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GM Bankruptcy | 05/28/2009 10:45 am

GM Nears Bankruptcy, But What Does It Mean and Where Is the Money Coming From?

One Michigan congressman says it’s worth $50 billion to keep GM afloat; Monday is deadline for any deal to avoid the big ‘B’ word.
By The Staff at wowOwow.com
© Getty Images

Bankruptcy now looks nearly inevitable for beleaguered car maker General Motors.

Bankruptcy could come as early as Monday, especially after the company’s bondholders just rejected a proposed swap of $27 billion in unsecured company debt for ten percent of GM’s stock. Although the White House says it’s going to work like a dog until the Monday deadline, experts say a new deal’s not likely. News this morning is that GM bondholders have just accepted a sweetened debt-for-equity offer, which won’t necessarily avoid Chapter 11. The federal government could end up owning 72.5 percent of the company.

GM will pay out $2 billion to critical suppliers to make sure those smaller firms don’t go under. For the Treasury Department, the challenge is how to bring such a large company into bankruptcy without disrupting the entire industry. GM is a far more complicated company than Chrysler, and far too many other sectors and companies could be negatively affected if the transition isn’t a smooth one. And then there’s the price tag of the whole endeavor. The federal government has already loaned GM $20 billion to try to stay afloat, but word has it that bankruptcy — and the ensuing process of getting the company back on its feet — could cost between $50 billion and $80 billion more. Where is this money coming from, exactly?! No one seems to know.

But one Michigan congressman says the money will be well worth it.

"The American auto industry is absolutely critical to the United States … you cannot have a strong country without a manufacturing sector and the auto industry is integral to that," Rep. Gary Peters, D-MI, told MSNBC this morning, noting that unemployment in Michigan is already the highest in the country, and could be 15 to 20 percent by the end of the year; 21,000 more GM job cuts could be on the way.

"The best way out of a recession is to sell more cars."

What we do know about GM right now:

-Hummer is for sale, as is Saab. Saturn and Pontiac will be gone. No more Opel, either, since GM has spun off its European operations.

-Although 54,000 Chrysler employees are still on the payroll, more layoffs could happen, as could more concessions from union workers.

-Chrysler dealerships may drop like flies as a restructuring plan takes shape. That means it’s a great time to visit your local dealership and see what kind of deal you can get! Chrysler, Jeep and Dodge warrantees will still be honored.

50 Reader Comments (so far…) Sign In or Register to comment

Maggie W

No surprise.  In China, however, GM said sales of its Buick, Chevrolet and Cadillac brands rose 12.7 percent from the first half of last year to 590,126 vehicles. Ford Motor Co. said its sales rose 21 percent from the year-earlier period to 172,411 vehicles. ( Newsweek)  It helps that government controls have kept retail gasoline and diesel prices at levels that are among the world’s lowest.

I don’t know if it’s the best time to visit a dealership.  I know that is what Chrysler is singing.  How do I know how those warranties will be honored?  If they are ditching more dealerships, where will I go if that warranty needs to be honored? 

 

By Maggie W on 05/28/2009 11:53 am
Libra Lady
Maggie good question…if the govt. is backing the warranties, then what happens if your engine blows….do we have to wait for the repair shop to get approval to fix your vehicle under warranty…or do we pay it and request reimbursement from the govt….and what happens if they question your request?  Just things to think about….
By Libra Lady on 05/28/2009 12:25 pm
Andrea Brandon

For starters, if you buy one of the vehicles and then the company goes down the tubes, where are they going to get the expendable parts?

 What I really don’t like is that the dealerships are franchises, bought and paid for by local business people for lots of money. And now the "mother ship" is closing down many of the dealerships and giving the inventory to the dealerships that will stay in business without compensation to the people who own the franchise. How fair is that? Seems to me there’s a lawsuit lurking round the corner.

 Here in southern CA gas just rose $.20 a gallon in the past couple days. Typically more foreign vehicles are sold here than American cars. And the latest popular car? Mercedes "Smart Car." [Of course I wouldn’t dare take it on the freeway.]

