General Motors...RIP

[Texas Proud]

If GM went into BK without gvmt help.... it would emerge as a smaller company at the other end... you can call it liquidation or whatever, but it would not 'go away'...

If I was a senior secured bondholder, I would want to get 100% of my money before any other bondholder or general creditor got ANYTHING... that is where I would sit in the pecking order... the Chrysler senior secured are not getting that, but the UAW debt which is JUNIOR to them is getting a lot more...

And even the general bondholders here should be getting more than the UAW... or at least the same % on the dollar... but they are not...

I see someone like Chavez in the White House... this is a sad day for America...

 

[FinanceDude]

Let me understand this:

The unsustainable labor benefits the management of GM and the UAW agreed to bankrupted the company over time. I'll be nice and give EQUAL blame to both parties.

NOW, we want to make the UAW STRONGER than they were before and have even MORE of a say in how GM is run? How's that going to work?

I foresee another Chapter 11 within 2-3 years AFTER this one, and then GM is probably done for good, and parted out to Toyota and Ford and Honda..........

 

[ziggy29]

Let me understand this:

The unsustainable labor benefits the management of GM and the UAW agreed to bankrupted the company over time. I'll be nice and give EQUAL blame to both parties.

NOW, we want to make the UAW STRONGER than they were before and have even MORE of a say in how GM is run? How's that going to work?

The problem is that the union has already said they'll sell off their stake in the "new" GM stock as soon as they can for their pension and health care fund. The problem with that is that it removes the alignment between the success of the business and the long-term sustainability of the union's benefit plans. As a result there's less incentive to make sure they don't kill the goose that lays the golden eggs again.

 

[FinanceDude]

The problem is that the union has already said they'll sell off their stake in the "new" GM stock as soon as they can for their pension and health care fund.

If you believe that,I have some prime swampland real estate to sell ya.......

Apparently, the UAW wants to use their newly found power to try to push for unionization in Honda and Toyota plants down south, among other "great ideas".........

 

[ziggy29]

If you believe that,I have some prime swampland real estate to sell ya.......

I'm no fan of the UAW, but what reason would they have to lie about this? I can see two different ways for them to go:

(1) Hold on to their stock in sufficient quantity to get union representation on the board and start making big promises to the union membership again, or

(2) Sell all their "new GM" holdings so they aren't left holding the bag if they lead the new GM down the road of insolvency again.

Assuming they are truthful, their stated desire to divest of much of their new GM ownership suggests to me that they either (a) don't have much confidence in the prospects of the company or (b) they plan to make the new GM less competitive just as they helped the old GM down that road.

 

[FinanceDude]

I'm no fan of the UAW, but what reason would they have to lie about this? I can see two different ways for them to go:

(1) Hold on to their stock in sufficient quantity to get union representation on the board and start making big promises to the union membership again, or

(2) Sell all their "new GM" holdings so they aren't left holding the bag if they lead the new GM down the road of insolvency again.

Assuming they are truthful, their stated desire to divest of much of their new GM ownership suggests to me that they either (a) don't have much confidence in the prospects of the company or (b) they plan to make the new GM less competitive just as they helped the old GM down that road.

I'll go along with (1) and (b) above. One automotive analyst says he says the UAW using their "new-found clout" to make sure only domestic suppliers are used, try to organize unions at the non-union Asian carmaker plants in the US, etc. he probably is not that far off.......

 

[Zathras]

If GM went into BK without gvmt help.... it would emerge as a smaller company at the other end... you can call it liquidation or whatever, but it would not 'go away'....

No, it wouldn't, it would go chapter 7 and liquidate. Yes, that means 'go away'.
Now, some company would likely buy up parts of the liquidated GM and pick up some of the market where GM left off. But without restructuring financing (which no one other than the government offered) a company can't restructure.

FD, the UAW has been trying to move into asian car companies for many years. They have no new clout. They have a proposed seat on the new GM board, but it is a non-voting position.

Yes, I agree they got better treatment than they should have. But I don't see them taking over the industry any more than they already have. And if they do, I expect we will see another bankruptcy declared in a few years.

 

[FinanceDude]

FD, the UAW has been trying to move into asian car companies for many years. They have no new clout. They have a proposed seat on the new GM board, but it is a non-voting position.

If I was working for Toyota as a line worker, I would stay far away from the UAW...their track record is NOT good........

 

[Westernskies]

If I was working for Toyota as a line worker......

.....you wouldn't be expousing the virtues of your beloved Honda here on FIRE?

 

[FinanceDude]

.....you wouldn't be expousing the virtues of your beloved Honda here on FIRE?

Well, I haven't expoused my latest purchase, so some secrets are safe. DW and I bought 6 new GM cars and SUV's over a 25 year period, so its not like I'm a GM hater..........

 

[Westernskies]

Well, I haven't expoused my latest purchase, so some secrets are safe. DW and I bought 6 new GM cars and SUV's over a 25 year period, so its not like I'm a GM hater..........

