By on December 3, 2008

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33 Comments on “MSM FUD...”


  • avatar
    John R

    Why is there this concerted effort to conflate bankruptcy with nonexistence?

  • avatar
    Stu Sidoti

    Fear? Yes…
    Uncertainty ? Definitely…

    Doubt? No doubt about it, the ripple effect will be very bad, even these talking heads and their writers are starting to get a clue…just ask the city of Tustin, CA.

    (sub link) http://www.latimes.com/news/la-fi-dealers1-2008dec01,0,3170838.story?page=1&track=ntothtml

  • avatar
    Stu Sidoti

    @John R: Because there is no money in the credit markets to fund a C11 bankruptcy right now, thus the Big-3 will soon find itself in liquidation mode. So nonexistence is a reality.

    If there was any large amounts of money available in the worldwide credit markets the Big-3 would not be in DC asking for money with endless strings attached, they would be on Wall Street asking for money with nearly zero strings attached.

    Even AIG and Citi had to get money from DC and they’re brilliant Wall Street Wizards don’t you know?!?!?

    Can anyone here name a large company that received private, non-governmental C11 bankruptcy funding since the middle of Sept 2008?

  • avatar
    no_slushbox

    Wow, not only did they spend a huge amount of time analyzing a straw man argument, that the big-3 would poof, disappear, in a Chapter 11 organization. But they actually confessed to the huge bias that exists in the mainstream media because of the $4.6 billion in ad spending by the big-3, contributing to 6% of television revenue.

    And if you actually do think the big-3 will poof, disappear (just like the airlines did because nobody was willing to risk their life flying on the plane of a bankrupt company – oh wait), consider that a number of bankruptcy experts on this site have said the opposite, and that all the bailout proponents have is a biased, industry funded survey.

  • avatar
    gsp

    I like how the video justifies the money partly because the BIG 3 are important contributors to hospitals and local charities!

    It amazes me how the US can be afraid of democrats because they are “socialist” and yet still support the nationalizing of banks and now the auto companies.

    Do we really think that restructuring these companies means that they will be more competitive in ten or twenty years time? Really?

  • avatar
    no_slushbox

    Stu Sidoti:

    That’s where the government comes in. To fund businesses that have rid themselves of the debt, brand, dealership and employee burdens that currently make them all non-viable in the long run.

    I am much less adverse to seeing some tax money go to an industry being reborn, but without Chapter 11s we are all just throwing money down the drain for a slower death.

  • avatar
    TireGuy

    The question is how much of these 4,6 bn USD going into TV advertising bought this show – BROUGHT TO YOU BY GM, FORD and CHRYSLER.

  • avatar
    Stu Sidoti

    Quote: no_slushbox: “And if you actually do think the big-3 will poof, disappear (just like the airlines did because nobody was willing to risk their life flying on the plane of a bankrupt company – oh wait), consider that a number of bankruptcy experts on this site have said the opposite, and that all the bailout proponents have is a biased, industry funded survey.”

    1:We’ve already covered how buying, owning, servicing and buying parts for a car for 3,5,10+ years down the line is a totally different covenant than buying an airline ticket this week and flying next week…once you and your luggage are at your final destination the covenant is fulfilled. Totally different.

    2: Even ‘independent’ surveys done by the transplants show that 60-70% of Americans will not buy a vehicle from a bankrupt automaker. The local Fox affiliate here in Detroit did a ‘Person on the Street’ survey and even here in Detroit, 90% of Detroiters said they would not buy a vehicle from a bankrupt automaker-and that was on the Mean Streets of The ‘D’ where all of us know what side of the bread the butter goes on.

    3: From a sales and marketing perspective, if they’re not selling vehicles now, how is the albatross of bankruptcy going help sales? In short…“Would YOU buy a vehicle from a bankrupt automaker?” I doubt it.

  • avatar
    Bunter1

    Well…51% of Americans are already not buying from potentially bankrupt automakers. Looks like they only lose 10-20% of what they have.
    (This is a joke, don’t get to uptight)

  • avatar
    Pch101

    Why is there this concerted effort to conflate bankruptcy with nonexistence?

    Whether or not you support a bailout, it seems painfully obvious to me that a Ch. 11 filing made within the next few months in the absence of government subsidies would turn to liquidation.

    There are several reasons for this:

    -Creditors need to approve the plan. At a time like this when lenders are hoarding cash and extending minimal credit, particularly to high risk borrowers, odds are very high that secured creditors will reject a plan and opt to take what they can get through liquidation. They certainly won’t be eager to throw more cash at it.

