Without the THREE U.S. automakers combining into one there is no rationality to bailing out GM. GM’s cash burn is triple the street estimate and has lost all control over its sales, its product development and its future. The executives and the unions have the company hostage to government capital infusion. Bankruptcy is a viable answer that can push off creditors and force unions and management to make concessions that are impossible unless a loaded gun is at their head. There is too much capacity, too many models, too many plants, too many employees producing products that are more easily produced by others. The VW bug was the first indication that the Big Three did not have a clue to the needs and long-term preferences of the U.S. consumer. And today we have a glut of SUV’s that will ultimately have to be sold at a first-ever half-price sale. GM has already built them, they have already paid for them and no one wants them. You need cash, blow them out the door ½ price or less and they are out of inventory and cash hits the balance sheet.

But to infuse GM with cash to keep it afloat without bankruptcy is no answer because next in line will be Ford and Chrysler. These three should be forced to combine and re-form to use their talents and capacity to building something we all need and that is energy independence.

There is one industry that has a payback that cannot be overlooked as a place to re-train and invest and that is in renewable energy. Train those people, insist that the manufacturing capacity of GM be converted to energy and produce, once and for all, a source of energy that once in place CAN NEVER GO UP IN PRICE. In World War II Ford built a massive number of B-24’s in their new Willow Run plant in Ypsilanti. That change in production and product proved that it can be done and Ford did a spectacular job producing that airplane to the considerable consternation to the Nazi war machine. Fast forward to 2008 and our enemy is our own waste and inefficiency; energy independence is crucial to our national safety and we can actually budget part of our national defense budget to this end.

I am not against giving money to GM…but I am against giving them money to build products that have no measurable or important upside to our economy long-term. I am against giving money to GM with Ford looking like that doggie in the window. Force them into solar, wind, wave and nuclear. Support them in their endeavor to re-tool and you got my money. Absent that, you will not get me to suggest giving them, their workers or their bloated retirees belly-aching about their co-pay when millions have no health care a single dime.

The side benefits are obvious: our defense structure is enhanced because we no longer have to depend on a cartel of Bedouins in the Middle-East to determine for us how much oil we are going to use and our environment actually can become healthy in L.A. vs. choking to death sitting in traffic on the five. We put a pin in our energy costs once in for all and bankrupt our dear friends in the middle east forcing them to drive Chevy Cobalts and trade in their Bentleys.

Here is what we said about the Chrysler/GM merger talk=
“Two drunks walking down the street
holding each other up…
until they hit the curb,
then they both fall down”

Axxel Knutson 11.18.2008

This seems to ignore the $60 billion refinancing package inked June 4, 2008 in which GMAC lent $3.5 billion to ResCap of which $750 million is secured by Cerberus and GM. This, if nothing else, will push out the day of reckoning much further than what is surmised above.

As to GM filing within 3 months, we will have to wait until the end of September to find out if DT has any credibility.

Remember maybe a couple years ago all the talk was how GM was doing terribly, while hardly any attention was being paid to Ford? At that time, all the talk was on GM while Ford was arguably the one in a far worse situation.

Here we are, a lot of talk is about Ford and them selling brands, Kerkorian, mortgaging the house, etc. Yet, arguably, GM may be in the worse situation.

Everyone seems to ignore Chrysler. I suspect because they’re private, and arguably not nearly as important to the economy as GM and Ford.

I don’t agree with government bailouts either. However, I look at the disgusting amounts of money being thrown at the banks lately and I have to believe losing GM would be far worse to this economy than losing Bear Stearns or any of the other handful of banks. Maybe JP Morgan will be allowed to buy GM to “save the economy”….

On the other hand, New York I’m sure has a lot more pull than Detroit….being that cars are the root of all evil that exists in the US (pollution, foreign oil, greenhouse gasses, etc). Same way if Exxon was about to go under, nobody would care anyway. Expect a bailout for GM to garner far more cries and screams from the public than any of these banks have gotten. Mostly because for a lot of Americans they for some reason feel GM “deserves” to fail….

And the Krekorian situation is not so hot either. Nothing more disgusting (but, I have to admit, brilliant) than using your deep pockets as a carrot to have Ford family members give up control of their company to you in exchange for “saving” it. Wow.

Not at all. There is no relationship between these events.

If Chrysler files 11, chances are good that it would be sold to an outsider, probably a foreign concern, for pennies. Cerberus won’t want to toss its own money at it, and its investors won’t want to throw good money after bad.

If GM files 11, it will reorganize. The stockholders may or may not be crammed down. Stockholders come last, creditors come first.

I don’t see Ford filing 11, frankly, but if it did, it would stand the best chance of recovery. The best thing about bankruptcy is the ability to reduce and restructure debt, and Ford’s primary problem at the moment is excessive debt. Operationally, things for Ford are positive, so their bankruptcy plan would almost surely be approved by their investors.

If Chrysler files, and GM follows, Ford will _have_ to file, just to remain competitive. How will that affect Ford’s stock price?

Any guesses?

I don’t think GM is going bankrupt in 3 months, nor this year, nor next. I just can’t buy that, even with the so bad cashburn they have. They may be go C11, just it’s not easy and a lot of blood will be spilled long before that. Enough argument has been given for that above.

I don’t think ANY government should leave this 3 BIG ships to sink, why:

1) You should keep the manufacturing AND most importantly, the Design and Engineering capability. without that, USA will become weaker and weaker, post industrial society or not.

