Bankruptcy looms for GM; Chrysler awaits fate


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DETROIT – General Motors Corp. has cleared a couple of key roadblocks on the ailing automaker's route to an almost certain bankruptcy filing Monday.
Early Saturday in Berlin, Germany's finance minister said a plan was approved for Canadian auto parts maker Magna International Inc. to move ahead with a rescue of GM's Opel unit.
That news came after the United Auto Workers union on Friday ratified a package of concessions designed to reduce GM's labor costs.
The developments appeared to put in place two more pieces of the automaker's massive restructuring effort as its board of directors meets Saturday for a second day to decide what GM will do when its government restructuring deadline arrives Monday.
GM has yet to confirm it will seek Chapter 11 bankruptcy protection but scheduled a news conference for Monday in New York.
Chrysler LLC, meanwhile, will likely have to wait until Monday to learn if a bankruptcy judge will rule that it can go forward with its plan to sell most of the company to a group headed by Italy's Fiat and take a big step toward its goal of a speedy exit from Chapter 11.
U.S. Judge Arthur Gonzalez is expected to approve the sale but it's likely that attorneys for three Indiana state pension and construction funds, which have aggressively opposed the deal, will appeal the decision and possibly force Chrysler to further postpone the deal's closing.
Chrysler claims that any substantial delay could push Fiat to back out if the deal, since the Italian automaker has set a deadline of June 15 to wrap up a transaction.
U.S. automakers have been hammered by a brutal combination of a bad economy, a big jump in gas prices last year, and decisions to churn out gas-sucking SUVs at a time when more American consumers were looking for cars that were cheaper to fill up.
GM, with the government's backing and nearly $20 billion in U.S. loans so far, has made more dramatic changes in just a few days than it has in decades. A deal to sell GM's rugged but inefficient Hummer brand also appeared on the horizon.
GM's stock tumbled to the lowest price in the company's 100-year history on Friday, closing at just 75 cents after trading as low as 74 cents. A government plan for GM revealed Thursday would make the shares virtually worthless.
The United Auto Workers' reluctant but overwhelming ratification of concessions will save GM $1.3 billion per year and bring its labor costs down to those of its Japanese competitors. The new UAW deal freezes wages, ends bonuses and eliminates some noncompetitive work rules.
In Berlin, the agreement hammered out will see Adam Opel GmbH put under the care of a trustee later Saturday, shielding the German automaker from GM's likely filing for bankruptcy protection early next week.
The German government and several state governments will provide a $2.1 billion bridge loan, part of which will be available immediately.
Siegfried Wolf, a co-CEO of Magna said he expected the agreements with GM would be signed in five weeks time, but insisted that the deal struck early Saturday would prevent Opel from being touched by whatever will happen to GM.
"A solution has been found to keep Opel running," Germany's Finance Minister Peer Steinbrueck told reporters after more than six hours of talks. "You can be sure that we did not take the decision lightly. All the federal and state representatives are aware there are some risks."

 