    -Consumers will run like hell. At times like this, the average person is scared enough already and will not be willing to buy their second most expensive asset from a bankrupted company. At the very least, they will price it downward accordingly, in ways that even current prices do not reflect.

    -Auto lenders will not lend or lease, at least not very much. The residuals are unpredictable, so any terms that they extend will be onerous, if they offer them at all. No financing = no sales.

    This may not have been true during the economic boom, but this is the opposite of the economic boom. A bankruptcy cannot work without credit to support it.

    That’s not to say that you need to support a bailout, but let’s be honest about what we’re talking about here. At this moment, Chapter 11 is not an option — it will turn into Chapter 7 within weeks or months of filing. Until there is a revival of the credit markets, you must assume that reorganization has zero chance of success. You’d have better odds getting a subprime negative amortization loan on a condo in Miami than GM would have surviving a bankruptcy filing.

  • avatar
    blindabraxas

    Why is it that so much of the FUD spun out of this site and the uninformed public at large centers around the automakers themselves?

    The clear and present danger to each and every american who isn’t stupid rich already is all the communities and businesses that exist around the automakers, not so much the automakers themselves.

    If they go into bankruptcy or something bad, many of the suppliers will fail. This will cause many of the local businesses around them to fail, as they depend on these suppliers and the people they employ. Widespread unemployment is a very real possibility, not so much because of the people employed directly by the manufacturers.

    But hey, maybe you all shop at Wal-Mart and think you’re unaffected by this situation. Maybe you drive a Toyota and figure you’re immune. Maybe you are.

  • avatar
    tom

    Interesting that these people don’t seem to know how capitalism works.

    Either there is a demand for American made cars or there isn’t.

    If there is a demand and GM et al are just horribly at managing their firms, then others will step up.
    If there isn’t, then they have no business in this business anyway and the jobs will eventually be lost.

    The truth is probably somewhere in between. The Big 3 employ too many people in relation to the demand, so a lot of people will lose their jobs no matter what (and they announced today that more than 30,000 additional workers will lose their job).
    At the same time, it’s still potentially viable to produce in the USA, the transplants show that. Also, every expert says that you should produce cars at the location you want to sell them. It makes you less vulnerable to local economic downturns or currency fluctuations.

    So American manufacturing won’t die, not all of the jobs are lost over night. But there are too many of them and the industry will definitely shrink.

  • avatar
    jkross22

    @Stu Sidoti :

    I would buy a G8 GT from a Ch. 11 GM, but not a Cobalt, Impala, G4, Lucerne, etc, etc.

    Maybe what you mean to say is that people would have yet another reason to not buy an uncompetitive product made by GM, ChryCo or Ford.

    More anecdotal evidence, but a buddy of mine (prior Ford customer) has his leased Passat being turned in next month. He looked at the Maxima, Avalon, G35 and ES350 and decided on the Avalon spruced up with options. All the Avalon customers should be what Buick targets, but years of rental car status and not sweating the small stuff eventually developed into a reputation that simply wasn’t as good as Toyota’s.

    Others have said this before – it’s not enough for GM to be ‘good enough’. It has to be better, the same way that Toyota, Honda, Nissan and the others were/are better than GM, Ford and ChryCo.

  • avatar
    no_slushbox

    Stu Sidoti:

    Yes, I will buy from a Chapter 11 automaker. See a number of the past editorials on this site to see what a Chapter 11 really means. I will not, however, buy from an automaker that refuses to admit that its business model in not viable without Chapter 11 and instead steals from taxpayers to fund its special interests (current management, UAW, NADA) while it slowly dies.

    Pch101:

    “Whether or not you support a bailout, it seems painfully obvious to me that a Ch. 11 filing made within the next few months in the absence of government subsidies would turn to liquidation.”

    The Chapter 11 reorganizations will not be without subsidies, but at least the subsidies will go to making the newly-unburdened auto companies competitive, not just paying down past liabilities while they have a slower death (see British Leyland).

  • avatar
    GS650G

    1. These other companies they keep telling us will suffer have seen this coming long enough to do something about it. The 2.8 have stiffed suppliers for a while alreaduy.

    2. This therefore is not a surprise to us all. Anyone caught off guard by this has not been paying attention.

    3. So I’m supposed to pony up tax dollars for this mess? What do I get out if it for real? Tell me what substance I get to drive or look at? How about a free car to all of us?

