GM and Chysler Bankruptcies

[kandrathe]

<blockquote>Chrysler heads to court for key bankruptcy hearing

NEW YORK (AP) — The future of Chrysler hangs in the balance as it heads to court Wednesday to ask a bankruptcy judge for permission to sell the bulk of its assets to a group headed by Italy's Fiat in hopes of saving itself from liquidation. Attorneys for Chrysler LLC maintain that the deal with Fiat Group SpA is the company's only hope to avoid being sold off piece by piece, but the agreement remains controversial with more than 100 objections to the sale filed by the automaker's dealers, bondholders, former employees and others.</blockquote>Now the process for Chrysler is to have Fiat slice off the intellectual property and any profitable portions, while the old Chrysler disappears and whomever was holding its stocks and bonds get pennies in return.

<blockquote>US likely taking majority ownership of GM

NEW YORK (AP) — In the end, General Motors' massive cash needs likely trumped any chance of the automaker avoiding a bankruptcy court-supervised reorganization. General Motors Corp. is expected to announce early Wednesday that only a small fraction of the holders of its $27 billion in bonds agreed to swap that unsecured debt for a 10 percent equity share of a recapitalized GM.</blockquote>GM is worse. The new government owned GM will be a new company that will get all the good parts of GM, whereas all the debts and obligations will die with the old GM, and again, the bond and stockholders will be left with squat.

And, here I was all upset when Chavez nationalized the Cargill subsidiary in Venezuela. I doubt Chavez owned any Chrysler or GM stock. Too bad.

[Kevin]

I'm not sure what your point is.

Part of capitalism and markets is that your investment can fail and you can get screwed.

If the gripe is that these companies got government money that I personally felt they never should have gotten, and they are still going to fail, OK. But mergers and sales, and stock and bond holders getting screwed happen all the time in our system. Sometimes mergers and sales happen the stock and bond holders do fine or get a benefit too. Sometimes companies just go bankrupt and there are no sales or mergers and the stock and bond holders are screwed too. I can't see you complaining about that.


I never thought the government should have bailed out the automakers in the first place. You can in fact fail in the free market and in fact sometimes you should fail. I saw rumors that Tesla Motors was looking to try and pick up some of the assets after a collapse. A common occurrence when a company goes bankrupt. Short term the "Big 3" failing hurts, long term a better company comes along to fill the hole in the market.

Hell Saturn is still out there and doing alright too. There are American car companies that could have potentially stepped up and filled the void, you don't know because the government stepped in and propped up something they shouldn't have. You have the right to fail and you should be allowed to for the system to work.


I'm OK with the bank bailout, that's a bit different and the news that 9 of the 19 are already repaying TARP funds with interest is somewhat heartening.

[kandrathe]

I'm not sure what your point is.

My complaint is more in the way in which the bankruptcy is being orchestrated by the US government. The way bankruptcy is supposed to work is that the beneficiary should be the former stock and bond holders, and not Fiat, or the US government.

[Jester]

My complaint is more in the way in which the bankruptcy is being orchestrated by the US government. The way bankruptcy is supposed to work is that the beneficiary should be the former stock and bond holders, and not Fiat, or the US government.

If you invest in a company that ends up floating upside down in the fishtank, you lose. Big time. That's what having skin in the game means.

And the government isn't a beneficiary of anything. They're buyers. They've poured gadrillions of dollars into this. What would be criminal is if the taxpayers got nothing for that money. Otherwise, this is a bailout of stockholders who made crappy decisions, which is a bad idea, to say the least.

I would have let the dinosaurs die, but if they're going to be kept alive, that comes with a price.

-Jester

[Bun-Bun]

My complaint is more in the way in which the bankruptcy is being orchestrated by the US government. The way bankruptcy is supposed to work is that the beneficiary should be the former stock and bond holders, and not Fiat, or the US government.

Common stockholders are invariably the last in line. They rarely recover much of anything. That's the way corporate bankruptcy works, orchestrated or not.

[Ashock]

My complaint is more in the way in which the bankruptcy is being orchestrated by the US government. The way bankruptcy is supposed to work is that the beneficiary should be the former stock and bond holders, and not Fiat, or the US government.

