By on February 23, 2009

The Wall Street Journal reports that “the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors Corp. and Chrysler LLC, in case the two auto makers need it, said several people familiar with the matter.” Although the WJS neglects to specify the level of intimacy involved, contempt for the automakers’ viability plans may soon bring familiarity with debtor in possession (DIP) funding. People familiar with someone involved in the negotiations who’s close to someone who fought with your great uncle in Verdun reveals the heartening news that the $40 billion figure includes paying off the $17.4 billion in loans to Chrysler and GM pissed away thus far. Loaning money to someone to pay off a loan we already made to them? Why does that sound so familiar? But wait! It gets better/worse.

As the Treasury is working with Citigroup and JP Morgan Chase, we’d be loaning money to automakers to pay off loans that we already made to them, and encouraging banks to whom we’ve loaned money to provide the rest of the DIP financing (presumably using our loan money). And folks, that’s not even an issue.

The government advisers also are looking at ways the Treasury could “prime” other banks making DIP loans, so the government could be paid back before private creditors. Banks are deeply resistant to such steps . . . .

GM said it might need as much as $100 billion in financing from the government if it were to go through the conventional bankruptcy process. GM’s $100 billion estimate stems from the belief that it would suffer “catastrophic revenue reduction impact” in a prolonged conventional Chapter 11 process, as it would expect to sustain as much as an 80% decline in sales after a bankruptcy filing. GM would need financing not only so it could weather the storm, but also to help its suppliers and dealers survive.

GM’s company line remains “You can pay us now or you can pay us a lot more later.” How compelling is that? And what’s with this weather the storm stuff? GM was sinking long before the big swells arrived. Long before.

Anyway, this is all the “stick” part of the program. It remains to be seen if the feds can use this DIPsy-doodle to extract concessions from the UAW and GM’s recalcitrant bondholders. The carrot? Your money. And LOTS of it.

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26 Comments on “Bailout Watch 413: Feds Preparing $40b Chrysler – GM C11 DIP...”


  • avatar
    Geo. Levecque

    I think this whole thing ie “mess” is why the Canadian Federal Government wants a better answer from Chrysler than they have received so far maybe eh!?

  • avatar
    TexN

    The truly depressing part of this whole fiasco is the fact that EVERYBODY knows there needs to be deep and fundamental changes to these companies in order for them to survive in some form. And it WILL be painful! But our government refuses to face this fact and instead wants to burden future generations with these problems. This is not leadership, ladies and gentlemen. This is cowardice!

  • avatar
    dgduris

    Wait!

    The government is working with Citi to make loans to GM and ChryCo.

    Well, certainly that will bankrupt Citi and give same government reason to nationalize it as has been suggested by C. Dodd last week…and the WSJ this morn.

    Brilliant planning on the government’s part. They’ll own GM, ChryCo and Citi all by the end of this week!

  • avatar
    WMc

    Well at least it appears that somebody in D.C. has a brain. C11 was always going to be the only way to salvage anything of GM.
    The whole post makes for rather depressing reading regarding the state of the US economy c. 2009. How long before the UAW says “F*** It” and stages a walkout?

  • avatar
    jpcavanaugh

    I’m having second thoughts, guys. I have been a steady advocate for a C-11 for GM as the only way it can get the leverage it needs to solve the really big labor cost legacy and too-many brand problems. Unless the bankruptcy process can flush some new blood into the Board of Directors and management, I’m not sure this is going to work.
    OK, say we lop off some brands, close some dealers and slough off some legacy costs. What do we have? We have the same old GM, just smaller. We get to restart the death watch clock, because the culture, attitudes and systems have to change for any reorg to have a prayer.
    I do not have enough experience with a big C-11 to know, but can a creditors committee or judge force some new management into this company? The scary thing, looking back, is there are no names being floated around anywhere of people who can be trusted to come into this company and actually do some things that will help. Without some changes to management’s skill set, this could just be a really expensive C-7.
    I know that there are a couple of Bankruptcy experts out there among the B&B, and I would really love to hear your take on this.