Oh, come on, your secret is safe here on FIRE. We know you wouldn't play outside your LBYM role, anyway!

 

[Texas Proud]

"GM's filing for Chapter 11 bankruptcy protection is the largest ever for an industrial company. GM, which said it has $172.81 billion in debt and $82.29 billion in assets, had received about $20 billion in low-interest loans before entering bankruptcy protection. "

From a GM to sell Hummer article.....

SOOO, how can a company that has almost $173 BILLION dollars of debt and only $82 ish billion of assets not be in bankruptcy earlier And how can the kicked out CEO say that BK was not an option

To me it looks like their ONLY option.....

 

[clifp]

"

SOOO, how can a company that has almost $173 BILLION dollars of debt and only $82 ish billion of assets not be in bankruptcy earlier And how can the kicked out CEO say that BK was not an option

To me it looks like their ONLY option.....

That has been obvious to anyone who looked at their balance sheet. FYI GM first had a negative net worth, back in 2006, and I believe had tangible negative equity (subtracting off good will, the actual value of dubious acquisitions like Hummer, and Opel) back in 2005.

 

[Gone4Good]

Liquidation? Of course the present "deal" is better for the bondholders than liquidation, but liquidation isn't seriously being considered. This is a Chapter 11 filing (reorganization).

Chapter 11 is only possible if one has access to Debtor in Possession financing, which GM does not. The government is providing $15B for this purpose. So without government help . . . liquidation.

It's important to recognize the significance of the DIP financing. Everyone who is frothing at the mouth over the treatment of bondholders implicitly assumes that they're carving up a pie of fixed value. They're not. Without government help (a.k.a. DIP financing) the pie is much, much smaller. So it's entirely possible (and in fact likely) that unsecured bondholders are getting a better deal by accepting a smaller slice of a larger pie than forcing a liquidation and getting a larger slice of a smaller pie.

and the pain of this needs to be shared according to the established debt seniority.

If this were an ordinary situation, I'd agree. But it's not. All creditors are making out better here because of government largess. To the extent the government is making claimants better off than they otherwise would be, that excess value can be divvied up however the government sees fit.

If I had deep enough pockets, I could walk into any bankruptcy court in the country and do exactly the same thing . . . as in "Hi, I'm feeling generous today. I've got a spare billion I want to bestow on the creditors of ABC company. I want to give 10% to secured creditors, 20% to unsecured, 30% to junior subordinated, and the balance to the pre-petition wage claim of the secretarial staff. If anyone disagrees, nobody gets anything." That, by the way, is essentially what's happening at GM.

 

[Gone4Good]

And even the general bondholders here should be getting more than the UAW... or at least the same % on the dollar... but they are not...

It's fairly common for the claims of "critical vendors" to get preferential treatment in a Chapter 11 bankruptcy. The reason being, you need critical vendors to keep running. As I understand it, union claims in other bankruptcies have made out better than general unsecured creditors for this reason. The major difference between GM and other bankruptcies, I think, is the treatment of the VEBA trust.

But once again, bondholders are agreeing to this deal because it is better than the alternative.

 

[Maurice]

You don't sound like you have an axe to grind. You hate American cars because Ford almost caused you to go bankrupt? Maybe you almost went bankrupt because of your own doing and want someone to blame and somehow Ford got in the mix. Did they personally screw you over somehow? If they did why would you hate GM or Chrysler?

Bankrupt is a strong word because I had no appreciable debt. Nevertheless, in my early 20s a problem-prone 84 Ford Tempo kept costing me money I didn't have. And the damn thing was only 5 years old.

I have not owned a car since 1995 (a Nissan Maxima). Since then I have rented lots and lots of cars - almost all of them late model American cars because until recently that was pretty much the only thing the major car rental companies had on offer. I generally find them inferior to the imports. (Except in cup holders. The US leads the world in cup holders.)

Somehow I hope your job is tied to the automobile industry.

Not so much. I work for an investment bank. One that took no money from any government and is quite profitable.

You are a bitter person.

No, like millions of Americans I'm just not fond of American cars.

 

[Westernskies]

No, like millions of Americans I'm just not fond of American cars.

Thank you for your generalization. May I exclude myself?

 

[Maurice]

Its not really a generalization, is it?

If I say "Californians support Obama" thats a generalization. If I say "millions of Californians voted for Obama" that's just a statement of fact.

At any rate, I wasn't presuming to speak for you or any other particular individual on this forum.

 

[Gumby]

When a thread degenerates into personal sniping, it's time to close it.

 

[Gumby]

After reconsideration by the moderators, we have reopened this thread. Please adhere to the Community Rules when posting. In general, this means

1. Avoid personal attacks and insults
2. Avoid ideological screeds and sensationalistic claims
3. Facts and objective analysis are always welcome.