I'm not sure I understand your point. Are you not happy that the US gov't will own a piece of them, while we the taxpayers are paying for that chunk with our tax dollars and are getting nothing in return??? I don't get it. I mean this is what communism is all about, isn't it? Well, fine. If not communism, then certainly socialism. Rejoice, rejoice! You are not happy being a little cog in the giant machine? I know I am!

Can I still say this? I better relocate before they take my family away. Well just in case someone from the UASR government is monitoring this, I meant everything I said above. I really did. I voted for Obama, in fact I voted for him 3 times. Also, I am all for gay marriage and late term abortions. In fact, I am even more for late term gay abortions.

Anyway.....

[Nastie_Bowie]

C'mon, it is all Hope and Change.

Don't worry, be happy ...

:lol:

[--Pete]

Hi,

Are you not happy that the US gov't will own a piece of them, while we the taxpayers are paying for that chunk with our tax dollars and are getting nothing in return???

Thank your lucky stars, they could force you to take an SUV and then where would you be? Although, don't worry, it won't use much gas; hell, a government made SUV probably won't even *run*.

--Pete

[Ashock]

Hi,
Thank your lucky stars, they could force you to take an SUV and then where would you be? Although, don't worry, it won't use much gas; hell, a government made SUV probably won't even *run*.

--Pete

A government run SUV is called a 2 seater bicycle, I believe. Well, soon it will be...

[Concillian]

I'm not sure what your point is.

Part of capitalism and markets is that your investment can fail and you can get screwed.

The point is that the laws have a very specific pecking order on who loses out most when a company goes bankrupt and those laws are being circumvented by the government.

We had a recent discussion on the government circumvention of laws with the torture thing, that circumvention of laws didn't work out very well. Think this one will? People choose investments based on the risk involved based on the laws that exist, circumvention of those laws means people will have less confidence in relatively low risk investments (bonds) and they will be a less viable option for companies who want to use them as an option in the future.

The ramifications here are quite a bit larger than most people realize, I think. It's the same sort of thing that got us into the whole mess with the sub-prime lending. Only a few percent of the people actually understand the issue and most people are like 'yeah, whatever, no big, it'll work itself out' Yeah... it worked itself out alright... right into >10% unemployment in my neck of the woods.

[kandrathe]

Here is what Ralph Nader has to say about it, <blockquote> Consumer advocate Ralph Nader today issued the following statement on GM's bankruptcy filing:

Today's bankruptcy declaration in federal court by General Motors is an avoidable, crude weapon of mass devastation for workers, dealers, auto suppliers, small businesses and their depleted communities. For GM's voiceless owners -- the common shareholders -- it is a wipeout.

The proximate cause of the bankruptcy was supposed to be the inability of GM and the government's auto task force to reach an accommodation with GM's bondholders. But late last week, the bondholder problem was moving toward rapid resolution, and was clearly resolvable. Why then are GM and its multibillion government financier proceeding with bankruptcy?

The bankruptcy and the GM restructuring plan are the product of a secretive, unaccountable, Wall Street-minded government task force that assumed power because of a Congressional abdication of historic magnitude. By all rights, the restructuring plan should have been submitted to Congress for deliberative review and decision.

There is little doubt that GM's chronic mismanagement and the deep recession require restructuring and scaling back the auto giant. But the bankruptcy and restructuring plan appear poised to do so in ways that will needlessly harm the stakeholders meant to be helped by Washington's rescue of GM?

Many, many jobs will be lost that could be preserved. There is reason to question whether too many plants and brands are being closed -- a matter that should have been taken up in Congress. Just the closing of hundreds of (GM and Chrysler) dealerships will cost more than 100,000 jobs. These sacrificed jobs will fray communities and impose enormous expenses on government entities that will have to provide unemployment and social relief, while suffering lost tax revenues.

The unionized workforce will see the wage and benefit structure slashed -- even though auto manufacturer wages make up less than 10 percent of the cost of a car -- so that new jobs at GM will no longer be a ticket to the middle class. This will drag down the wage structure of the entire auto industry -- exactly the wrong direction for the country.

America's manufacturing base will be further eroded, as GM pursues its Grand China Strategy -- increasing manufacturing outside of the United States, and increasingly from China, for import back into the United States. Unanswered questions persist about how GM's valuable operations in China, and unrepatriated profits, will be treated in bankruptcy, or excluded from bankruptcy.