GM board meets as bondholder deadline passes


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By TOM KRISHER, AP Auto Writer Tom Krisher, Ap Auto Writer – 45 mins ago
DETROIT – General Motors Corp.'s board of directors met for a second day Saturday to make the final decision on whether the automaker would complete its restructuring by filing for bankruptcy protection Monday.
The outcome of the meeting could not immediately be determined. GM and the Treasury Department, which has been guiding the Detroit automaker toward a rescue plan that will give taxpayers nearly a three-fourths stake in the company, went into secrecy mode.
GM's bondholders had a 5 p.m. Saturday deadline to accept an offer to swap their $27 billion in debt for at least a 10 percent stake in a new GM. If the Treasury doesn't get the amount of support it wants, bondholders could wind up with far less in bankruptcy court.
The Treasury Department had no immediate comment on the deadline passing, and GM spokesman Tom Wilkinson said the automaker did not plan to make any statements Saturday.
GM took a huge restructuring step Friday when the United Auto Workers union agreed to a cost-cutting deal, and early Saturday, Germany's finance minister said a plan was approved for Canadian auto parts maker Magna International Inc. to move ahead with a rescue of GM's Opel unit.
But there was still much to do to beat the government's Monday deadline to qualify for more aid. The company already has received about $20 billion in government loans and could get $30 billion more to make it through what is expected to be a 60- to 90-day reorganization in bankruptcy court.
GM has yet to confirm it will seek bankruptcy protection, but it has scheduled a news conference Monday morning in New York.
The Treasury on Thursday offered bondholders 10 percent of a newly formed GM's stock, plus warrants to buy 15 percent more to erase the debt. Last week, GM withdrew an offer of 10 percent equity after only 15 percent of the thousands of bondholders signed up.
It was unclear how many bondholders took the latest offer, although a group representing large creditors who hold 20 percent of debt agreed to it. If the 15 percent who took the first offer are added in, that would make 35 percent.
Elliott Management Corp., a $13 billion hedge fund and major GM bondholder, also said it had decided to accept the new deal. But Spokesman Scott Tagliarino wouldn't say how much GM bond debt Elliott represents.
Getting as many bondholders as possible to sign on to the offer in advance of a bankruptcy filing could help the automaker get through the court process more quickly, said Robert Gordon, head of the corporate restructuring and bankruptcy group at Clark Hill PLC in Detroit.
"The more consensus you have, the more likely it is you'll be able to move through the bankruptcy process in an expeditious fashion with less resistance," Gordon said.
In a typical Chapter 11 bankruptcy case, the company files a plan of reorganization that must be voted on by creditors. In each class of creditors, the plan would have to be approved by holders of two-thirds of the claims and a majority of the number of individual creditors who vote.
But the GM case is anything but ordinary, and it appears the company will sell some or all of its assets to a new entity that would become the new GM, rather than submit a plan to reorganize the old company.
Under a so-called Section 363 sale, the prospective buyer and seller present a fully negotiated asset purchase agreement for approval by the court.
Creditors still can lodge objections, but GM could avoid the drawn-out fights between competing creditors, such as bondholders and workers, that often occur.
Chrysler LLC, which filed for bankruptcy protection April 30, chose a similar path. A judge heard three days of testimony and arguments last week over the sale of most of Chrysler's assets to Italian carmaker Fiat SpA.

U.S. Judge Arthur Gonzalez is expected to approve the sale Monday, pushing Chrysler closer to its goal of a speedy exit from bankruptcy protection. But an appeal is likely from three Indiana state pension and construction funds, which invested in Chrysler debt and say the deal isn't fair. That may force Chrysler to further postpone the deal's closing.
Chrysler claims that any substantial delay could push Fiat to back out if the deal, since the Italian automaker has set a deadline of June 15 to wrap up a transaction. GM's stock tumbled to the lowest price in the company's 100-year history on Friday, closing at just 75 cents after trading as low as 74 cents. In a Chapter 11 bankruptcy reorganization, the shares would become virtually worthless.

 

Meltdown 101: What took GM and Chrysler so long?

