Archive for Tuesday, April 28, 2009

GM could become leaner, government-owned firm

April 28, 2009

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— General Motors, once the colossus of American capitalism, will become a leaner, government-owned company if the Obama administration goes along with the automaker’s plan to slash jobs, close plants and eliminate the legendary Pontiac brand.

As GM laid out the proposal Monday, new agreements fell into place between Chrysler and its unions in the United States and Canada, making it apparent that the future of both companies now rests with their creditors.

General Motors CEO Fritz Henderson said the company would offer the Treasury Department more than 50 percent of its stock to absolve GM of $10 billion in government loans.

The automaker also proposed that the United Auto Workers take GM stock for at least half the $20 billion the company owes to a union-run trust that will assume retiree health care expenses starting next year.

Combined, the union and government would own 89 percent of the century-old automaker, which has been bleeding red ink and is saddled with more than $62 billion in debt.

“It is unprecedented, but it signifies the importance of the automobile industry,” said David Lewis, a retired professor at the University of Michigan.

Although the government has loaned money to corporations in the past, including to Chrysler in the 1970s, Lewis could not recall a time when it had taken a majority stake in a company.

White House press secretary Robert Gibbs said the administration does not want to own GM or any other auto company.

“This administration has no desire to run an auto company on a day-to-day basis,” Gibbs said. “We strongly back an auto industry we believe can, and should, be self-reliant of government funding.”

But GM’s plan depends on persuading unsecured bondholders who have loaned GM $27 billion to forgive that debt in exchange for a 10 percent stake in the company.

Current GM shareholders would own only about 1 percent.

GM’s announcement sent its shares up 21 percent to $2.04 Monday, meaning bondholders would get about 46 cents on the dollar. But that does not take into account dilution of GM’s shares once the government and the union get their giant piece of the pie.

Analysts estimated that the value was closer to 5 cents on the dollar.

General Motors is surviving on $15.4 billion in government loans, and said Monday in a filing with the U.S. Securities and Exchange Commission that it envisions getting an additional $11.6 billion.

GM Chief Financial Officer Ray Young said that’s all the company will need under its new plan.

But if GM’s restructuring plan cannot put all the pieces in place by June 1, the struggling company could go into bankruptcy protection.

Meanwhile, Chrysler is surviving only because of $4 billion in government aid. The company has until Thursday to adopt a partnership with Italy’s Fiat Group SpA and to devise a restructuring plan that satisfies the government so it can get an additional $6 billion.

United Auto Workers President Ron Gettelfinger said the union’s factory-level leaders voted unanimously Monday night to recommend that members approve concessions that could give a union-run trust 55 percent ownership of a restructured Chrysler LLC.

Comments

jmadison 6 years, 4 months ago

This agreement would prevent GM from going into bankruptcy court where the union would have to face possible rewrites of their contracts by a federal bankruptcy judge. The bondholders would get hosed big time by this deal. The upshot of this deal would put GM's unions in control of the company along with Obama.

just_another_bozo_on_this_bus 6 years, 4 months ago

Yea, but if the unions are in control, they'll likely have to make concessions (i.e., rewrites,) anyway, just to protect their investment.

Tom McCune 6 years, 4 months ago

This is just so wrong on so many levels. Keeping the banks out of default is one thing, but buying out a failing car company is completely different. The Brits tried this over and over again and it never worked. They got hosed every time. Chapter 11 is the right answer for GM and the taxpayers.

Flap Doodle 6 years, 4 months ago

The moon "could" turn into butter and fall on our pancakes.

Shane Garrett 6 years, 4 months ago

Wow, the government invested less than the bondholders, yet grab 50% of the company and give 40% to the Unions. The investors get 10%. Talk about a power grab. Talk about screwing the investors. Well, I guess the Unions are getting their campaign contraband, I mean contributions, kicked back to them.

Katara 6 years, 4 months ago

snap_pop_no_crackle (Anonymous) says…

The moon “could” turn into butter and fall on our pancakes. ~~~~~~~~~~~~~~~ No, no, silly. Everybody knows that the moon is made of green cheese. At worst, it could crumble up and fall into our arugula salads.

georgeofwesternkansas 6 years, 4 months ago

The Unions are getting 40% of a government owned/run company. Man are they getting hosed, they will all be out of work very soon...

VTHawk 6 years, 4 months ago

Since when has any government-run agency been "lean"?

This is nothing other than the Democrats buying off their base, and (once again) preventing capitalism from working. Bankruptcy is a natural part of Capitalism, but rather than letting GM and Chrysler get picked apart, the government would rather run the show to keep their union buddies from making any concessions. Is there any doubt that GM and Chrysler will continue getting $1B per month or more in bailouts?

I do hate to say it, because the terms are so over-used, but this does look an awful lot like (economic elements of) fascism. The government will bail out and run companies that benefit their supporters, and let fail the companies that don't. Losses go on the books of the government, but gains are privatized. Liberals AND conservatives should be howling about this plan.

Sigmund 6 years, 4 months ago

"GM could become leaner, government-owned firm"

Right, because we know how good the government is at running "lean and mean" operations. This is a huge waste of your tax dollars. It was a waste in the Bush Administration and it is a bigger waste in the current one.

Tom McCune 6 years, 4 months ago

I think I've owned 7 GM vehicles in my life but never again, even though they did actually improve over the garbage they sold in the 80s and early 90s. Some of that stuff was unbelievably bad....

