in line of the debt holders. But it didn’t happen. So, the “GM would have failed” argument is invalid for current first in line debt holders.
2) Suppose that GM has $1 in assets and $2 in debt. Yes, over all, it’s negative value. But for the first in line debt holder, who lend $1 to GM, he is supposed to get his full $1 at liquidation. By denying him the due $1, the Fed is doing what Mao or Castro did years ago.
I, for one, would really like to see a moratorium around here on such empty jargon as “communist”, “socialist”, “fascist”, “Nazi” and the rest. In other words, Godwin’s Law extended to its most logical conclusion.
The hyperbole really debases the level of discussion. It provides no useful information, and tends to lead conversation away from cars and the automotive industry into a downward spiral of repetitive, unsubstantiated political rants.
If one can’t express his point of view without reaching for cliches, then it should make you wonder whether the point was particularly insightful in the first place. If you can’t add some well-constructed thought and some factual data into it, then think twice about saying it, particularly if you’ve said it many times before.
Pch101, Communism is real. As real as the taxes out of our pockets.
I use the term “Communism” to save space. Otherwise I would have to use a paragraph to describe the current state of American economics. Just as we use the term “car” to replace a full paragraph to describe a mechanical structure.
I use the term “Communism” to save space.
Er, no. One would use words such as “green” in place of “verdant” to save space.
You use “communist” out of context because you don’t have enough of a knowledge about comparative politics and economic systems to know better, and because it’s easier to reach for extremes because you aren’t capable of proper analysis. Joe McCarthy didn’t die, he just got broadband internet access.
Perhaps slightly off-topic.. The consensus seems to be the “Good GM” comprises Chevy and Cadillac. Does this mean Corvette will stay under the Chevy umbrella, or does anyone think Corvette will become a stand-alone brand?
“Say, you pay 10% for the girl’s ticket, why do you feel entitled to have her the entire night?”
As long as I get the 10% that counts.
You use “communist” out of context because you don’t have enough of a knowledge about comparative politics and economic systems to know better, and because it’s easier to reach for extremes because you aren’t capable of proper analysis. Joe McCarthy didn’t die, he just got broadband internet access.
While we’re calling for moratoriums on things, I’m pretty sure one of the things there’s already a moratorium on is “flaming … fellow commentators”.
Mikey
you can’t knock the unions fot trying to squeeze the biggest bang for thier buck they can get
I don’t mind…. I don’t care what the UAW workers get paid either. I really don’t care any more about GM than I do about the company that makes my shoes and socks.
However, I hope you won’t object to me complaining like Hell about them trying to get money out of my pocket for something that I have no interest in, and voting against any politician that tries to do that. Money that will go into the pockets of UAW workers is coming out of my pockets.
As long as they were minding their own business (even if that meant going out of business), I was minding my own business .
Nothing personal against you, and I understand your situation. I have close to 30 years with my firm, and a pension waiting. I’d hate to have it diminished. However, I’ve worked hard to see that my firm is managed as well as it can be to protect that pension….
I don’t think that GM and the UAW have been good stewards for their pension funds. All the kids who are older than you ate all the cake, and now there may not be enough left.
That’s terrible, but I don’t think America is in the mood to buy the UAW more cake.
FIAT has been planning to enter the North American market for the last few years so i would be surprised if it takes years to engineer their cars for the American market. I expect them to be there in six months.
GM isn’t in trouble, GMNA is in trouble (for a long time) and it is pulling GM-E, GM-Asia and the rest with them. A bankrupt GM will be a GM only existing of GMNA and as such will go the same way as Chrysler
“Joe McCarthy didn’t die, he just got broadband internet access.”
Lol that’s so true. Or a cable news show.
Of course it’s a write-off. ANY money given to GM or Chrysler is a write-off. The government is only trying to wash its hands. “Look! We DID try!” Plausible deniability.
@Ingvar
The gov’t saying “Look! We DID try!” has nothing to do with plausible deniability.
Plausible deniability refers to the denial of blame in loose and informal chains of command where upper rungs quarantine the blame to the lower rungs.
I’d like to launch the term Persistent Idiocy, though, to describe GM management during the past ten years.
Wow – what an unholy mess. Frankly, far too many clever people involved for me to add anything of perspicacity.
However, makes you glad to have bought shares in Ford. Last man standing indeed. Let the US government play cars – Ford can concentrate on munching up market share and doing wonders for my portfolio!
The government never intended to get its money back. The extended TTAC gang are surely not the only people bright enough to realize that this money was being pissed down a rathole.
They will, however, talk tough and make all the right noises before writing off the money. They can’t risk a fundamental foundation of institutional investing (bonds) by undermining the very thing that lowers their risk (the fact that bondholders are creditors and thus first in line in restructuring or liquidation). There is a reason bonds cannot expect the same returns as equities: the risk is (supposedly) lower. If bonds carry reduced returns without the risk safeguard, who will continue to invest in bonds?
As for Pch101’s comment: I agree. I’m tired of the way these terms are chucked around on TTAC. It is intellectual laziness, and symptomatic of the extreme polarization in political thought.