By Andrea Brandon on 05/31/2009 12:43 am
Libra Lady

The Washington Post’s business columnist Steven Pearlstein was asked about the story yesterday in an online Q&A. He scoffed:

Boonsboro, Md.: A bit off the topic, but have you or anyone at the Post investigated this? Chrysler dealers shut down in Obama bankruptcy are mostly Republican? It seems a crosscheck of dealerships to be closed versus donations shows almost all the dealers to be closed donated to Republicans. http://hotair.com/

Steven Pearlstein: Oh, please. What percent of all auto dealers are Republican? I bet its (sic) pretty high.

Well, why don’t you use all your professional journalism training and find out the answer, Mr. Pearlstein? And why don’t you look at the flip side of the question — as “amateur” bloggers have been doing — and investigate the circumstances of the protected dealers?

Pearlstein is not alone in dismissing the blogosphere out of hand. The impulse to denigrate blogs
is borne of professional protectionism.

Ace reflects on the conservative blog-MSM dynamic:

Here’s a dilemma for conservatives. The MSM will not investigate any of these claims, ever. So what is a conservative to do? If a conservatives admit that this line of inquiry seems unlikely to turn up malfeasance, the MSM uses such statements as pretexts to not bother to even check, and uses such statements against conservatives who are agitating for additional investigation — “Even conservatives think this is unlikely, so you guys are obviously crazy…”

Of course I want this looked into, of course. It’s my guess it’s a non-story, not my expert opinion.

But the MSM is so ridiculously biased that they make honesty a dangerous and politically counterproductive business.

The only way to even get the MSM to do their jobs and take a look is to pressure them by claiming Worst Scandal Eveh, even if we don’t all necessarily buy that. But we have to claim that in order to spur any sort of media interest whatsoever. (That interest, of course, coming in the form of stories like Conservatives Now So Crazy They Think Obama Is Closing Chrysler Dealerships for Political Advantage, which isn’t exactly the headline we seek, but that’s the best we can hope for from the MSM.)

A few quick points: I do think that eventually, the MSM will come around to investigating. If they find anything at all that confirms the politicizing of the process, they’ll either whitewash it, downplay it, or take credit for exposing it with little or no credit to the bloggers who first started digging. They’ll also ignore the fact that some of us early on have made the caveat from the start not to make too-broad claims.

I also don’t think it’s necessary to over-sell the story in order to get more mainstream coverage. The fact is, Missouri senators have already pressed the White House for more transparency on the closure decision-making process.

Do the rest of the MSM’s business journalists take Pearlstein’s arrogant “Oh, please” position that the answers are not even worth pursuing? (MM)

By Libra Lady on 05/28/2009 12:40 pm
Maggie W
Whoa!  Protected dealers!!!???  Now that is something a good investigative reporter needs to sink his/her teeth into and pronto!  Very interesting!!!
By Maggie W on 05/28/2009 12:50 pm
James the Game

The article is incorrect in the statement that Saturn will be "gone". It will be sold.

The notion that Chrysler or anyone else would be selecting which dealerships to shut down based on the dealer-owners’ political preference is not plausible. They’re trying to stay afloat any way they can. When you’ve got one foot on a banana peel and the other in the grave, there’s no time for witch-hunting.

As for warranties, they (supposedly) will be honored at other Chrysler dealerships, with the government reimbursing the dealerships for costs incurred.

 

By James the Game on 05/28/2009 2:20 pm
Libra Lady
James…we shall see…it will depend on who does the investigating.  I do have a question about the warranties….what happens if your Chrysler dealership is located over 500 miles away…who will pay for the towing cost to get my vehicle there to get the engine repaired?  And will they pay for a rental car, hotel/food expenses, and loss of wages if I have to travel over 500 miles for repairs?  Just askin’!!
By Libra Lady on 05/28/2009 2:25 pm
James the Game
You can take the vehicle to any Chrysler dealership, Libra, not just your own, to have the repairs done.
By James the Game on 05/28/2009 2:36 pm
Libra Lady
James…I know…but if you are from a small town…and the closest dealership is 500 miles away…then I have a problem…no???
By Libra Lady on 05/28/2009 2:43 pm
deber B

I don’t buy American cars, Libra.   Just give me a shiny new Mercedes Benz every two years.     But for those that do, this little government fiasco will be certain to push sales way down because of the question you just raised.   