  • avatar
    Pch101

    The Chapter 11 reorganizations will not be without subsidies

    The government is not going to participate in a Chapter 11 filing. The reason for the government to subsidize the deal in the first place is so that the companies can avoid a Chapter 11 filing.

    The government could participate in a prepackaged deal, but by definition, that would not be a Chapter 11.

    To be clear, Chapter 11 has a specific meaning, Chapter 7 has a different meaning and a prepack deal is something different altogether. A government deal would be outside the court system, and while it could resemble an 11, it wouldn’t actually be one.

  • avatar
    RetardedSparks

    1) Any automaker that goes C11 will not survive, for all the reasons stated endlessly here and elsewhere.
    2) The market share of the dead company(s) will get absorbed by the survivors. The US will not go from a 10.5M/yr market to a 8M/yr market just because GM stops selling vehicles. Hell, 750,000 people bought cars LAST MONTH – a month when, if you believe the media reports, not a single vehicle was sold by anywhere by anyone. The ripple effect will be nowhere near as bad as predicted. If Congress wants to contain the damage, let GM and Chrysler go bankrupt and pay off all their suppliers to keep them afloat, for a lot less than $38B!
    3) While the D3’s plans, and all the C11 talk, are focusing on cutting costs, nowhere does anyone have any idea how either C11 or a bailout-backed plan will result in GM selling more or better cars. Absent that, either solution is just treading water.

  • avatar
    blindabraxas

    @GS650G –

    It’s more than a little reductionist to say that the suppliers that work with the US automakers have seen this coming and planned for it. That’d be really ideal, but Michigan has been in a recession for 5 years. Lovely plan. That’s without the automakers being bankrupt or disappearing or broken up and sold off.

    When/If the automakers go down for the count, it won’t be just Michigan. There’ll certainly be a crater the size of the Midwest and people don’t think that won’t affect the coasts then they’re living in a dreamland.

    It’s interesting and a little sad how widespread the view is that what taxpayers will get out of this are cars or car-related. It’s likely they’ll get a national economy not in a depression. Isn’t the ability to pay tax dollars worth tax dollars?

    Massive unemployment begets massive drain on socialist funding begets massive loss in tax base begets like, a whole lot of badness, and stuff. Perhaps I’m just a fool and really this is just confined to GM and Chrysler and to a degree Ford just learning to make cars people want to buy, and isn’t in fact threatening the ability to buy anything at all. Wouldn’t that be nice.

  • avatar
    jpcavanaugh

    My question about these surveys that tell us that people will flee bankrupt auto makers is this: What to the respondents to the surveys understand “bankruptcy” to mean. If it means out of business bankrupt (Chapter 7 liquidation), then this should be no news flash. I suspect that this is what the survey questions conjur in the minds of the respondents.
    However, what about a reorganization bankruptcy (C11). I don’t think these surveys are much use in a C11 scenario. Most people don’t understand the difference. To most, bankrupt = out of business.
    It is my belief that a GM C11 coupled new management, a credible plan and a good educational PR campaign (along with their improving product) would have them selling more cars than they are right now. Fact is, GM is bankrupt NOW, and everybody knows it (“We need $4 billion this month or lights out.”) Bankruptcy will not keep customers away. The fear that the doors will close for good is what will kill business. GM is proving that it cannot manage a bankruptcy any better than it has managed the company.

  • avatar
    Pch101

    However, what about a reorganization bankruptcy (C11). I don’t think these surveys are much use in a C11 scenario. Most people don’t understand the difference. To most, bankrupt = out of business.

    While that point is fair, it itself also betrays a lack of knowledge of what Chapter 11 is.

    A company is free to file Chapter 11. But a Chapter 11 reorganization cannot occur unless the existing creditors approve it, and unless there are new lenders willing to provide the DIP financing needed to go with it.

    In the current economic climate, where credit is scarce and lenders are running scared, odds are very high that the creditors will reject the plan. Which means that Chapter 11 converts to Chapter 7, even though the filing party didn’t want it.

    Tower Records provides an example of how this can backfire. Their second 11 filing turned to 7 within about a week or so. The company played a gambit that its main creditors — in its case, the record companies — would play ball and agree to the deal. However, their creditors were not amused and forced the company into liquidation.

    It is not reasonable to discuss Chapter 11 without taking into account the mechanics of getting it approved. If the creditors don’t play ball, it ain’t gonna happen.