  • avatar

    Wildcat strikes are illegal WMc so it won’t happen during the life of the current contract. Thats the purpose of a contract. Neither party can unilaterally change the terms and one of the terms is no walkouts or strikes during the life of a contract.

  • avatar
    jpcavanaugh

    Sherman Lin:
    Wildcat strikes are illegal

    Of course, how silly. Nobody in the UAW would ever think of doing anything illegal, no matter how much they think they’re getting screwed by the management. You are correct, that they SHOULD not break the contract like that, but when tensions are high and emotion takes over at a particular time at a particular plant, rationality does not always rule the day.

  • avatar
    CommanderFish

    WMc

    A sane GM or Chrysler would, after a UAW walkout, declare bankruptcy and laugh as the millions of unemployed line up for $10/hr auto jobs, Delphi-style.

    (Yeah, not going to happen)

  • avatar
    moedaman

    jpcavanaugh, have you ever lived in a “UAW” household or know any UAW members? My grandfather, three uncles and father were all UAW members. And the screwing is 90% of the time done by the UAW and not the management.

  • avatar
    mikey

    Can anybody remember the last wildcat?This may come as shock to some,but the culture/thinking on the plant floor has changed in the last decade.

    Think about guys,who in thier right fucken mind is gonn’a advocate an illegal walkout in 2009?
    The folks that are still in the plant are terrified of losing thier jobs/pensions.
    rationality doesn’t rule the day.Fear does!

    If some idiot ran around screaming”lay down your
    tools”somebody would smack him in the head.Contrary to popular belief,not every hourly guy is a blithering idiot without a mind of his own.Yeah there is SOME radical assholes,but thier
    numbers have dwindled.Don’t judge us by shit that
    happened in the 60s or 70s its a different world out there now.Believe me its also whole different world on the plant floor these days.

  • avatar
    kericf

    The UAW would have to be crazy to think they could stage a walkout at this point and GM would care. If anything it would only prove GM’s point that the UAW is unreasonable. It would also allow GM to reduce their inventory glut a little. Not to mention there are a lot of people out there that would kill for a job, any job right now. The UAW would get no sympathy from the rest of the country and GM would have no trouble finding people to hire. I have no idea how the legalities would work for something like that, but with the way things are going no one knows what is going to happen and what the government might let happen.

  • avatar
    toxicroach

    If people are still buying GM products today, when the CEO has gone on the record twice in 3 months saying that without loan from the government the company would be bankrupt within weeks, I don’t think an official bankruptcy filing will change their minds too much.

  • avatar

    The keywords are contract and law. It doesn’t matter whether the UAW is sane or insane if they stage a wildcat strike they can held responsible for damages. Believe it or not unions have assets like union halls, and money and in the UAW’s case they have a strike fund. Whether you believe it or not they can be held liable and that is why there are virtually no wildcat strikes.

  • avatar
    50merc

    kericf: “The UAW would have to be crazy to think they could stage a walkout at this point and GM would care.”

    Well, just for nostalgia’s sake they could call a sit-down strike and hold the plants hostage. (As if GM needed them!) Or they could stage a re-enactment of the Battle of the Overpass. (If anyone could be found to play the parts of Bennett’s thugs.) Ah, those were the days, when an industrial oligopoly and a labor monopoly decided what cars America could buy and how much they’d cost.

    As Mikey pointed out, things have changed. Now, it’s a matter of holding on, not demanding more. For both sides.

  • avatar

    50 merc, I know you were talking about nostalgia so I’m sure you know that sit down strikes are now absolutely illegal and those strikers can be fired according to the NLRB. In fact under the 1935 National Labor Relations Act (NLRA), federal courts have held that wildcat strikes are illegal and that employers may fire workers participating in them.