By deber B on 05/28/2009 3:16 pm
Libra Lady

Deber…you can bet I won’t buy any car that the govt. owns, that’s for sure…. :-)  I will not let obama dictate what expenses I can turn in and what I can’t.  And we think the car ownership is going to be in trouble…just wait till universal health care is passed…..(if)….and then obama can dictate what medial procedures I can have and not have….oh, heard that obama is thinking about taxing employees as income for employer paid health premiums…now that will take the cake….and I bet he will also do away with premiums paid by employees that are tax exempt.  Then watch your net pay decrease….yep…sounds like a winner doesn’t it?  And talk about a payroll nightmare….companies will have to purchase new software upgrades to deal with this wonderful idea…..you just can’t make this stuff up!!!  BTW…let me know when you are ready to sell that two year old Mercedes Benz…I might just make you a deal!!!  :-)

By Libra Lady on 05/28/2009 3:30 pm
Kelly In Texas

Absolutely Deber!

I can not respect those that support Obama, when they will not demand that these things be brought to light. If these things were known…they would with draw their support and demand his impeachment.

They are still hung up on high school type mottos and celebrity-struck to the core.

Ala Nicholson " They can’t handle the truth"…..

By Kelly In Texas on 05/28/2009 6:35 pm
Andrea Brandon

From the Huffingtron Post:

Dealers losing their franchises will get Chrysler warranty reimbursement and sales incentives such as rebates and low-interest financing until June 9. But after that, they won’t be reimbursed for either. That means the dealers have a big reason to get rid of the cars before their franchise agreements end. Without incentives they won’t be able to compete with the remaining dealers.

Chrysler spokeswoman Carrie McElwee declined comment on the talks, saying that the issues would be addressed through the bankruptcy process.

Bernstein said the dealer group hasn’t decided whether to file an objection if a deal cannot be reached, but added that some of the dealers slated to lose their franchise agreements may decide to mount their own legal fights.

A hearing on Chrysler’s motion to terminate the dealer franchise agreements will be held on June 3 in front of U.S. Judge Arthur Gonzalez. Objections are due May 26.

Mike Boudreau, a director at O’Keefe & Associates, a Bloomfield Hills, Mich.-based turnaround firm, said the dealers would have a tough fight on their hands if they decided to object to the franchise terminations in court.

Boudreau said the dealers can argue that they cover their own costs and have the ability to ride out tough times, but the fact is the dealerships Chrysler put on its list were already struggling and losing money.

"The dealers are saying ‘hey, we’ll figure this out,’ but hope isn’t a strategy," Boudreau said. "It stands to reason that as Chrysler shrinks, its suppliers and dealers will shrink too."

By Andrea Brandon on 05/31/2009 12:53 am
f p
Exactly JIm.  Dealer-owner’s political preferences?  lol More right-wing looniness.
By f p on 05/29/2009 7:41 am
James the Game

You might. Chrysler is supposed to notify customers under warranty in early June where they can go to get their vehicles serviced. Bumper-to-bumper and powertrain warranties will be honored.

But the worry you have is why I was hoping these car companies could avoid the bankruptcy ziggy. Consumer confidence in warranties and repairs is always a key consideration when purchasing a vehicle. Obama had the right idea with the government-backed warranty plan. But it’s too bad the unsecured bondholders wouldn’t give in, and accept equity for the automakers’ debt. Right now, I think bankruptcy may be the only way to start anew.

But the Detroit automakers still aren’t going to be able to compete with the slave-labor costs in markets like China and Japan. Not to mention health-care. That’s why O is trying to restructure the U.S. health-care system at the same time. It’s not Socialism. It’s an effort to make America competitive. We can no longer afford to tack on $1,500 to the cost of every vehicle to pay for employee health coverage, and still be competitive.

That’s also why Obama is proposing to tax American companies that set up shop overseas. We must de-incentivize firms from shipping hundreds of thousands of jobs to other countries.

Education and re-training is another key component, as it relates to restructuing the U.S. manufacturing base. People must be re-trained, for example, to transfer their auto-making skills to making wind turbines. We must build such a high level of skilled education that foreign countries cannot compete with us. That will ensure that jobs stay here, and wages (read: standard of living) remain high.

By James the Game on 05/28/2009 3:06 pm