Victims of defective GM products may find themselves with no legal avenue to pursue justice. In the Chrysler bankruptcy, with complete disregard for the real human lives involved, the Obama task force and auto company have maneuvered effectively to extinguish the product liability claims of victims of defective cars.

In a worst case scenario for the GM bankruptcy -- involving an extended court proceeding or severe impairment of consumer confidence in the GM brand -- all of these problems will be magnified. Again, given the path to resolution with the bondholders, this is an avoidable gamble.

The GM/task force bankruptcy plans appear geared to saving the General Motors entity -- but at a harsh and often avoidable cost to workers, communities, suppliers, consumers, dealers, and the nation's manufacturing capacity. It will also prove to be a complex political nightmare for President Obama.

With the company entering bankruptcy, the next challenge will be to ensure that the government exercises its ownership rights to undo and mitigate, to the extent possible, these damages. Among other measures, this should involve revisiting the serious drag-down, concessionary wage terms imposed on the United Auto Workers; demanding a moratorium on GM's outsourcing of production of cars for sale in the United States; and establishing successorship liability for the new GM, so that victims of dangerous and defective GM cars can have their day in court. </blockquote>

[--Pete]

Hi,

Here is what Ralph Nader has to say about it, . . .

For me, you couldn't have quoted a worse authority. Nader is a lying low life whose only concern is Nader, and has been so ever since his fradulent first book almost fifty years ago and continues to this day as he spoils elections for his aggrandizement. If you want to force an opinion on me, you could do worse than to claim that Nader opposes it.

--Pete

[kandrathe]

For me, you couldn't have quoted a worse authority. Nader is a lying low life whose only concern is Nader, and has been so ever since his fradulent first book almost fifty years ago and continues to this day as he spoils elections for his aggrandizement. If you want to force an opinion on me, you could do worse than to claim that Nader opposes it.

I don't like him either, but I wanted to show the diversity of people who don't like the Fed's interventionist, hidden cloak room deals. My opinion of GM is more nostalgic, but the reality is better described by this article in the Economist. Transportation is on a cusp of change with the advent of "peak oil", so the mechanism and means for our transportation must change. Perhaps this long failing giant must die, but I worry about who may be able to supply our needs for transportation during this time of change. It's a good thing I live in horse country, am well versed in horsemanship, and know how to hook up a harness.

[--Pete]

Hi,

My opinion of GM is more nostalgic, . . .

Ha! As for me, I'd rather push a Ford than drive a Chevy.:)

It's a good thing I live in horse country, am well versed in horsemanship, and know how to hook up a harness.

Don't live in horse country, and my lawn is too small to support a horse, much less two. Haven't done much riding in about forty-five years, but I suspect it's like falling off a bike -- once you learn, you never really forget. And if I could learn to saddle and bridle (and curry and cool) a horse as a pre-teen, I suspect I could do it again. But I can't find a model with a heater, much less air-conditioning. OTOH, a good horse would probably make a good caddy -- especially one that's trained to ground hitch.

--Pete

[Kevin]

I don't like him either, but I wanted to show the diversity of people who don't like the Fed's interventionist, hidden cloak room deals. My opinion of GM is more nostalgic, but the reality is better described by this article in the Economist. Transportation is on a cusp of change with the advent of "peak oil", so the mechanism and means for our transportation must change. Perhaps this long failing giant must die, but I worry about who may be able to supply our needs for transportation during this time of change. It's a good thing I live in horse country, am well versed in horsemanship, and know how to hook up a harness.

Really it's that bad that you feel we'll be back at horse and buggy?

GM failed. They were failing before the economy tanked. I fully agree that the govt should have stay out of it, and I agree that it appears that it's not following normal bankruptcy procedures, which bothers me.

This is a free market and an open market at that. If there isn't an American company skilled enough to fill the void (because there will be a void, there are people that will not buy a car that isn't made by an American company though I laugh sometimes because the car was probably not touched by an American citizen until it got to the dealership). But in the short run, the void will be filled by Ford and Saturn for the I have to have American even though they suck. And Honda, Toyota, BMW, Volkswagon, maybe Tata, and Fiat for the folks who just want a car that works.