    So any talks of wildcat strikes are simply a fantasy

  • avatar
    Mr. Sparky

    It sounds likes the government is setting the stage for a controlled bankruptcy GM.

    I don’t quite understand all the complaints from the TTAC community. If you want GM to go C-11 (which seams the TTAC concensus), this is the only way that can happen. There isn’t enough private DIP at the moment to make this work with old school C-11. Without the government arranging the landing, GM will go straight to C-7 (game over). (Of course, I think Chrysler should proceed directly to C-7 and take a dirt nap.)

    This is a much better way to clean up the Detroit mess than just writing checks. GM will get the proper debt/labor clean up in bankruptcy, and the tax payers will jump to the head of the creditor line if GM doesn’t change its cheating ways:)

  • avatar
    schadenfred

    Can TTAC start the GM Deathwatch Deathwatch now, or is that too meta? Postmodern times call for postmodern DWs.

  • avatar
    no_slushbox

    Without bankruptcy none of the Detroit automakers will ever make a profit again.

    None of the Detroit automaker CEOs want to lose their jobs, which is what will happen in Chapter 11s, so they are overstating the cost of bankruptcy while hugely exaggerating their companies’ prospects outside of bankruptcy.

    Chrysler only needs Chapter 7, which will be cheap and require no government funding.

    GM needs Chapter 11, but whatever it costs it will be cheaper than forever keeping the company propped up outside of bankruptcy.

    With bankruptcy the horrible managers will be replaced, and the kind of upheaval that actually does change corporate culture will occur.

    People already know the Detroit automakers have no future, so the lost sales are already built in.

    The Detroit automakers aren’t going to lose any additional sales with bankruptcy.

    The Detroit automakers will actually gain some sales after bankruptcy, when the stench of rotten failed companies with no futures, living perpetually off the taxpayers, is gone.

    Also, the inevitable FDIC like guarantee on the warranties will make buyers much more confident than they are now.

  • avatar
    jkross22

    @Mr. Sparky:

    Can’t speak for the other B&B’s, but I’m frustrated that this Ch. 11 discussion seems to point to the taxpayer being bent over the bicycle rack yet again for another $70B, more or less (since no one really knows), with no commitments that the GM ‘leadership’ that got them here aren’t immediately removed.

    If GM is still convinced that Ch. 11 might as well be a Ch. 7, let’s put a bullet in GM and call it a day.

    There is no pragmatic reason why the taxpayers should fund more of these idiotic half measures.

  • avatar
    fincar1

    jkross22, I agree with you that “There is no pragmatic reason why the taxpayers should fund more of these idiotic half measures.” Those reasons are strictly political and have nothing to do with helping taxpayers keep their money.

  • avatar

    The absolute best way for the UAW to stick it to GM (while sticking it to themselves in the process) is to keep building cars. Hell, refuse to go home, work unpaid overtime, restart the idled shifts, bring those plants all up to 100% capacity, 24/7. Then we’ll see some sparks fly.

  • avatar
    Luther

    “This is not leadership, ladies and gentlemen. This is cowardice!”

    No…It is vote buying. Michigan, Ohio, and Indiana are big “swing-states” for the murdering elitist parasites in DC. They will steal our money and buy votes in these States with total disregard for the majority.

    It is critical that free men do not buy anything from GM and Chrysler.

  • avatar
    TireGuy

    Well, you have asked for a Ch 11 and not a Ch 7, and that for a long time. Where would a Ch 11 go without DIP financing, and who would currently be ready to really make such DIP financing without blinking?

    It is clear, that if GM does not get the money right away, it will get DIP financing in Ch 11 from the government. This was even the suggestion of TTAC`s own bankruptcy lawyer in its scenary. So, where is the point?

  • avatar
    gslippy

    Let’s just pay for the casket, not the life support.

  • avatar
    gogogodzilla

    So if GM and Chrysler go bankrupt… what happens to Ford?

  • avatar

    Ford will need obama bucks to fund it’s suppliers for a few years,

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