Free Markets, Free People

GM To Be “Chryslered”

I hesitate to call it bankruptcy when it is really a sham of a bankruptcy. In fact, it is the same sham that Chrysler has undergone:

The government previously indicated that it planned to take at least 50 percent of the restructured company, and likely would take the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.

The United Auto Workers retiree health fund is set to own as much as 39 percent of the restructured GM, in exchange for giving up its claim to at least $10 billion that the company owes it. Yesterday, the union announced that it reached an agreement with GM that will reduce the company’s labor costs.

Still unknown is what part the Canadian government might play in the ongoing GM restructuring.

GM operates several plants north of the border. The Canadians agreed to invest about $3.5 billion in the Chrysler restructuring and control one of the nine board seats.

Sound familiar? So government will now have 5 of 9 board seats, the union has a huge share of the company and bondholders?

The chief obstacle to an out-of-court settlement for GM remains: There has been no agreement between the company and the investors who hold $27 billion worth of GM bonds.

Under orders from the Obama administration, GM has offered to give the bondholders a 10 percent equity stake in the restructured company in exchange for giving up their bonds.

That’s the offer made and, as you might imagine, bondholders are resisting this. That, of course, gives the administration the same excuse it used to take Chrysler to bankruptcy under its apparently newly written rules which gave government the lion’s share of ownership.

As you might imagine, not everyone is happy. And since this “bankruptcy” is now being politically managed, more politicians are getting into the act.

For instance, on the subject of cutting Chrysler dealerships:

There are also challenges outside court. Chrysler has moved to close 789 dealerships on June 9. But Sen. Kay Bailey Hutchison (R-Tex.) has introduced legislation that would withhold federal funding if the automaker does not give dealers an extra 60 days to close down operations and sell remaining inventory. Her amendment has won the backing of a number of other senators.

Should such legislation pass, you can expect something similar with GM.

And some Democrats aren’t particularly happy either:

Judiciary Committee chairman Rep. John Conyers Jr. (D-Mich.) said he hopes to meet with White House officials today to discuss changing Chrysler’s bankruptcy plan and GM’s future. Conyers did not outline what he wanted, but a nine-person panel he assembled for a hearing yesterday offered a hint. Liberal consumer advocate Ralph Nader, a conservative Heritage Foundation analyst and minority auto dealers all criticized the automakers’ restructuring.

Conyers and other committee members attacked the administration for abusing bankruptcy laws, unfairly eliminating dealerships and jeopardizing consumer safety.

Yup, looks like the political bureaucracy is kicking into high-gear and you can just imagine how well this is going to work out, can’t you? That and the fact that contracts will never be viewed in the same light again have to make you fear for our economic future.

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21 Responses to GM To Be “Chryslered”

  • We can imagine how well this is going to work out?   Well, compared to how what they’ve been doing has worked out, it can’t be much worse!

    • We’re all shocked to learn that Erb doesn’t think a government takeover of a major industry is worse than a company failing. Just don’t forget that Erb is more libertarian than everyone else around here, though!

    • This just feels like a continuation of what they’ve been doing, which is finding ways to obstruct free-market forces instead of allowing companies like GM and Chrysler to fail.  What is to become of Ford when their primary competition in the USA is government-owned and controlled?

    • There are the unintended consequences of the GM and Chrysler pseudo bankruptcies.  Who will lend them money besides the feds?   Maybe, the feds can make the nationalized banks provide the lending, but those guys already have enough bad assets.   Why would it be a good idea to take on more bad assets.  Does anyone really think GM and Chrysler will return to profitability?  That is highly unlikely.

      So, yes, it could be a lot worse.  We could be throwing a lot more taxpayer money away for nothing.


    • Of course. Government ownership has worked wonders in such diverse countries as Russia, China, Rhodesia(Oops! Zimbabwe), Great Britain, etc. ad nauseam. I am sure it will work even better here.

      Tres amusant. Thanks for the chuckle.

  • About the dealerships, did you read this story?:

    • “On Thursday, May 14, 2009 I was notified that my Dodge franchise, that we purchased, will be taken away from my family on June 9, 2009 without compensation and given to another dealer at no cost to them.”

      I assume he means that Dodges will be sold out of the local Chrysler/Jeep dealer, now.  Chrysler is shedding dealers.  This is what is suppose to happen.  They were supposedly overloaded with dealers and now its being rectified.  The dealers closed were either low volumes (a few hundred cars or less a year) or known to dick the customer.  I feel for the former.  The latter deserve their fate since they helped foster the poor sales that hurt the company and other dealers.

