Free Markets, Free People


GM – It’s Beginning To Look A Lot Like …

Bankruptcy.  Something many of us advised before the government threw 20+ billion of our dollars down the proverbial rat hole:

A week into his new job as chief executive of General Motors, Fritz Henderson said on Sunday he was confident in the future of the company but a structured bankruptcy remains a possibility.

Mr. Henderson has just 55 days remaining to meet President Obama’s timetable to come up with a new plan to save the struggling car giant. Speaking on NBC’s “Meet the Press,” he said that the company was working to avoid bankruptcy, but that if it failed to meet its goals for cutting costs and shrinking the company, it “may very well be the best alternative.”

“If it can’t be done outside of a bankruptcy process, it will be done within it,” he said.

Ah, how nice. And what, we had to fire the CEO, put a new board together and essenitally give control to the government to come to this conclusion?

Even Timothy Geithner, the tax-cheat of a Treasury Secretary, is now saying the “B” word is a possibility:

Treasury Secretary Timothy F. Geithner stressed Sunday that G.M. “is going to be a part of this country’s future,” but said that a managed bankruptcy was among the options for the company.

“These guys have made some progress in putting together a restructuring plan, but they’re not there yet,” Mr. Geithner said on CBS’s “Face the Nation.” “We wanted to give them the time to try to get it right. But, again, our objective is to allow — is to help these companies emerge stronger in the future so they can survive without government assistance.”

Of course had they left this all alone, we’d be 20 billion to the plus side and they’d already be in the middle of the bankruptcy process and well on their way to emerging as a stronger auto company.

Irony of ironies, I just picked up my new company car – a Chevy Malibu. It is a very nice car and has a lot of standard bells and whistles that I wouldn’t expect for a car of its price range. Frankly it’s not the engineering or the quality, as I see it – its legacy costs. And bankruptcy is the only way those are going to be actually approached and dealt with properly.

And you can’t lay this all off on the Obama admistration either – the Bush bunch was the first to throw money at the problem. However you can blame the Obama administration for continuing to do the same thing.

Time to back off, let the legal process that has worked for literally thousands of companies do its thing and see what comes out the other end. My guess is a stronger and more competitive GM.

~McQ

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21 Responses to GM – It’s Beginning To Look A Lot Like …

  • Can somebody tell me the difference between a “bankruptcy” and a “structured bankruptcy”?  ‘cuz I suspect that the latter has a lot less to do with “bankruptcy” and a lot MORE to do with keeping the UAW contracts intact.  Perhaps I’m wrong.

    McQAnd you can’t lay this all off on the Obama admistration either – the Bush bunch was the first to throw money at the problem.

    Yes.  Aside from the prescription drug entitlement, his approach to the financial crisis was the stupidest thing he did as president.  I think he lost his mind there at the end.

    • A structured bankrutpcy is a vague term but likely means a Chapter 11. 

    • Can somebody tell me the difference between a “bankruptcy” and a “structured bankruptcy”? ‘cuz I suspect that the latter has a lot less to do with “bankruptcy” and a lot MORE to do with keeping the UAW contracts intact. Perhaps I’m wrong.

      In reality, all bankruptcies are “structured” which is really the whole point — i.e. an orderly manner of settling creditors’ claims against the insolvent Debtor. Otherwise, whomever gets to the assets first wins, and the Debtor is forever dogged by the claims of remaining creditors.

      As far as I can tell, what everybody really means by “structured bankruptcy” is “prepackaged bankruptcy” with the government providing debtor-in-possession (“DIP”) financing. Essentially, this means that the creditors and the Debtor agree on the terms of the reorganization prior to filing, and the terms take effect immediately upon filing. This allows for a shorter turn-around time, and saves on administrative expenses (e.g. legal and accounting fees). It also allows the reorganization to occur more quickly so that operations can begin in order to carry out the reorganization plan (which boils down to creditors getting paid off more quickly).

      • Thank you, and also to jpm100.  I will be interested to see if the GM bankruptcy is handled like any other, or if TAO, the Tax Cheat in Chief, and those 535 fools and crooks on Capitol Hill make up “special” rules.

        • That, is what is going to happen. They’re going to protect the union workers and contracts at our expense. Until the Democrats got control of GM bankruptcy was not an option, now that they have control it’s the first thing on the agenda. They’ll never give it back, it is their “vehicle” to destroy the rest of the competition in the US. Like I said, GM-Government Motors.

  • The difference is…

    GM has had 4-5 months to prepare.  

    The government stepped in to back up warranties regardless of what happens. 

    The public had been exposed to the idea so part of the damage is done.  OTOH, the public has been somewhat desenstized to the idea. So GM has less far to fall.

    • So GM has less far to fall.

      Perhaps. But I think the lesson GM needs to teach the rest of the economy is also muted.

      Union-management relations in this country, under the auspices of the National Labor Relations Board, is one-sided in favor of the unions. That puts significant pressure on corporate management to give in to contracts that are favorable to the unions. They do that by deferring costs through concessions that are payable in the future, so they can still operate and hope for the best long term.