GM failed, it should be handled like any other company that fails. You want free market and competition, you have to accept that even the best can fail. The government should stay out of it as much as possible. The courts are set-up to handle it.


As to Naders "congress should have reviewed". Maybe, but only to the extent that any owner/shareholder/bond holder is.

[kandrathe]

But in the short run, the void will be filled by Ford and Saturn for the I have to have American even though they suck. And Honda, Toyota, BMW, Volkswagon, maybe Tata, and Fiat for the folks who just want a car that works.

GM produced 3,382,315 vehicles in 2005, and Chrysler made 1,652,703 vehicles. I foresee a near term shortage in manufactured vehicles. 2nd place was Ford with 2,965,872 vehicles. What most people don't realize is that Ford, who got in to the cheap borrowing before the "liquidity crisis" :ph34r:will probably run into financial trouble within the next year as well. The big three produce about 80% of the vehicles produced in North America.

So the big question I have is; where will the production capacity come from to step in and provide North America with automobiles? The net effect of the scarcity will be to drive up the up the price of new and used automobiles sharply. That is, beyond the normal 10 to 20% needed to adhere to the new CAFE standards, and add in hybrid duel power systems. But, hey, in the Obama vision of the future we will all be running around in electric golf carts. But, I don't see anyone with the ability to pump out 9 million golf carts either. I don't see mass transit picking up the slack either. So, the automotive industry crisis of 2009 will become the transit crisis of 2015 or so once enough old cars hit the junk yards. So, my horse cart theory starts to look more viable. Yes?

GM failed, it should be handled like any other company that fails.

And, it wasn't.

You want free market and competition, you have to accept that even the best can fail. The government should stay out of it as much as possible. The courts are set-up to handle it.

I agree. Much like the churning in the Airline industry, the ones that succeed will be the ones who figure out how to keep their labor costs competitive. GM in its old incarnation was a huge social welfare system for auto workers, where government and the industry colluded to maintain the status quo well past its financial viability.

As to Naders "congress should have reviewed". Maybe, but only to the extent that any owner / shareholder / bond holder is.

Or, as Jon Stewart said, "We own GM! And, its only $30 billion for a 60% of a negative $90 billion. Why didn't you say that before? I'm so glad we bought this company."

[Kevin]

GM produced 3,382,315 vehicles in 2005, and Chrysler made 1,652,703 vehicles.

So the big question I have is; where will the production capacity come from to step in and provide North America with automobiles?

Toyota and Honda are both producing under capacity. So was Volkswagon the last I checked.

If the government had stayed out of it, who is to say the Saturn wouldn't have picked up a few of the plants and upped production, or that Tesla wouldn't have taken the plunge and kicked up production into an open market.

Tata is looking to get $5000 vehicle that meets that US standards over here by 2012 last I heard. They are trying to essentially make the next VW Bug.

If GM and Chrysler stopped making cars, don't you think Ford's sales would go up too and don't you think that would help them get out of the trouble they are barely staving off? Sure it might only be 20% of the 5 billion produced vehicles. Of course how many of those were sold in North America? GM provided a lot of vehicles to Brazil.

I'm also not denying that short term prices may go up. I'm not remotely trying to deny that a company as large as GM folding doesn't have big short term effects. But I also believe there are entrepreneurs out there who will rush to fill the void if the process isn't screwed with.

You've griped about the Obama vision (and I agree, though I'm pretty sure it was the Bush administration that made the original plan for the automakers but it still sucks). You seem to not want the natural option to happen either. Or maybe you think that because of the interference by the Feds that the void will be harder to fill? I don't disagree I don't like how this was handled, but I still have faith in the market.

This is a market that is too lucrative to stay empty for long. If Fiat is allowed to buy Chrysler then that void doesn't happen. The stock holders get screwed but many of the workers keep jobs. Sure parts will be shed, but Fiat won't let a huge sucking market that they now have capacity to produce in, just sit there. GM will still make cars under this system. So the short term is already somewhat covered.