Published: 5/29/09, 5:25 PM EDT
By STEPHEN MANNING

WASHINGTON (AP) - It's no secret General Motors has been in trouble for a long time.
The nation's largest automaker has been teetering on the edge of collapse for months, losing billions of dollars, laying off thousands of workers and shuttering big factories as its vehicle sales plummeted. It's a black hole for cash, but billions from taxpayers has kept it from imploding.
The same goes for Chrysler, which also limped along for months before filing for Chapter 11 bankruptcy in April.
So with GM expected to seek bankruptcy protection as early as Monday, you might wonder: Why didn't they file for bankruptcy months ago - last year, even?
Here are some questions and answers about the road to bankruptcy court for Chrysler and GM.
Q: Haven't the two companies been in danger of collapse since last year?
A: They have. Auto sales have been falling for the past several years, but they took a big nosedive last year.
There are many reasons for this, but the big ones are a painful combination of a bad economy, a big jump in gas prices last year, and an industry that was still churning out gas-sucking SUVs at a time when more American consumers were looking for cars that were cheaper to fill up.
Clear warning signs came last summer, when GM announced a restructuring. By the fall, after the stock market crash and freeze-up of credit that made it hard to raise money, it became clear that GM and Chrysler could collapse within weeks without new cash. By December, the pair started receiving $17.4 billion in hastily arranged government loans.
Q: So why didn't they just go straight into bankruptcy like other companies do?
A: The federal government feared bankruptcy would lead to chaos that would not only bring down the U.S. auto industry but rip a huge hole in the economy, at a time when it was already falling fast because of the housing and banking crises.
Here's why: Bankruptcy is rarely neat and tidy. Companies use it when they don't have enough money to cover their debts, which means it's up to the courts to figure out how to repay them. That usually means painful restructuring that includes selling off or liquidating assets, rewriting labor deals, and significantly shrinking the size of the company.
In GM and Chrysler's case, that could have led to huge layoffs and shutdowns at not only their own operations but also the thousands of companies that rely on them. The auto industry supports a vast network of manufacturers who make the raw materials, suppliers who build the parts, and dealers who sell the cars. States depend on those companies for tax revenues and communities need the jobs they bring to town.
Some estimates put the potential job losses at 3 million if the two companies failed.
Q: But aren't they going into bankruptcy now? What's the difference between now and then?
A: It's a matter of timing.
With the government's help, the two companies have already laid much of the groundwork for bankruptcy. That includes brokering new deals with unions, settling big chunks of their debt, and figuring out new ownership structures. Another key is that the government will provide more loans to help the companies stay running during bankruptcy.
It would have been hard to persuade any lender to do that if GM and Chrysler were on their own.
"They are too big to fail in an uncontrolled way," said Aaron Bragman, an auto analyst with the consulting company Global Insight. "Here we are seeing a controlled failure."
GM and Chrysler's troubles also came at a tricky time, during the transition between the presidencies of George W. Bush and Barack Obama. The short-term loans the Bush administration gave the automakers in effect gave Obama time to take office and figure out how he wanted to handle the matter.
Q: Wouldn't it have saved taxpayer money if Chrysler and GM had not gotten government loans?
A: That's unclear. The government has sunk about $25 billion into both and could lend GM up to $30 billion more to help it get through bankruptcy. Some have questioned whether the government will ever see that money again.
Much harder to calculate would be the effect on taxpayers if the companies went under. For example, states would probably see their unemployment benefit payments soar. The government's Pension Benefit Guaranty Corp. could have been on the hook for the company pensions. And the losses in tax revenues would have been huge.
Q: Would the companies have gotten out of bankruptcy more quickly if they went into it long ago?
A: If the government's plans for GM and Chrysler come true, they won't be bankruptcy that long. Chrysler could come out after around 30 days, while GM may last from 60 to 90 days. That's in part because much of the groundwork was done beforehand.
Bankruptcy cases can often move at a slow pace as the courts try to unwind a company. GM is such a huge company that unraveling it may have lasted a long time if they filed without the government's support. For example, the energy company Enron filed for bankruptcy in 2001 and didn't emerge until 2004 in what was one of the biggest cases in American history. GM will likely be as big or bigger.
Bragman said the backing of the Obama administration could help it move more quickly. But there is no guarantee it won't be dragged out given how complex GM is.
Q: So what does this all mean for car owners? Doesn't a long bankruptcy scare them off?
A: Bankruptcy is never a good thing for sales. The administration has tried to reassure potential buyers and owners by saying it will back warranties of both companies. Sales have been bad for the past several months, but it is unclear if that is the result of the lingering threat of bankruptcy or simply an ongoing decline in auto sales.
What remains to be seen is whether buyers will still want a GM or Chrysler car after the two companies are revamped.

RJ, there's infor above on Warranty

 

Well, looks like the deal is going to be done. GM now stands for Goverment Motors. Sad Day.

 

 

OP-ED:Health care reform is an economic necessity, White House adviser says

GM: What's in It for Taxpayers?