    Again, you’d have better odds getting a subprime loan on a Miami condo than GM would have getting through Chapter 11 successfully. Just because it may have been possible 2-3 years ago does not mean that they could do it today.

  • avatar
    no_slushbox

    Pch101:

    “The government is not going to participate in a Chapter 11 filing. The reason for the government to subsidize the deal in the first place is so that the companies can avoid a Chapter 11 filing.

    The government could participate in a prepackaged deal, but by definition, that would not be a Chapter 11.

    To be clear, Chapter 11 has a specific meaning, Chapter 7 has a different meaning and a prepack deal is something different altogether. A government deal would be outside the court system, and while it could resemble an 11, it wouldn’t actually be one.”

    GM has debt of about $50 billion, 8 brands, 7500 dealers, and hugely burdensome UAW contracts. The government cannot erase that debt, it cannot void state franchise laws with regard to the excess brands and it cannot reduce the UAW burden. A Chapter 11 bankruptcy filing can get rid of those obligations which are killing the big-3.

    There is nothing stopping the government from stepping in after the big-3 have declared Chapter 11 and providing financing and warranty assurances. After Chapter 11 the government will be financing viable companies. The current structures of the big-3 are not sustainable, and they cannot be changed without Chapter 11.

    This person is a bankruptcy expert:

    Automotive Bankruptcy Expert Richard N. Tilton: https://www.thetruthaboutcars.com/editorial-gm-death-watch-219-gm-prepackaged-reorganization/

    Here is an unbiased (i.e. not management, NADA or UAW) editorial from someone with very close ties to Michigan and automotive manufacturing:

    Mitt Romney: http://www.nytimes.com/2008/11/19/opinion/19romney.html?hp

  • avatar
    NICKNICK

    Stu Sidoti:

    I would buy a new 4X4 Silverado for $8000.

  • avatar
    fringeli

    GM has no chance of surviving C11, zero, null, even if a completely new management takes over tomorrow morning, and they would get hoards of cash on hand from somewhere, which is not a probable scenario. Chrysler ditto.
    Take my advice and get out of the US, if you can, because this crash is gonna be like no other before. US TTAC readers deserve better!

  • avatar
    Pch101

    You are not a Bankruptcy expert

    You have no idea what I am.

    As it turns out, I have led organizations through Chapter 11 filings. I know what it entails because I have done it.

    Mr. Tilton is right on the legal mechanics. He is most likely wrong on assessing the real world ability to secure approval from creditors and the DIP financing needed to pay for it.

    Perhaps it has been missed, but this is the worst economic downturn since the 1930’s. The credit markets are fairly close to shutdown mode.

    Chapter 11 cannot proceed unless creditors cooperate and there is new money to pay for it. Unless you can tell me how approval is going to be obtained and who is going to pay for it, you are not in a position to argue that Chapter 11 will be successful.

  • avatar
    no_slushbox

    Pch101:

    Now we’re getting somewhere.

    The government can and will provide DIP financing. It will be much cheaper than keeping the automakers on life support with their current structures.

    If creditor approval in the Chapter 11s becomes an issue that is what Congress should concern itself with. The arrogant, “I’m too good for bankruptcy”, attempts to avoid Chapter 11 restructuring are a huge distraction from successfully preparing for it.

    This “worst economic downturn since the 1930’s” is a return to normalcy after years of Americans living beyond their means, something the captive financing arms of the big-3 strongly encouraged. Their reckless loans and leases were part of the bubble that has burst.

    In response to your challenge: Unless you can tell me how a bailout is going to get rid of the crushing debt burdens ($50 billion for GM alone), the excess brands and dealerships (GM alone will have to pay off the dealers of 5 or 6 brands) and the oppressive UAW contracts you are not in a position to argue that a bailout will be successful.

  • avatar

    I’d slip her one.

  • avatar
    Pch101

    The government can and will provide DIP financing.

    That may be your preference, but that is not what they are proposing.

    The Congress is, in fact, proposing the opposite of this. It will provide some combination of debt and equity without a bankruptcy filing. The government idea is to provide the cash so that a bankruptcy filing can be avoided.

    You should not confuse what TTAC is recommending with what the Congress is actually doing. The legislature clearly does not want a bankruptcy filing. The money that they would be providing would not be DIP financing.

    you are not in a position to argue that a bailout will be successful.

    If you can point out anywhere on this thread where I claimed that a bailout would be successful, I’d like to see it.

    You’ll have a tough time with that, though, because I never said that.