      The best seldom happens in such arrangements. And now the future is here.

      Both unions and corporate management need to be taught what the result is: lost jobs, lost union members, disrupted lives, etc.

      Cushioning that kind of problem makes the lesson fuzzier, and that’s not a good thing.

  • More competitive – let me know WHEN the government will be relinquishing control. 

    As someone said in a previous thread, since I’d like to live, I won’t be holding my breath for the day.

  • Ahhh, to have your optimism.  I don’t see a stronger and more competitive GM in any future visions as long as you have the UAW demanding wages and benefits for in excess of the market value of the labor they represent. And, probably more critical, GM specifically and the auto industry in general will not be strong nor competitive as long as they operate under the pseudo-idealistic vision of the eco-freaks demanding production in quantity of vehicles that the great majority of Americans don’t want.

    A Chevy Volt with 40 mile range under electric power might work fine for getting around Manhattan, but once you get off the island or outside the beltway into fly-over country, the distances get much longer and the need to haul significant payload to your destination means SUVs, vans and pick-up trucks will be the market choice.

    Can they only learn that free markets work? No, they don’t lead to “economic equality” but that isn’t any realistic person’s goal.

  • My guess is a stronger and more competitive GM.

    Not with the level of government involvement. the Volt will stay in the stable, and they’ll start selling the ‘Puma”, despite the fact they won’t be selling enough to make a profit, all at the behest of the government, but the stuff people will actually buy, goes bye bye? Doesn’t exactly give me great confidence in the government’s ability to direct GM’s salvation.

    • Dude, you know what your photograph reminds me of?

      It reminds me of a guy who was once leaning into my photograph of the USS Constitution and I screamed back, “Dude, you’re in my shot!”

      Just a casual observance…

      Dude, you’re in my shot.  I’d much rather see what’s on the wall behind you.

      Cheers.

  • GM is finished – we all know that now.

    The good thing about it is that it happens on The Clown’s™ watch. He gets the blame for the massive layoffs. He gets the blame for the economy and the stock market tanking.

    And that is good, no matter what anyone says.

  • When GM goes through bankruptcy, I believe there will be a collective “what happened?” when the tax payers get some large bills. 

    First will be the bondholders.  Apparently most of them have been insured against bankruptcy via CDS and the like.  And guess who holds most of those policies?  AIG.  So depending on the bankruptcy mechanism, the most of the bondholders debt will be picked up by tax payers through via AIG. 

    Next will drain on the Pension Benefits Guarantee Corporation.  They will end up covering the pensions of the past and present employees.  Even at a much reduced rate the hit to PBGC will be huge.  And it is already $10 billion in the hole.  I wouldn’t be surprised if they go to the government for a bailout.  Probably $20 billion or more, or something smaller on installments. 

    And to add to those, the Debtor in Possession financing necessary.  Of which I believe only the Federal Goverment is able and potentially willing to become the supplier.  Obama tried to sell a 1 month “quick rinse” approach which will limit that exposure if you believe it will only be one month. 

    To avoid some or all of the above, Obama would have to execute something rather unique and get a bankruptcy judge to go along.

  • Bush didn’t bail out GM. The Bush bailout was at least intended to solve the financial issue (or more likely, contain it). Bailing out GM is at least another rung up the latter.

  • “Of course had they left this all alone, we’d be 20 billion to the plus side and they’d already be in the middle of the bankruptcy process and well on their way to emerging as a stronger auto company.” 

    really?  and your evidence of this is what? 

    Say GM had gone into bankruptcy 6 months ago.  Wuthout negotiating with its suppliers and creditors.  Just declared bankruptcy unnanounced. 
    You have no clue what economic dislocation, choas and unnecessary litigation that would have caused.  None.  You have no clue how much more money that would have cost the American taxpayer.  None.  None at all. 

    It’s a disgrace. 

    • Have no clue? Well let’s see, the airline industry (and the steel industry, and … well, you get it) seemed to handle Delta’s bankruptcy without “economic dislocation, chaos and unnecessary litigation”. Result: a more competitive airline company.

      Face it, bankruptcy is the most structured way to see GM turn around, not government bailouts. It just doesn’t provide the statists with the control over an industry they’d prefer.

  • Here again, though comes the question, was all this about GM, or about maintaining the unions? How can the Democrats… a group of people as anti American business as you will ever find… be taken seriously when they claim to be about saving American business?

  • Caught a snippet on Fox news this morning of some union representative stating that they were promised this would not be a chapter 7 or 11 type of bankruptcy, but something “different”.
    Go figure…

  • The problem with the theory that GM would emerge a stronger company like the airlines, is that when an airline goes down the rest GET business. The problem here is that the part suppliers start to drop out and noone will be building cars in the U.S.  not even most of the transplants. They all share parts producers and if one of those producers, who are heavily in debt, start to drop the whole contry is in trouble. You cant start a factory overnight to build an engine or transmission. So, without those suppliers noone can build cars, how long can any company last while they wait for a transmission plant to be built?