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Old 03-30-2009, 12:20 PM   #21
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Personally, I don't know it can end well for GM shareholders except as a short-term speculative play. I can't see any long-term options to keep them viable other than bankruptcy. That effectively wipes out stockholders and probably makes bondholders at least partial new owners of the rebuilt GM.
I could see an even more speculative mid term play if you assume that the 80% cut in stock value is already priced in, and that the deal with bondholders will go through AND the economy will recover such that GM starts making a profit.
Then you have the bet the stock will increase in value enough to cover your risk, quickly sell it before gas goes up north of $3/gallon or GM's internal weaknesses rear their ugly heads and the company goes to chapter 11 anyways.

Far too speculative for me, I'd rather put it all on 00 on a roulette wheel.

But I thought I might have missed something?
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Old 03-30-2009, 12:52 PM   #22
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It will be interesting to see how Ford will fare considering they didn't take any bail out money. It would nice to see the company survive and possibly thrive.
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Old 03-30-2009, 01:02 PM   #23
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It will be interesting to see how Ford will fare considering they didn't take any bail out money. It would nice to see the company survive and possibly thrive.
There are conflicting schools of thought. One is that GM will gain an unfair competitive advantage for feeding at the public trough which could hurt Ford. The other is that Ford will gain market share for two reasons:
  • Consumers could have more confidence in Ford's survival, helping to convince people that warranties will be honored and parts and service will remain more available;
  • Potential backlash against companies feeding at the trough which could turn people against purchasing GM and toward buying Ford.
It remains to be seen, I think -- depending on how long this persists and how long the populace continues to carry torches and pitchforks, I could see it either benefiting or hurting Ford. I will confess that personally, because of all this mess, if ANY U.S.-based automaker survives, I do hope it's Ford at this point. As long as their hands stay out of the cookie jar, anyway.
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Old 03-30-2009, 01:30 PM   #24
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Now if Obama is really smart he will put GM in Chapter 11 . . .
The phrase speaks volumes about how far we've come and what is deemed to be the proper role of the executive branch. No one even takes exception when such things are proposed today. There was a time . . .
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Old 03-30-2009, 02:14 PM   #25
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I thought Ch 11 (with the gov't providing DIP financing) was the best option. I read this and wonder how much is negotiating position and how much of it is really drawing a line.

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Among challenges the administration faced leading up to this weekend's decision, foremost were the efforts to draw steep concessions from the United Auto Workers union and from the bondholders.

Attempts to solidify deals with the UAW and bondholders were slowed by disagreements by both parties over how exactly the other party needed to budge. The UAW, for instance, insists it already made health-care concessions in 2005 and 2007, and argues that the bondholders have never been asked to concede anything.

"I don't see how the UAW will do anything until they see what the bondholders will give up," one person involved in the negotiations on behalf of the UAW said Sunday.

The bondholders have said that they are willing to make concessions, but they have wanted to see the union make further cuts. The fact GM raised most of the unsecured debt to fund union health-care and pension costs is also seen as a reason why the union needs to take bigger steps.
Obama Outlines Plans for GM, Chrysler - WSJ.com
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Old 03-30-2009, 02:18 PM   #26
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Sam, when the company is going to the government begging for money because they are unable to raise capital in any other way...
It isn't the role of governement to make business decisions. But it is also not the governments role to bail out businesses.
So instead of saying 'the government isn't going to give more money to GM which in turn will force GM into liquidation' many people shorten it to 'Obama is going to force GM into Chapter 11'.
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Old 03-30-2009, 02:47 PM   #27
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It isn't the role of governement to make business decisions. But it is also not the governments role to bail out businesses.
I agree 100%

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So instead of saying 'the government isn't going to give more money to GM which in turn will force GM into liquidation' many people shorten it to 'Obama is going to force GM into Chapter 11'.
When the President's man can tell the CEO of the company to quit (or the government money stops -- and we all know what that means), there's not much need to pretend anymore that there's an arm's length relationship between the executive branch and this company. Really.

If Chapter 11 is the likely destination, why did the administration first decapitate GM? Some might say that this is to give a negotiating advantage to other parties in the Chapter 11 process.

It stinks, pure and simple. It stinks like the worst Chicago-style politics, there's no nice way to say it. If the executive branch doesn't want to be accused of politicizing this very important issue, then they should get their hands out of it.
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Old 03-30-2009, 03:12 PM   #28
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If Chapter 11 is the likely destination, why did the administration first decapitate GM?
I don't believe chapter 11 was the likely destination.
I think full out liquidation was the likely destination. The government stepped in to prevent chaos. The first attempt by Bush was to tide them over until the economy turned around. HE put strings on it.

Again, now there is still the spectre of liquidation. Obama took the step to gaurentee the warantees which is one of the biggest reasons chapter 11 would be a major issue.

Would you have a better suggestion as to how to deal with this while keeping the chaos to a minimum?

I am sure the politicians HATE being in this position and wished GM had never come asking for them to interfere.
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Old 03-30-2009, 04:08 PM   #29
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So you understand that the stock will either be worth on 20% (or less) as of the bondholders agreeing to take equity for debt, or worth zero if GM goes through chapter 11?
Or do you see another option?
I don't understand much of anything - one can read reports and speculate about political plays and ponder the imponderables and it all can come to naught. What i do know is that it would be a dumb move for me to tell my honey we aren't buying less than $2k worth of a stock she wants when my purchase of $15k is in the toilet. Also, when all are running for the door it's often a good time to be buying. We're pretty quick to buy and real slow to sell - if GM survives (think there is good national security production reason for that) we may be in good shape in 5-10 years. My guess.
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Old 03-30-2009, 04:34 PM   #30
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Would you have a better suggestion as to how to deal with this while keeping the chaos to a minimum?
A modest proposal. Congress authorizes this method to approve a bail-out/restructuring/whatever you call it for GM/Chrysler. Pick the top two leaders of the Senate, GM, Chrysler and the UAW. Lock 'em in a room with paper, pencils, terminals, faxes, etc. Issue each a sleeve of saltines, a liter of water and an empty #10 can (that's yer bathroom, folks). "Let us know when you've got an agreement and we'll let you out."

