GM under?

[glinka]

I retired about two years ago from General Motors. Never thought about if they would go into bankruptcy. What happens if that does occur? I have heard different things such as the government protects it or it is fully funded by GM. But don't know for sure. The medical is in the process of being taken over by the UAW. Just wondered, have heard horror stories about companies going under just before someone retired, but not while already in retirement.

 

[Rich_by_the_Bay]

I'd be most interested if I had a GM-funded pension.

 

[laurence]

W. signed the Pension Protection Act of 2006, not sure what the details are, and I have heard of some provisions elsewhere for govt. assistance, but I've also heard there is a cap on payouts. I think it works in a way that lower paid workers get fully restored but a retired exec may see a significant haircut.

This is worse case, though. That Merryl Lynch guy just made a throwaway comment IMHO on GM filing bankruptcy.

 

[brewer12345]

Hey, if GM actually goes Ch. 11, the value of my bonds will likely rise.

 

[clifp]

Hey, if GM actually goes Ch. 11, the value of my bonds will likely rise.

Ok I'll bite if GM goes bankrupt why would your bonds rise? I would think GM bond holders would suffer not as much as stockholder but still would be hurt.
You probably wouldn't get any interest payments.

 

[chinaco]

I think it shows how poorly GM has planned. They lay some of it off on the Unions... but part of the problems is extremely poor strategic planning. They knew this could happen with fuel prices and the consequences.

I hope the company survives... but fire the execs.

 

[Texas Proud]

I am not one to defend the GM management as they are so incompetent....

But trying to put blame on them for not seeing the high oil prices is just stupid.... nobody saw it coming this fast and this high...

I read an article (yesterday??) that said Toyota executives got it wrong when they ramped up production of their big Tundra truck just when gas prices were rising... and they planned on opening an SUV plant by 2010.... and this is supposed to be the best run car company on the planet....

From another article "Toyota said Tuesday its car sales dropped 9.4 percent for the month, while its truck sales slipped 38.9 percent. For the first half of the year, Toyota sales were down 6.8 percent."

 

[Midpack]

Removed...

 

[brewer12345]

Ok I'll bite if GM goes bankrupt why would your bonds rise? I would think GM bond holders would suffer not as much as stockholder but still would be hurt.
You probably wouldn't get any interest payments.

Bonds are already trading at a hefty discount to par. If GM went tits up, the equity holders would be wiped out, they would be able to rip up all their union contracts within the confines of BK court, and their cash flow would be improved by the amount of their interest payments they are no longer making. When they emerged from BK, they would have done all the nasty surgery that they would love to do now but cannot due to union and other commitments (thinking of closing old domestic plants, laying off droves of people, defaulting on its retiree healthcare benefits, finally cutting off the pension, etc.). When the company comes out, the old bondholders would get stock in the new company, bonds or both. As an example, up until the last 6 months, if you bought Delta bonds about the time they went bust a couple years ago, you would have done quite well.

 

[Zathras]

[-]
Nonsense. I see no fault in blaming the automakers for their lack of planning.
I certainly do not blame them for selling big vehicles while they were popular.
Where I believe they deserve blame for their own situation is that they were unprepared for an event that they knew was coming. They may not have known WHEN gas prices were going to spike, but they had to have the competence to know it was happening sometime.
For companies their size, they could have reacted quickly IF they had had a low production, fuel efficient vehicle in production. Instead they have to start from scratch because they didn't have anything that could get over 40mpg in the US.
And apparently can't bring in their more efficient cars from Europe.
Heck, GM could dust off the EV1 and sell it right now.
[/-]
Edit - Sorry, not really on topic...

 

[CitricAcid]

Bonds are already trading at a hefty discount to par. If GM went tits up, the equity holders would be wiped out, they would be able to rip up all their union contracts within the confines of BK court, and their cash flow would be improved by the amount of their interest payments they are no longer making. When they emerged from BK, they would have done all the nasty surgery that they would love to do now but cannot due to union and other commitments (thinking of closing old domestic plants, laying off droves of people, defaulting on its retiree healthcare benefits, finally cutting off the pension, etc.). When the company comes out, the old bondholders would get stock in the new company, bonds or both. As an example, up until the last 6 months, if you bought Delta bonds about the time they went bust a couple years ago, you would have done quite well.

Would never have figured that out myself, but that is pretty cool. I don't know too much about bonds, but I assume these are convertible bonds?

