Bailout Watch 293: Did This Report Convince The Prez to Bankrupt GM and Chrysler?
As Detroit holds its collective breath on President Bush’s plan to pull the automakers’ collective fat from the metaphorical fire, the autobologosphere’s been quiet. No doubt something’s up, including GM’s stock. [NB: a large percent of bupkis is still bupkis.] And the longer this jury stays out, the more likely bankruptcy’s the final verdict. Yesterday, Moody’s published this report pegging the odds of a pre-pack with (federal debtor-in-possession financing) C11 at 70%. To which nobody said nothing (excluding own Bertel Schmitt). Today, The Wall Street Journal published a piece saying consumer resistance to buying a car from a bankrupt automaker is declining. And then there’s this, from Bloomberg…
“A source told that [GM’s new bankruptcy lawyer Martin] Bienenstock hopes to help GM use the bankruptcy process to create a ‘futuristic’ automaker for the 21st century. Bienenstock was the lead lawyer on the Enron bankruptcy and was a former GM lawyer until he left Weil Gotshal for Dewey in 2007. Bienenstock’s plan is to create a new company to oversee GM’s best auto lines, with the proceeds going to the auto unions to win their support.
‘Redundant brands, surplus dealers and so-called legacy costs would be hived off in bankruptcy court,’ the story says. Most reorganizations can take two years or more, but Bienenstock has told GM his restructuring plan can be completed in 30 to 90 days.”
The underlying problem for the car makers is that Bankruptcy will lower the pricing of the car to "cost of production" plus profit. Cars are priced according to ability to pay of the target market. Any Dad of a family of four or more will marvel at how the car a foot longer and eight inches wider is 15k more than the next down, even if both use the same engine, running gear and electronics. I guess steel is more expensive than I thought. With a Bankruptcy the cars go for liqidation. That 45K vehicle which cost $15k (?) to make and sells for $22K distressed will destroy the ability of anyone to ever sell for the bloat price ever again.
@ Bunter1 and @ AutoCorpFin I would like to see a little more depth in the question of how many people would buy from a bankrupt automaker. Some one should break it down and show the percentages seperately for domestic intenders and import intenders. While I'm not in that department, I can tell you in the research our company did we eliminated respondents who said they would NOT consider a GM/Chrysler product anyway. The critical question we were trying to determine was if you could improve the result by backing any Ch11 warranty further. The answer appears to be yes and the result is better than the current situation (ie nearly bankrupt). The Merrill data looks like ours, but as a lowly internal operative, I can't see who we sold it to. As usual there's lots more data there, but I'm also not sure why the MSM are missing the critical question on the warranty issue. It should be all about the relativities of being nearly bankrupt vs in Ch11.
I can save them.