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Reuters – A banner hangs outside the Burt GM auto dealer in Denver June 1, 2009. General Motors Corp filed for …


By Theo Francis Theo Francis – Tue Jun 2, 8:08 am ET
When it comes to General Motors, President Barack Obama has stressed that federal officials are "acting as reluctant shareholders," as he put it June 1. But his decision to plow $30 billion more into the company for a majority ownership stake makes it clear that the government is investing in earnest.
So what would it take for that investment to pay off? Judging from the figures so far: ample patience. At the most basic level, GM's market value will have to surpass that of McDonald's (NYSE:MCD - News) -- rising to nearly $69 billion just for taxpayers to break even. On May 29, as investors resigned themselves to GM's bankruptcy, the company's market capitalization was less than $500 million. In a background briefing the day before GM's filing, a senior Obama Administration official said it's unclear how taxpayers will fare. "I don't know how much we're going to recover. We hope to recover as much as we can," he said.
Before this week, the government had shelled out about $20 billion in loans for General Motors, and on June 1 officials said U.S. taxpayers would plunk down an additional $30 billion. Most of those loans, about $41.2 billion worth, will be converted into equity, giving Uncle Sam 60% of the new GM if it emerges from bankruptcy in 60 to 90 days, as planned. The remaining $8.8 billion would persist as loans under the reorganization plan.
"A Highly Speculative Investment"
So if 60% of the company cost taxpayers $41.2 billion, the revitalized company's stock-market value must reach $68.7 billion for the investment to break even. Broadly similar results are yielded by Canadian contributions to the reorganization -- $9.5 billion for a 12% stake and $1.7 billion in debt and preferred stock -- and the holding that a union benefit plan would get in return for some of its claim on the automaker: a breakeven point between $62 billion and $69 billion.
With the company's market value hovering recently around $500 million, there's a steep financial slope to climb at the very least. And some are more skeptical. "The likelihood of it getting to the equity being worth anything seems very slim to me," says Kurt Brouwer, a financial adviser in Tiburon, Calif., who grew up in Grand Rapids, Mich., and has relatives who still work at U.S. automakers. "If you want to call it an investment, you'd have to call it a highly speculative investment."
Far more is at stake for the government and taxpayers than a financial play. Policymakers are worried that the uncoordinated bankruptcy of a company GM's size would throw tens of thousands out of work when the economy can little withstand such a shock.
Chrysler's Profitable 1979 Bailout
Nor do long odds mean taxpayers are necessarily out of luck. As officials from both parties were fond of reminding the public last fall, bailouts sometimes turn a profit for the government. As lawmakers struggled with how to address the foreclosure crisis last fall, for example, many cited the Home Owners' Loan Corp. -- the Great Depression's HOLC -- which bought and refinanced home loans and is widely described as having turned something of a profit over its nearly two decades in existence.
More to the point, when the federal government bailed out Chrysler in 1979 with $1.2 billion in loan guarantees, or $3.5 billion in today's dollars, the automaker repaid the loans by 1982 -- ahead of schedule. Taxpayers collected $311 million by auctioning off the Chrysler stock warrants received as part of the arrangement.
In the case of GM and Chrysler, plans to foster low-emission, high-efficiency vehicles could pave the way for the auto industry to recover and become profitable. But it's sure to take time.
"It's got to be looked at as a long-term investment," says James Holzman, a certified financial planner and CPA with Legend Financial Advisers in Pittsburgh. "But you've got to look at it speculatively before that, probably for at least five years."
It will certainly take a while. Sources close to the United Auto Workers and the Treasury Dept. say neither wants to hold the stock for long. But it will take 6 to 18 months before the company is again publicly traded -- and longer still for GM to appreciate in value. Says GM President and CEO Frederick "Fritz" Henderson: "This is a question of years, not months."