About the GM issue, I agree that it is a plethora of issues. Consumers generally drive what companies make, they aren't going to flood the market with millions of cars that won't be sold, so they made trucks and SUVs to cater to consumer demand/American consumerism. What they could have (hindsight 20/20) is obviously prepared better and invested in the future so that they were ADAPTABLE to the changes in oil. They did not need to start making a ton of hybrids already or be selling high mpg cars, but be able to quickly adapt to changing economic pressures and consumer preferences. I also feel that some of the blame must be placed on the unions, but not too much. The amount that GM has to pay out a year in medical expenses and pension plans for their employees is just astounding, and the stranglehold the employees have on the company has something to do with what brought the company to the ground. But, then again, the country all buying SUVs and pickups had something to do with it...

And, to the original topic at hand, I do not know the details of the GM pension plan, but usually they are strcutured annuities from outside companies so the pension possibly won't be affected, but the medical expense payments will probably be affected depending on the structure of that.

 

[soupcxan]

When the company comes out, the old bondholders would get stock in the new company, bonds or both.

So the current bondholders wouldn't have to take any sort of haircut on what they're holding? Or they would get less than face value, but more than what they paid (assuming they bought after the price of the bonds dropped)?

 

[brewer12345]

So the current bondholders wouldn't have to take any sort of haircut on what they're holding? Or they would get less than face value, but more than what they paid (assuming they bought after the price of the bonds dropped)?

Depends on how much value there is to satisfy all the claims on the estate. With something like GM, the gummint and PBGC would eat first, then trade creditors deemed to be essential to keeping the business in operation, the secured creditors (bank loans, asset-based loans, etc.), then the senior unsecured bondholders, then any subordinated bonds, then any preferred stock, then common equity. The union workers would take it in the shorts via pay cuts, layoffs, plant closures, cutting off of retiree benefits and probably a reduced pension, which is where a lot of the value wouldcome from.

Without a very detailed analysis, it is impossible to say who would get what. My suspicion is that equity would get nothing, subordinateds would get a tip of the hat, senior unsecureds would wind up owning the company (whatever it turns out to be worth), and the banks would get made whole via new loans/bonds with higher coupons and tighter terms. Whether the senior unsecureds took a haircut or not would depend on what the equity was worth in a slimmed down, restructured GM.

This is the sort of thing I would do some digging on and seriously consider buying bonds if they filed and the bonds were priced attractively. Having said that, I suspect that most any politician you care to name would go to some pretty extended measures to avoid having a very large employer go poof in an election year. I am thinking of the gummint backed-loan that Chrysler got when they were on the ropes.

 

[wheel9]

I think it shows how poorly GM has planned. They lay some of it off on the Unions... but part of the problems is extremely poor strategic planning. They knew this could happen with fuel prices and the consequences.

I hope the company survives... but fire the execs.

For an interesting read on why GM is in the shape it is in Amazon.com: While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis: Roger Lowenstein: Books

 

[ziggy29]

For an interesting read on why GM is in the shape it is in Amazon.com: While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis: Roger Lowenstein: Books

And state and local governments are next. Just ask folks in Vallejo.

 

[FinanceDude]

GM has 346 retirees for every employee who is working at GM, Honda has 6, and Toyota has 9. Think Social Security, but 160 times worse..........

GM will go into BK, but they are far from toast........

Actually a leaner GM, Ford and Chrysler would be good LONG-TERM for everyone.........

 

[windsurf]

Bonds are already trading at a hefty discount to par. If GM went tits up, the equity holders would be wiped out, they would be able to rip up all their union contracts within the confines of BK court, and their cash flow would be improved by the amount of their interest payments they are no longer making. When they emerged from BK, they would have done all the nasty surgery that they would love to do now but cannot due to union and other commitments (thinking of closing old domestic plants, laying off droves of people, defaulting on its retiree healthcare benefits, finally cutting off the pension, etc.). When the company comes out, the old bondholders would get stock in the new company, bonds or both. As an example, up until the last 6 months, if you bought Delta bonds about the time they went bust a couple years ago, you would have done quite well.

The "nasty surgery" would be perfectly legal but, in my mind and by my standards,, immoral as to defaulting on negotiated, contracted benefits and pension commitments.

 

[maddythebeagle]

GM has 346 retirees for every employee who is working at GM, Honda has 6, and Toyota has 9. Think Social Security, but 160 times worse..........

GM will go into BK, but they are far from toast........