My issue is that it's covered in the wrong way, and honestly I'd rather suffer a harsher short term and let the natural process happen. But I've also not had a car for the past 3 years and I've survived. :)

[kandrathe]

I'm also not denying that short term prices may go up. I'm not remotely trying to deny that a company as large as GM folding doesn't have big short term effects. But I also believe there are entrepreneurs out there who will rush to fill the void if the process isn't screwed with.

The automakers that remain will benefit from the lack of competition. But, what I'm talking about is the closing of plants, and reducing the capacity to produce a product.

If we equated the failure of the big 3 as acreage, they represent 80 acres of the 100 acres currently utilized. Now, through growth, the remaining automakers can expand to fill the now barren acres, but it will take some time. In the interim period, we starve, and the prices for the food grown on the 20 acres will be ridiculously high. The remaining farmers do not have the equipment or labor force to pick up the slack, but yes, over time with their huge profits (that is, if people can afford to buy) they should be able to expand. Otherwise, you face the depression phenomena of the failure of companies due to overpriced goods, and a population unable to afford to buy their product. It will be interesting to see what the jalopies of the 21st century will look like.

You've griped about the Obama vision (and I agree, though I'm pretty sure it was the Bush administration that made the original plan for the automakers but it still sucks). You seem to not want the natural option to happen either. Or maybe you think that because of the interference by the Feds that the void will be harder to fill? I don't disagree I don't like how this was handled, but I still have faith in the market.

This is an Obama *and* was a Bush problem. Paulson is out, but Geithner was his right hand guy. The Fed now is still the Bush fed, so where is the big *change*? Rebuilding GM is such an important job that they gave it to a campaign sycophant, Brian Deese. Probably the only way to have saved these companies would have been to get government out of their business 10 years ago. What other industry is under as strict a mandate for product as the automobile industry? Um, the toy industry I guess, but they don't make them in the US anymore. Think of the required safety equipment, and CAFE standards, then on the production side they have all the downside of the UAW, and politicians they have in their pockets. Under the climate of regulation we have today, you could not introduce a product as polluting and unsafe as the modern automobile.

If Fiat is allowed to buy Chrysler then that void doesn't happen.

There is still the insolvency to deal with. I doubt Fiat will do more than walk away with the intellectual property, and sell off the viable real estate. The Chysler stockholders might get an option to trade X shares for 1 new share in Fiat. All the liabilities, including contaminated manufacturing plants will be the headache of Joe taxpayer.

My issue is that it's covered in the wrong way, and honestly I'd rather suffer a harsher short term and let the natural process happen. But I've also not had a car for the past 3 years and I've survived. :)

Not so good for the 80% of people who do not live on a transit corridor.

Used Car Market Affected by Shortages

[Kevin]

The automakers that remain will benefit from the lack of competition. But, what I'm talking about is the closing of plants, and reducing the capacity to produce a product.

Yep supply drops, and assuming demand stays the same, price goes up. Of course right now, demand has dropped too and I admit that supply is going to drop more than demand. I'll grant that the short term in the car market I'm talking about is still 5 years or so, not one year. But I also feel that someone will use some of that idle capacity that is still viable that gets shed when these people go belly up.

But this issue is not really new. Part (and I can not say how big a part) of the reason the Big 3 failed is because they didn't produce what the market wanted. Yep their big gas guzzlers still sold well, but they never made a good mid size or small size that people wanted. People were still buying those cars, they were just getting them where they have been for decades, imports. If the Big 3 had ever responded correctly to that issue the problems they are facing now would be smaller. I'm also aware that Honda and Toyota and other non US manufacturers are cutting back production because they are facing issues.

The other thing to consider is where demand is going to grow. I still contend that the demand is going to grow in the smaller car sizes that the failing companies had more issues in.

So to go back to your food issue. There were 100 acres, and there were 10 acres already sitting unused, because you still didn't acknowledge that there was unused capacity already out there. 50 acres were being used to produce corn, 30 for wheat, 10 for soy beans, and 10 for mushrooms.

We just lost all the mushroom acres, all the soy bean acres, 20 of the wheat acres, and 40 acres of corn.

So we are still making 10 corn and 10 wheat and can easily add 10 more of either. Damand for mushrooms has dropped significantly. There are people that wanted to import soy beans but were selling them for just a bit higher than what was being made here so they couldn't. The government is going to take over 30 acres and produce corn and wheat on it (GM is still going to make cars.