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GM, Chrysler defend slashing dealerships

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AFP/File – A file photo of a General Motors made GMC vehicle at a dealership in Los Angeles. The stricken US auto …


By KEN THOMAS and JIM KUHNHENN, Associated Press Writers Ken Thomas And Jim Kuhnhenn, Associated Press Writers – 1 min ago
WASHINGTON – Fighting to survive, top executives from General Motors and Chrysler on Wednesday defended their decisions to slash dealerships around the country, calling the moves unavoidable despite the pain to many loyal dealers and customers.
GM president Fritz Henderson and Chrysler President James Press told the Senate Commerce Committee in prepared testimony that there are too many dealers and the networks date from the 1940s and 1950s when motorists lived farther apart and Detroit automakers led the world in sales.
But after hemorrhaging customers for decades and losing market share to foreign competitors, they said the companies need to scale back all their operations to become leaner and profitable as they operate under bankruptcy protection.
"Reinventing GM — real change — does require shared sacrifice," Henderson said. "These are tough times for everyone in the GM family. And, as part of the GM family, our dealers are also being asked to bear some of the sacrifice in order to build a stronger, more viable GM."
As for GM's smaller rival, "there's not enough business for the number of dealers Chrysler has today, given that we have less than two-thirds of our former sales volume," Press said.
"Poor performing dealers cost us customers. It's true that dealers are our customers, but it works both ways. If they don't sell cars, we don't either."
Committee Chairman Jay Rockefeller, D-W.Va., suggested both companies were abandoning customers and dealers, some of whom had been dealers for decades.
"I don't believe that companies should be allowed to take taxpayer funds for a bailout and then leave local dealers and their customers to fend for themselves with no real notice and no real help," Rockefeller said in prepared remarks. "That is just plain wrong."
He said that the companies seemed to be implying "that the dealers themselves are responsible for the companies' problems."
The committee made the prepared testimony available to The Associated Press in advance of Wednesday's hearing.
Lawmakers contend the dealership closings will put thousands of people out of work and offer few savings to GM or Chrysler, which have received billions in federal aid as they attempt to restructure and return to profitability.
Chrysler LLC has identified 789 dealerships that it plans to close next week, about a quarter of the company's dealership network. The Auburn Hills, Mich., automaker's plan has drawn fire from lawmakers because dealers received only three weeks' notice.
General Motors Corp. told 1,100 dealerships that it does not plan to renew their franchise agreements in late 2010 and expects to shed another 900 dealerships through attrition and by selling or discontinuing its Hummer, Pontiac, Saab and Saturn brands.
Two small-town dealers singled out by the committee contended that the loss of their dealerships could bring personal and community anguish.
"I have met every financial obligation put forth by Chrysler and GM," Peter Lopez, a GM and Chrysler dealer in Spencer, W.Va., said in prepared testimony. "Now ... they want to shut me down. What gives the government the right to do that? I'm a taxpayer and they're getting taxpayer dollars. It just doesn't add up."
Russell Whatley, a Chrysler-Dodge-Jeep dealer in Mineral Wells, Texas, said his grandfather opened the business in 1919. "A 90-year investment is just gone," he said, "and neither my family nor my employees have any say about it."
Chrysler dealers have only until June 9 to close down. "That termination date is needed to ensure that our new dealership structure will be firmly in place at or about the time the new company is formed with Fiat, something understandably important to Fiat," Press said.

Chrysler says that Chrysler dealerships have resold or redistributed about 90 percent of their vehicle inventory and parts through a company program. But dealers being let go want the Obama administration to give them more time to close their franchises and provide additional financing to help Chrysler buy back inventories, parts and specialized tools from the dealerships.
"We have an eight-month supply of vehicles and only three weeks to clear them out," Whatley told the committee.
GM said the dealers it's not renewing are being given until October 2010 to shut down. That gives them an opportunity to "sell down their vehicle inventories and provide warranty service to customers, thus winding down their business in an orderly fashion," said Henderson.
Car dealers are a potent political force, contributing more than $9 million to federal candidates for the 2008 elections.
GM and Chrysler have said the dealership reductions are a painful part of their restructuring, which also has required concessions from union workers and bondholders. Seeking to address the concerns, Troy Clarke, president of GM's North American operations, and Press met with committee members before the hearing. Requests to the administration to give dealers better terms creates a potential conflict for the White House, which has said it will refrain from running the day-to-day operations of the companies and delegate those decisions to the auto companies' management. The government is expected to receive a 60 percent stake in GM and a 10 percent share of Chrysler in exchange for the federal aid.