2) There just too much people “eating” from them and their suppliers. Can someone explain what is going to happen when about 1 million people goes unemployed tomorrow? Would ANY president, no matter from which party be “comfortable” with that? —> NO

3) Steel, Auto, Defense, Food, IT, Banks and some other industries are strategic for any country. If you have them, you should try to keep them, with local capital. Don’t want to know what a foreign owned company will do if you fight their country.

I agree the government bails the 3 if needed. They recently bailed the banks already. If they do, they must ask immediately: top management REMOVED, action plan to recover the company in at least 3 years, continuous follow up on everything.

So who wants to lay money that it goes to D.W. 1001?

Further?

I must be missing the point…

And in the end, the “explanation” will consist of a bunch of misinformation and opinion passed off as fact, so I’m not holding my breath.

jurisb: (Have you ever thought how come that there are so many billionnaires in Russia , but none of them lives in USA?)

There are plenty of billionaires in the U.S.

Do you just make this stuff up as you go along?

Huh?

Ok – what can be done with the refuse which is GM? What cars actually are worth saving ? Not many: Corvette, Malibu, Aveo(until/if the Volt), maybe just a couple others.

I am not old enough (45) to have lived the GM hay days – all I know is my Olds Cutlass at 9 years old I sold it for … $85, the Pontiac Transport (blown engine at 110k), the Chevy nova (the Radiator on a 5 year old model fell completely in the fan at 35 miles an hour and my dad just left the heap there and called a tow truck). GM engineering should have gone on strike at the horridly cheap quality the white shirts required them to use. My Chevy Sprint (Suzuki) never needed anything but oil and gas for 115k – and it never got below 40 mpg.

What’s taking place in the remarketing segment is an absolute monsoon. Honda and Toyota will have some issues, Nissan will have a bit more, but the Big 3 and many of the other brands that offered all too liberal leasing terms will be in a world of trouble.

GM will most likely be hit the hardest. They managed to release an absolute slew of SUV’s and minivans that had virtually no brand equity with the public. These models will be extremely difficult to liquidate for two reasons.

1) The once innumerable financing sources that were used to get these vehicles to wholesale and retail buyers is no longer able to handle the load.

2) Most of these models, many of which have little to no cache due to their unpopularity here, will not be suitable to most of the primary export markets.

That means what you will have left is GM’s primary dealer networks, the independents, and possibly a few distribution and remarketing intermediaries who may help them garner a better return. If these sources can’t find willing buyers who can fit the current credit requirements, you’ll likely see these vehicles held under the table for quite long time.

The real losses will be in the billions. However the externalities of seeing these dinosaurs on the road when someone is looking for a fuel efficient car will likely cost hundreds of millions more. American vehicles are simply not seen as frugal these days. An overabundance of American trucks, minivans and SUV’s in the sales channels will most likely compound the biases that already exist in the marketplace.

You forget one thing…. It’s an election year. If they couldn’t let Chrysler die in an election year, they certainly cannot afford to see GM go.

Democrats will not allow that many union jobs to evaporate. Republicans will not let the big money supporters down.

It will either be tax breaks or loans, but the government will step in. Had this happened next year, the story could be different.

GM’s last balance sheet stated liabilities of $185.4 billion. The VEBA liabilities are on the balance sheet.

I had a reason for limiting my focus to just $40 billion of those liabilities, which are a fraction of the total. That’s because all creditors are not created equal, and that’s relevant to the situation.

Surviving bankruptcy is not as simple as telling the court that you’d like to file it. Presumably, if GM filed, it would file under Chapter 11, which would entail a reorganization plan to put GM back onto its feet.

But GM’s creditors would be able to vote on this plan. If they were to reject it, they could force a liquidation of the company (Chapter 7), which would mean Bye Bye, GM.

(Tower Records’ final bankruptcy provides a recent example of BK backfiring — the company wanted to go 11, but their creditors refused to approve the plan and forced the company into 7.)

Essentially, there are two classes of creditors, “secured” and “unsecured.” Secured creditors take priority over unsecured creditors.

A GM bankruptcy plan would include a business plan and a financing plan to borrow more money that could be used to keep the business running.

As it so happens, the secured creditors tend to include the same sort of financial institutions that would lend the company the money that it would need in order to get through this situation.

This is where a potential conflict arises. If GM files, there will likely be a lot of banks and similar institutions who are secured creditors. If GM has enough cash on hand to pay them a large portion of what they are owed, they may just decide to vote against the reorganization plan, avoid throwing good money after bad, and take what they can get.

If they could get $0.50-0.60 on the dollar, that becomes a realistic possibility. GM obviously can’t afford that if it wants to survive as a company.

In that sense, GM has to play a game of chicken. If GM files, they can’t have so much money and easily liquidated assets on hand that the creditors would be motivated to not bother with the plan, force a sale and take what they can get. Rather, the creditors need to be so fearful of having their positions wiped out that they are willing to toss more money at the company in order to keep it afloat.

This goes back to the old metaphor of having a problem if you owe the bank $100, but of the bank having a problem if you owe the bank $1 million. GM needs those creditors on both sides of the deal, and the less cash on hand that GM has on the day of the filing, the better.

VEBA comes very low on this list. Its status is debatable — it seems that the UAW leadership misstated VEBA’s level of security to their membership — but it probably isn’t a secured creditor.

If GM files, the VEBA obligation would likely be trimmed down substantially, as the union gets in line with all of the other creditors of lower status. The union will have to take what they can get, and they won’t be getting much.