So I still say that we can easily still fill 60-80 of the production under the current plan and that we really only need what can be produced on 90 acres. In a few years we'll be using all 100 acres that we need to fill the demand again.

Lower quality vehicles will get purchased now too. Used cars that had a year or three of road life in them that got scraped before will be back on the roads, because yes cars that pass all the standards to be drivable get scraped.

And yes prices will go up in all the car markets.

This is an Obama *and* was a Bush problem. Paulson is out, but Geithner was his right hand guy. The Fed now is still the Bush fed, so where is the big *change*?

You of all people didn't really believe there would be? Obama campaigned on Hope and Change, not Change and Hope. He put the real promise first. :) I never said he was a great candidate. I've never had a great candidate to vote for in my voting lifetime though. :)

And this problem actually goes back farther than that. Didn't Reagan push a lot of regulation out on carmarkers too?

Also as I mentioned earlier, it's not like Japan doesn't have similar standards and they still seem to be able to produce vehicles that meet all our requirements.

It looks like in 2008, the big 3 made up 48.4% of the US sales. So we have to keep in mind that everything we are talking about is less than half of the total vehicles sold in the US. Yes, it will have an impact. But some of the trends and issues in the market are related to the GLOBAL recession. If that changes it will have impacts as well. Back in May of 08 Chrysler was only the 5th biggest manufacture in the US market.

Take a look at http://online.wsj.com/mdc/public/page/2_...sales.html. It's bleak, most everyone, included the Japanese companies are falling in sales by huge numbers. As I said demand is plummeting right now. But oddly look as what is going on, especially in the light truck market with the smaller companies. It's the only green numbers you see on the bottom chart.

As mentioned the US market has been doing what the European Market has been like for awhile. Volkswagon was the big winner of market share in 07 at 10%. The US market was already really a 6 company market. The Big 3 couldn't stay big even without the recession. Some of what we see was going to happen no matter what, and as I've said since there are other sources that have been entering the market for years, they are going to expand to exploit it more quickly than I think you believe.

Back in June of 08 it was looking like Toyota was going to take the world crown from GM (http://www.usnews.com/blogs/flowchart/20...champ.html).

There are also several Chinese manufacturers that have been looking to get into the US market. Do you not think they will try to step that up if all the Chrysler plants close.

You're thinking still seems to be rooted in a local market, not a global market.

Of course the thousands and thousands of people out of jobs (unless one of those Chinese plants does what Toyota and Honda have done and make plants in Kentucky, Ohio, Missouri, etc) they won't have incomes to buy cars with. Of course I covered that a bit in my falling demand.

Not so good for the 80% of people who do not live on a transit corridor.

Hah! I live in a town of 16,000 - 20,000, we do have a 24 hour cab company and if you plan really well you can get a greyhound bus to pick you up in the parking lot behind McDonalds. I don't live on a transit corridor. :)

I also realize that if circumstances hadn't forced me to, I wouldn't have willing gone without a car that long, but I couldn't do much about it. However it taught me some good lessons, and while I'm in process of fixing up an 88 Honda Civic to have as an option, I'll still get around on my bike and feet mostly. I'll still use my cooler attached to a two wheeler to assist me in shopping and getting clothes to the laundry mat.

I also realize that this can't work for everyone, but I would bet that over 40% of the population could get away with it, they just don't think they can. Honestly I hope they don't have to either. It can be a real pain in the ass and really limit options. But a car is not a requirement to survive in the United States.



On a final note I'm still not sure what you want. You don't want them to collapse, you don't want them propped up. What do you want to happen to a company that hasn't responded to the pressures that have been hitting them for decades. Do you think that if the Feds hadn't bailed them out they would have survived? We are going to have an aftermath. My personal opinion is that we would have been better of to get the natural aftermath of the failures than this crap we are going to have with the Fed in the middle, but I also feel that while it will hurt, that we'll be fine.

[weakwarrior]

Hi,
Thank your lucky stars, they could force you to take an SUV and then where would you be? Although, don't worry, it won't use much gas; hell, a government made SUV probably won't even *run*.

--Pete

This is a government made SUV. It may not run but it will still take gas. Come on Pete. Wake up!