    What I said is that a Chapter 11 filing would turn into Chapter 7, because the creditors would be unlikely to support it.

    That does not mean that the other options would succeed. This comment is specific to Chapter 11.

    It is highly naive to believe that creditors are going to cooperate, just because your ideal view of the situation calls for it. This is not an economic climate that is likely to support such a filing, irrespective of whether you like or hate Detroit or whether or not a bailout can work.

  • avatar
    no_slushbox

    Pch101:

    You should not confuse the requests outlined in a letter from Nancy Pelosi and Harry Reid with what the Congress will actually do.

    The bailout is hardly a done deal, and a bailout that does not waste money on the huge debt burdens and huge dealership franchise and UAW liabilities of the big-3 will be much easier for Republicans to accept.

    And the government coming in, but only with Chapter 11 restructures, is hardly an idea confined to TTAC. It has been strongly argued for in New York Times and Wall Street Journal editorials.

    Congress can keep the Chapter 11s from going to Chapter 7s, and they will. Believing that the Chapter 7s, at least for GM and Ford, will be blocked in by this very interventionist Congress is not naive.

    If you can point out anywhere on this thread where I claimed that a bailout would be successful, I’d like to see it.

    If you are an expert take a side. If you are anti-bailout fine, we can agree on that even if we disagree on what the outcome will be.

    If you are pro-bailout then explain how a bailout is going to get rid of the crushing debt burdens ($50 billion for GM alone), the excess brands and dealerships (GM alone will have to pay off the dealers of 5 or 6 brands) and the oppressive UAW contracts. None of the other bailout proponents have been able to do that.

  • avatar
    Pch101

    you are not in a position to argue that a bailout will be successful.

    Once again — I did not argue that a bailout would be successful. Point out where I said that, please.

  • avatar
    no_slushbox

    Pch101:

    FYI:

    http://blogs.wsj.com/deals/2008/12/03/senators-kyl-corker-warm-to-detroit-bankruptcy-plan/

  • avatar
    TireGuy

    no_slushbox:

    great link.

    Finally I see that the stuff people are discussing like here at TTAC go through to congress. In my view, the argument that no one buys cars from bankrupt manufacturers does not work. Waggoner has admitted early November that GM has a great chance to go bankrupt. Whoever has bought cars since then from GM does not care – I do not see further losses in a prearranged CH11, where the state would e.g. guarantee future warranty claims.

    Only in CH11 GM will get rid of the numerous burdensome problems. Yes, the state will have to cope with certain items (e.g. compensate for health benefits, pensions etc.), but this will be always much better than keeping GM alive with all of this burdened in an unchanged and forever unprofitable way.

  • avatar
    Pch101

    Only in CH11 GM will get rid of the numerous burdensome problems. Yes, the state will have to cope with certain items (e.g. compensate for health benefits, pensions etc.), but this will be always much better than keeping GM alive with all of this burdened in an unchanged and forever unprofitable way.

    You don’t seem to realize that this is not how Chapter 11 actually works.

    For Chapter 11 to work, those creditors who are owed money will have to agree to it. If they reject the plans, the company goes into Chapter 7, even if the company filing 11 doesn’t want to go into 7.

    This could prove to be quite a conundrum. If the major lenders who have previously provided GM with capital end up agreeing to a government-sponsored version of a prepackaged plan, guess how they’ll probably decide to agree to it? By getting more money under TARP to make up for the losses that they’ll take under this filing!

    Which means that you’ll pay for it, twice. First, by paying the tab of the DIP financing, provided by Uncle, and second, by covering the banks for at least some of the losses that they blackmailed us into accepting in order to win their consent to the deal.

    I think that some folks need to get out of their black-and-white world views, and realize that a bailout AND a Chapter 11 filing AND a prepackaged government-sponsored option would ALL fail. At this point, none of the options are going to be successful; all three choices are going to ultimately tank.

    There are other possibilities, which might be far better than either a bailout or a Chapter 11 or a government-sponsored prepackaged plan, but they haven’t been discussed in this thread. I dislike all three choices, and see no hope for any of them serving as anything more than a stall tactic.

    The Chapter 11 option is too little, too late. It might have worked 2-3 years ago, but it passed its sell-by date awhile ago.

  • avatar
    Stu Sidoti

    Wow…32 comments later, 2nd page status and y’all are still slugging it out at nearly 8pm!! Good thing the Mrs insisted I go to a local art gallery opening today instead.


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