And I don’t think Pch101’s comment was flaming at all. I hope RF and his crack team don’t feel the need to delete his post.
I don’t understand the question. Why would the government need to write off loans to itself?
The hyperbole really debases the level of discussion. It provides no useful information, and tends to lead conversation away from cars and the automotive industry into a downward spiral of repetitive, unsubstantiated political rants.
If one can’t express his point of view without reaching for cliches, then it should make you wonder whether the point was particularly insightful in the first place.
I’d suggest you read Liberal Fascism by Jonah Goldberg, who goes into the intertwined histories of the fascist and progressive movements.
There are times when analogies to communism, fascism, socialism or capitalism are indeed appropriate.
We need some kind of reverse-Godwin law that describes how some folks can’t tolerate an appropriate analogy to a discredited ideology.
In the present case, companies doing the bidding of the government (firing executives, killing off models and brands) is a characteristic of fascist systems. Right now the gov’t has loaned money. If those loans were turned into an equity stake, we’d be approaching something more like socialism, where the state own enterprises.
I also agree with Pch 101. The same goes for the F word, it does nothing to enhance the topic.
so, what happens to the accounts payables? What happens to pensions? How do you divide plants between two companies? As said above, the devil’s in the details, and there are a lot of details :(
Pch101 :
April 13th, 2009 at 3:33 pm
You use “communist” out of context because you don’t have enough of a knowledge about comparative politics and economic systems to know better, and because it’s easier to reach for extremes because you aren’t capable of proper analysis. Joe McCarthy didn’t die, he just got broadband internet access.
—————————————–
I don’t need comparative politics to know what is Communism, because I spent the first 17 years of my life under the Communist China regime. (Then 17 years in Canada). How many years did you live in a Communist country?
Do Americans need to be a scholar at comparative politics to know what is democratic voting? Should those who don’t be denied the right to vote?
Many Americans (or Canadians) thought “Communism” is far and odd. I just want everyone here know that it’s not limited to an obscure foreign place. It’s here upon you.
Like it or not, I am just a messenger. (Sort of like a previous VW owner giving suggestions to prospect VW buyer.)
“I’d suggest you read Liberal Fascism by Jonah Goldberg, who goes into the intertwined histories of the fascist and progressive movements.”
Goldberg’s book is a joke. It comes from the “Hitler ate sugar*!” ’school’ of historical analysis.
Goldberg’s book is literally worthless – even if you accept the line of argument that Hitler represented a strain of totalitarianism distinct from but farther from liberal democracy than Stalin’s, his militantly ignorant work of political theatre cheapens your position, occults anything that resembles legitimate scholarship, and puts a crass political motive behind any even casual attempt to discuss history. That and he does a horrific disservice to the study of totalitarianism as an American phenomenon and is mainly doing what he does to call liberals nasty names, which is totally the one thing keeping us off the road to serfdom.
The Nazi Party may have had “Socialist” in its name, but North Korea calls itself a Democratic Republic, and the Holy Roman Empire wasn’t any of those three words.
* http://tvtropes.org/pmwiki/pmwiki.php/Main/HitlerAteSugar
Two GM predictions:
1) The loans will never really be repaid in full. The dollar amount of the principle may eventually come back in inflation degraded currency, but we will have less spending power after the GM loan than before.
2) There will be many lawsuits lasting for many years and lawyers will always sue the part of GM with deeper pockets. Attempts to separate “good” GM from “bad” GM will be very messy.
BTW, Hitler was a Union-buster and hated organized labor, but I’m not about to call the people on her who rail against the UAW closet Fascists.
Goldberg’s book is a joke. It comes from the “Hitler ate sugar*!” ’school’ of historical analysis.
Your comment makes it clear that you haven’t read Goldberg’s book.
“Your comment makes it clear that you haven’t read Goldberg’s book.”
O RLY? Why don’t you read the rest of what I wrote?
Speaking of books people haven’t read, have you ever taken a gander at Mein Kampf? There are whole screeds directed against “the Left”, not just Marxists but liberals and various people on the center-left. The very first people sent to concentration camps were left-wing politicians, and Goldberg completely insults their memory. Meanwhile, the conservatives actively supported Hitler in his rise to power, there was ZERO opposition on the right to him. The only political party to vote against his seizure of power were the Social Democrats.
Try reading what an actual historian has to say about his book.
http://www.prospect.org/cs/articles?article=jonah_goldbergs_bizarro_history
I have suddenly come to the realization that GM may someday have only 12% of the North American market, and will not be any larger than Nissan. Does anyone realize Cadillac sells less cars than either Pontiac and Buick.
Wow, the US car industry is really headed for a shitbath.
“Does anyone realize Cadillac sells less cars than either Pontiac and Buick.”
Yeah, but without fleet sales is that still true? I’d be shocked if it were.
I really don’t see how they put Humpty Dumpty GM back together again without a federal judge. There is a huge soup sandwich of constituencies out there and this thing has become political.
Many of these constituencies have huge unreasonable expectations given the bailout mania of recent months.