Actually a leaner GM, Ford and Chrysler would be good LONG-TERM for everyone.........

Yeah, I dont see how they wont go into BK...BTW OP, you probably could google stories of what happened to folks in steel and the airlines....Hard not to listen to the news to listen to folks hard luck stories after a local company has problems. One of my coworker's husband worked in the steel industry and ended up with a percentage of the pension Pension Benefit Guaranty Corporation (PBGC)

 

[Midpack]

GM has 346 retirees for every employee who is working at GM, Honda has 6, and Toyota has 9. Think Social Security, but 160 times worse..........

I assume you're joking re: GM, Honda & Toyota...

 

[brewer12345]

The "nasty surgery" would be perfectly legal but, in my mind and by my standards,, immoral as to defaulting on negotiated, contracted benefits and pension commitments.

??

How do you figure? This is business, not religion. The UAW fought for all those high value benefits and got them. But anyone who has been alive for the past decade or so could see that UAW workers were taking a risk by accepting the high pay and very generous benefits and hoping that the automakers would stay healthy enough to continue paying them. Think risk premium. Well, if GM et al go into Ch 11, the risk that the union workers were being paid to accept will come home to roost. Those folks had a choice, and they chose to take the risk for the available compensation. They could have negotiated a less costly deal with the former big 3 or taken lower paying but safer jobs at non-union plants.

Sorry, you take the risk, you live with how the dice roll. Simple as that.

 

[saluki9]

The "nasty surgery" would be perfectly legal but, in my mind and by my standards,, immoral as to defaulting on negotiated, contracted benefits and pension commitments.

Last time I checked GM was not allowed to print it's own currency. That being the case, what other option exist when their obligations exceed their cash flow and nobody wants to lend to them?

Would you feel better if the company went into liquidation and both the retirees and employees all got screwed?

FYI - As of their last form 5500 filing, the GM pension plan had a surplus of $6B So it would be the health benefits at risk, not the pension payments.

 

[ziggy29]

How do you figure? This is business, not religion. The UAW fought for all those high value benefits and got them. But anyone who has been alive for the past decade or so could see that UAW workers were taking a risk by accepting the high pay and very generous benefits and hoping that the automakers would stay healthy enough to continue paying them. Think risk premium. Well, if GM et al go into Ch 11, the risk that the union workers were being paid to accept will come home to roost. Those folks had a choice, and they chose to take the risk for the available compensation. They could have negotiated a less costly deal with the former big 3 or taken lower paying but safer jobs at non-union plants.

Something about geese and golden eggs comes to mind here.

For too long, I think the UAW has been in denial that it wasn't 1960 any more. At that time, there was very little international competition since most of the developed economies were still damaged by WW2 and the emerging economies hadn't "emerged" into becoming significant industrial players yet.

In such a time, U.S. industry was king, almost the only game in town. U.S. manufacturers flourished to the point where they could give the UAW (and other industrial unions) unprecedented retirement security. But in the face of increasing lifespans, cheap foreign competition, runaway health care costs and struggling pension funds in a tough market, these benefits are killing the goose.

We may find it unsettling that the "global economy" has had a real effect on the ability of U.S. businesses to provide economic security for its employees. But it's real, and as much as we don't want to accept it, labor has to resist the urge to keep asking for golden eggs while the goose is extremely sick. The alternative is killing it, and winding up with no more golden eggs at all.

Unfortunately this train wreck looks like it may repeat itself in state and local governments. And public employees unions are even more powerful than the UAW.

 

[brewer12345]

FYI - As of their last form 5500 filing, the GM pension plan had a surplus of $6B So it would be the health benefits at risk, not the pension payments.

I figure what GM could gain pension-wise is that they could freeze the plan and stop letting employees accrue any additional benefits. What you have, you keep, since it is funded, but that's it.

Obviously the health stuff would get whacked to the extent the liabilities were greater than the assets in the VEBA trusts.

 

[haha]

FYI - As of their last form 5500 filing, the GM pension plan had a surplus of $6B So it would be the health benefits at risk, not the pension payments.

Saluki, where can these be accessed? It's an IRS form, but also public I think?

Thnx,

Ha

 

[windsurf]

??

How do you figure? This is business, not religion . . . . Sorry, you take the risk, you live with how the dice roll. Simple as that.

I am not trying to persuade you. Just giving you my perspective. And it's not a matter of religion–it's a matter of ethics.