 

[Maurice]

2. Avoid ... sensationalistic claims

I guess this means I should take back my comment about American car companies leading the world in cup holders. I have no empirical basis for such a claim.

 

[JOHNNIE36]

Maurice, I apologize for the personal remarks I made toward you about hating American made cars. That just got under my skin. As a GM engineer (retired), I spent 34 years with the company, the last third of which were spent trying to compete with Japanese auto makers. Those last ten years were tough with top management ramming it down our throats every day about how much ground we had to make up. The eighties were really rough years. We made inroads in the 90's, still were not there but I think we finally caught up in the 2000's. I'm talking quality. We are still behind in the fuel economy game and I guess right now it doesn't mean a thing. Just trying to survive. We'll see how the new GM makes out. Maybe I shouldn't have taken your remarks so personally.

 

[calmloki]

I feel really dumb about some things. Seems like in a bankruptcy, say GM's, the company going bankrupt may survive by voiding it's debt. While that may save the company, doesn't it just mean that the debt is passed to the vendors? So GM survives but Saginaw Gear and Firestone rubber and General Steel lose 170 billion? Is the idea that spreading the debt out to a bunch of the supplier companies makes a larger group shoulder the load and maybe be able to carry it? So maybe all the companies survive?

Thinking about the talking heads saying that 170 billion in debt gets wiped out and it just seems to me to get reapportioned. Sure i'm not looking at this the right way...

 

[samclem]

I've wondered if some car company (maybe GM) couldn't effectively market a car to buyers seeking "lowest total cost of long term ownership." The idea would be to appeal to the most practical among us, people who want a reliable, cheap, safe car as a means of transportation, and people who don't define their self image by the type of car they drive. Think of "car as a transportation appliance," not "car as style statement.
Attributes of the vehicle:
- All the normal stuff: Good mileage, comfort, safety.
- Features specifically designed to reduce cost of ownership over time:
-- Body panels, light covers, etc that remain the same for at least 5 years (so that spare parts are available and cheap.) This would reduce the time ($) and parts costs for collision repairs.
-- All replaceable components specifically designed to be easily replaced (whether by the owner or the mechanic). Heater fan, wiper motor, AC compressor, all filters, etc can be easily reached, without removing other components, trim panels. Maybe that means more empty space under the hood--that's also good for crash safety. A larger car (volume) need not weigh much more than a smaller (volume) car, and it is weight, not volume, that has the largest impact on gas mileage.
-- How about some serious attention to corrosion? I'd pay a few hundred dollars more for a car designed with better resistance to salt/rustout. Easily replaceable wheel arches? Good attention to allowing everything to dry out without trapping water/salt?
-- Fewer trim panels and "snap-in" assembly parts (ever try to remove an interior door panel on a modern car without ruining it?). More exposed fasteners. This increases serviceability, might decrease parts count.
It seems like a car (or a small sedan and a minivan pair) of this ilk might be a good car for these times. Folks are cutting back, minimalism is cool, materialism is gauche, funky little square utilitarian cars (Scion, Honda Element, etc) are popular, etc. There's nothing greener than a car that can be effectively and cheaply kept on the road for 20 years. The marketing guys would have t take a page from the past to sell these cars--no 30 second commercials of cars whisking through winding roads, more print adds showing the careful attention to smart details and subtly showing why the car is cool in its own way.

JOHNIE36, in your time at GM, surely this concept was talked about. Any feedback?

 

[ziggy29]

I've wondered if some car company (maybe GM) couldn't effectively market a car to buyers seeking "lowest total cost of long term ownership." The idea would be to appeal to the most practical among us, people who want a reliable, cheap, safe car as a means of transportation, and people who don't define their self image by the type of car they drive. Think of "car as a transportation appliance," not "car as style statement.

To some degree, I think "total cost of ownership" (TCO) is a function of the times and how one "consumes" vehicles.

In good times, for example, people who act as if the good times will never end may drive a car for three years and trade it in for a new one. In terms of *cost* (not necessarily overall customer satisfaction), reliability is less of an issue because the vehicle is under warranty for the entire period assuming no excess mileage. Fuel economy and insurance costs factor in, but the main factor here is probably resale value. For a three year ownership period, depreciation on a new car probably exceeds gas and insurance costs. And here, the U.S. automakers have suffered; Hondas and Toyotas have depreciated at a slower and more linear rate for quite some time now. I think at least part of Detroit's challenge is to address the market reality that their vehicles suffer substantially faster depreciation than the primary Japanese competition.

In harder times when "frugal is in," for a longer period of time (say 7-10 years of ownership), then reliability and maintenance/repair history become a lot more important. You're going to drive it until the car isn't worth much regardless of make, so depreciation is less of an issue in TCO (still a factor, but not one that dwarfs the others).

It would be interesting to know if some of the innovations you describe would help increase resale value and thus lower TCO for most people.