      People were warned about the consequences.  Everyone was going to get screwed.  Even with Obama giving the union an unfair share, they haven’t exactly made out.  And Obama cushioning the union shouldn’t exactly be a shock either.  I probably have an old post around here that said as much. But, the dealers were going away under any restructuring no matter who was in charge of the bankrutpcy.

      Congress had a chance to avoid this and they said FU to Chrysler.  Sen. Huchinson missed her chance.

  • Thank you Capt Joe for the link.  After reading the letter from the Dodge Dealer in Melbourne Florida, I have only one thing to say:

    Erb, You are a Sanctimonious Piece of Sh*t!

  • State of Indiana disputing the Chrysler bankruptcy on the premise that the junior creditors are trumping the senior creditors.

    What a concept.   Someone bought a clue and it looks like the threats of government microscopes up their butts isn’t working on them to forget their claim (course it IS the government disputing it, just not the Federal government….heh).

    I guess they didn’t get the memo that it’s not about the contracts, it’s about ‘fair’ (as defined by the Obama administration) these days.  Time for some behind the scene threats to be made!  This decision to try and end around the Obama plan by invoking the idea that bankruptcy isn’t really a way to pay off a favored constituency mustn’t be allowed.

    • They sued primarily because of the disastrous affect that it had on indiana police and teacher pensions.  

      But hey those are just holdouts and speculators and just because a teachers pension paid a premium for securing this investment, does that mean they have the right to trump the chosen one’s divine right.  🙂

  • UAW in charge of the Detroit auto companies. Why does that resonate something about “workers of the world” seizing the means of production? It worked so well in the “former” Soviet Union, that one can readily foresee similar success for the “former” USA.

    • They may have been unduly compensated with stock, but the union doesn’t have any voting privileges.

  • Good luck with getting any sort of financing, ever, if this sort of thing is allowed to stand.   What could possibly go wrong when a community activist is in charge? 

  • Some of us wondered whether the bankruptcies would follow the normal rules, or whether shiny new rules would be written to get the outcome desired by TAO.

    Actually, we didn’t wonder: we KNEW he and the Tax Cheat would rewrite the rules.

  • I guess when John Conyers Jr. (D-Mich.) actually managed to “wake up and smell the coffee.’ he realized that his constituents are at risk of riding GM and Chrysler into disaster.

    I’m not talking about GM and Chrysler going into bankruptcy, but rather their ultimate demise when they can’t get “capital” after “President Goodwrench” retires to Hawaii and forgets them.

    The illegal handling of the bankruptcy by “President Goodwrench” and his minions will leave Chrysler (and possibly GM) “tainted” in the bond market.   The “preferred” bond holders (i.e. teachers and police pension funds) were screwed by the administration and they and their lot won’t forget that.

  • Let me see, the union gets 39% of GM in exchange for $10 Billion and the bondholders get 10% for their $18 Billion (based on the reported 30% redemption offer). Sounds reasonable to me. And how much is the government putting up for its 50% share? No wonder the union and the administration want to keep this out of a real court.

    It’s good to be the king.

  • Good Bye Market economy… Hello Political economy!

  • Hugo Chavez esta muerto de envidia.

  • Can you say “trainwreck” ??  … Yes We Can

    WASHINGTON (AP) – Lawmakers appealed to the Obama administration on Friday to slow down the restructuring of General Motors and Chrysler, wary of shuttered car dealerships, job losses and the big unknown of a GM bankruptcy.

    A letter signed by 36 representatives was sent to President Barack Obama on Friday, asking him to slow down the process to allow for more consultation.
    Dennis Kucinich, a Democratic representative, complained that taxpayers’ money was “being used to close dozens of US car manufacturing plants and thousands of dealerships, having the effect of putting perhaps millions of Americans out of work”.
    Separately, the Senate commerce committee said it intended to ask carmakers’ chief executives to testify about plans to close dealerships.

    NEW YORK, May 22 (Reuters) – Italian carmaker Fiat SpA said in court papers on Friday that it is “already concerned” about the “deteriorating value” of Chrysler’s assets and that a U.S. district court should not obstruct its sale process.
    Chrysler, its creditors’ committee, and Fiat filed a series of court documents on Friday, asking the U.S. District Court in Manhattan to reject a request by a group of Indiana state pension funds that the district court intervene in the bankruptcy case and postpone the sale of Chrysler’s assets.

  • There is a Ford in your future.

  • Sseriously…I’ve only ever owned Hondas since coming of age. I looked at Chevy trucks twice…in ’96 and ’06. You know what was different? Neither do I; they looked identical. Capitalism means buying the best product available for the dollar. That’s the reason why I buy Honda. Let Detroit, and, by definition, the UAW, fail. They deserve no less.