Seriously doubt it could be any worse than what we'll end up with, but that's just my opinion.
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Old 03-30-2009, 05:12 PM   #31
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Thanks for the link. I think the report covers a lot in 4 pages.

I can't figure out why you say "issues with the union ,,, are not mentioned". The report says there were "various" requirements in the original loan, at least three of them haven't been met, and this is the reason for turning GM down. The three items are:


(a) and (b) both involve concessions from the union workers. I can't ignore (c). If I've got the facts right, the bondholders get $20 billion out of a complete gov't bailout. That's a lot of money, and I think it's entirely appropirate for the gov't to expect the bondholders to take a lot less.
It was my impression perhaps incorrect I am not sure, that was being used only to show that the original loan conditions were not met, the reasons given for why they need to do better focus on the other elements immediately following starting with the " "Progress to date:". Considering Obama could not even get a car czar announced in the amount of time he was ordering a complete turnaround of GM plan, ok this was technically done by Bush but only after Obama agreed to the details, only reinforces the lack of expectation of results from the political end.

and I was seeing a high level of need to improve high mileage cars to meet "legacy costs".

Then you have this statement today where Obama is pushing for $5,000 credit to buy a new high mpg cars: so to me I don't expect much to happen to the UAW, they are the core in the plan to save the automakers.


Obama backs consumer incentives to boost auto sales | Deals | Private Capital | Reuters
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Old 03-30-2009, 06:31 PM   #32
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I asked this question in the John Gault thread a few days ago. Seems even more fitting now:

With the Gov't stepping in to bail them (and banks and car companies and etc...) out, it is buying ownership/control in them. These businesses may not now be run with a strict eye towards business. Politicians will now feel they should have a say in how things are done. Can good business decisions be made with a political eye?
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Old 03-30-2009, 07:33 PM   #33
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I hope the government doesn't force GM and Chrysler to churn out gads of hybrids and other novelties that will not sell.
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Old 03-30-2009, 07:47 PM   #34
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I hope the government doesn't force GM and Chrysler to churn out gads of hybrids and other novelties that will not sell.
Yeah, Chrysler and GM are perfectly able to do it by themselves.
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Old 03-30-2009, 07:50 PM   #35
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I don't think the government is going to get into the details any more than general regulations covering all autos (CAFE standards for example).
I don't think these businesses are going to be run by the government.
I do think the government is going to set requirements for getting the loans. And when the companies don't meet those requirements, I would expect there would be consequences.
Since they couldn't ask for the money back (doing so would force liquidation), they asked for the man at the helm to take the fall.
For the good of the company, he did.
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Old 03-30-2009, 07:57 PM   #36
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...What i do know is that it would be a dumb move for me to tell my honey we aren't buying less than $2k worth of a stock she wants when my purchase of $15k is in the toilet.
Now that logic I can't argue too much with

However, before buying any individual stock, I always research it. And it is pretty apparent that the common stock has virtually no chance. Unless there is a way for the bond holders to give up their debt holdings than accepting stocks.

I could see this IF the government bought out all (or 2/3rds) of the bonds.
Other than that...
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Old 03-30-2009, 08:48 PM   #37
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Yeah, Chrysler and GM are perfectly able to do it by themselves.
Have you ever seen a postal truck? Government design.
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Old 03-30-2009, 09:04 PM   #38
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Have you ever seen a postal truck? Government design.
The Nova was a beaut, too. And the 70s/80s Mustangs....
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Old 03-30-2009, 09:41 PM   #39
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The Nova was a beaut, too. And the 70s/80s Mustangs....
I just wish Zora had lived to see the Z06 Vette's success. It just shows if you get people passionate about something, there is no limit to what can be accomplished. GM/Chrysler (probably Ford) lack passion - at all levels IMHO.
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Old 03-31-2009, 06:04 AM   #40
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It seems clear by now that bankruptcy is the only solution, whether organized/packaged or not. Bailouts to sustain a dysfunctional company just forestalls the inevitable and a cost to future generations. I suspect politicians and automakers were willing to front some $B in the hopes the economy would rebound sooner rather than later, and that might have helped. But I don't think anyone is expecting a strong or near term rebound in the broad economy now, so there is no point in putting future generations on the hook for more public debt. It's sad, but bankruptcy is the only way forward IMO. GM has gone from 50% US market share down to 18% or so over the decades, HELLO!!!


It's the fault of not one, but all:
  • myopic management (stuck in the 60's with no proactive long term senses)
  • an unrealistic union (stuck in the 60's - acting just like politicians WRT Soc Sec),
  • consumers who change their buying habits on a dime (you can't demand/buy Hummers & Escalades for years and years and then expect GM to instantly offer a full line of smaller, more fuel efficient cars all of a sudden) and
  • politicians with no clue re: energy policy (which includes cars/transportation) which could have helped. It's no accident the rest of the developed world largely builds and buys small, more fuel efficient cars - it's not because their citizens are smarter than we are...
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