TacoBob 6 years, 4 months ago

Wow, the new government cheese.

Perhaps GM cars will replace food stamps.

Sometimes it pays to be on the dole.

Godot 6 years, 4 months ago

Poor Ford. Obama will punish Ford for not partaking of his unconstitutional TARP largesse. Prepare for Federally mandated credits and good deals for buyers of Government Motors pieces of crap cars that will drive Ford good cars out of the market.

Change we will regret.

Flap Doodle 6 years, 4 months ago

Worth repeating:

“28 March 2009 at 6:40 p.m. beobachter (Anonymous) says… …Ok, I'm done, you don't need to ban my account, I won't be back.”

Chris Ogle 6 years, 4 months ago

As a last resort, GM could build cars people want to buy>... of course being government owned, the 2010 models would be delivered around 2050.

Chris Ogle 6 years, 4 months ago

Wow, how is that new government GM model doing?? Don't know yet... they had a shortage of steering wheels, but I did get a free coupon for one when they come in.

Sigmund 6 years, 4 months ago

The 2012 Pelosi GTxi SS/RT Sport Edition, from the Congressional Motors division of GM!!!! http://www.youtube.com/watch?v=rAqPMJ...

Flap Doodle 6 years, 4 months ago

When was the last time adding a layer of federal bureaucracy made something leaner?

jumpin_catfish 6 years, 4 months ago

Better wake up America, your country is being stolen.

Flap Doodle 6 years, 4 months ago

I (heart) ag when he's being all stern & judgemental & stuff. More fun than a county fair.

Tom McCune 6 years, 4 months ago

The British tried this repeatedly with car companies and motorcycle companies. It never worked, and just cost the British taxpayers huge sums. GM has been failing for decades and we should have never propped it up. If they can work out their issues through Chapter 11, then OK. If not, then liquidate.

Generally speaking, I think Obama has done a good job, but this one is purely quid pro quo for the UAW and other unions that funded his campaign.

Shane Garrett 6 years, 4 months ago

Drive- by? "If both are successful, the government and UAW health care trust would own 89 percent of GM stock, with the government holding more than a 50 percent stake, CEO Fritz Henderson said in a news conference at GM's Detroit headquarters." From your provided web link AGNOS! Also as stated in the above story. What about the GM Bond holders that invested 27 million while the government only invested about 10 million then took 50% of the common stock? Sounds like a power grab that only the "DOM" Obama could get away with.

Flap Doodle 6 years, 4 months ago

Didn't Stalin do something similar in the Ukraine?

camper 6 years, 4 months ago

Declaring bankruptcy is not exactly a bed of roses either. There certainly is government intrusion here.....by the courts who must approve a reorganization plan. And if GM declares bankruptcy, so will a number of suppliers and contractors who provided goods and services before the bankruptcy date. These "accounts payable" would be put on hold until after bankruptcy emergence, and then it is normally a negotiated settlement or percentage of what is owed. Just imagine if you were a contractor who re-roofed a plant, you just might be out of luck if GM has not yet cut you a check.

camper 6 years, 4 months ago

And I don't see the bankruptcy process as a normal part of capitalism. True capitalism would be liquidation in these instances....let GM liquidate and let the strong survive.

I don't necessarily disagree with the bankruptcy option (or process) though because the US, I believe, is one of the few country's who offer this lenient approach that can help good companies and individuals get back on their feet. But I also believe it should be avoided when possible. This is why I am open to Obama's plan during this unique time...if you will.

TacoBob 6 years, 4 months ago

When our government starts picking the winners and losers in the private sector, using our money, we all should start to worry.

The hand that holds you is the hand that holds you down.

Flap Doodle 6 years, 4 months ago

I suspect that the UAW won't be satisfied for long when they realize what pigs in pokes they've been given as their payoff for helping grease Barry's way into the White House.

Sigmund 6 years, 4 months ago

Newell_Post (Anonymous) says… "The British tried this repeatedly with car companies and motorcycle companies. It never worked, and just cost the British taxpayers huge sums."

snap_pop_no_crackle (Anonymous) says… "Didn't Stalin do something similar in the Ukraine?"

75x55 (Anonymous) says… “When was the last time adding a layer of federal bureaucracy made something leaner?”

Interesting query's which begs the question, "Did Communism ever build any good cars?" which BBC2's Sir Jeremy Clarkson and Dame James May endeavored to answer by trying to find the best car built under Soviet style Communism and the British style Communism of Red Rob and British Leyland.

Part One: "Ownership of a rev counter is theft from the masses, you decadent capitalist pig!" http://www.youtube.com/watch?v=IPd8CrhiOug

Part Two: "The Morris Marina: The log laid by British Leyland after Communism crept on to the shop floor." http://www.youtube.com/watch?v=l10wDTQ36hE

camper 6 years, 4 months ago

Who is Barry? I keep seeing this name on these blogs, but can't figure. Oh, Maybe it is the President. Reminds me of the the Democrats who stooped low an called George Bush "W". Makes me think the far left and right are often the same bird, just different wings.

TheStig 6 years, 4 months ago

“Imagine a forty year old Italian design improved by the Russians and now built by a bunch Egyptians. I can't think of anything worse than that!” Obviously Comrade Clarkson has never driven a K-Car.

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