Experts call GM bankruptcy 'almost inevitable' [w/POLL]
To stave off bankruptcy, General Motors must rework its union contracts, drastically cut its capacity, workforce and dealer networks – and convince creditors to take 10 cents on the dollar on $27 billion in unsecured debt. In two months. That's a herculean task for any company, much less for a monolith the size of The General.
While GM is publicly working to avoid bankruptcy, some experts feel the largest of the Detroit automakers is simply lining up its creditors to expedite its Chapter 11 bankruptcy plans. In a new report by The Associated Press, the chorus of doubters is getting louder: "'I just don't see how it's possible, given all of the pieces,'" the AP quotes bankruptcy specialist Stephen J. Lubben, a professor at Seton Hall University School of Law.
For its part, the Auto Task Force and the Obama administration seem to think that a "surgical" bankruptcy could last only one to two months, a feat that many bankruptcy lawyers think is optimistic at best. One sticking point of negotiations with creditors is the apparenly disproportionate allocation of GM shares. The current plan is for the US government to receive 50%, while the UAW receives 39% to pay for retiree health care. That leaves just 1% for shareholders, and 10% for creditors. $27 billion doesn't seem to buy much these days. If creditors ultimately don't agree to the governments demands, though, bankruptcy is virtually guaranteed.
Bankruptcy could also make the most sense in dealing with GM's dealership problem. The General needs to cut thousands of retail stores; a move that will undoubtedly cost a fortune, especially outside of bankruptcy.
Others see the threat of bankruptcy as a ploy to make labor concessions and heavy bondholder concessions sound like a gift from above. GM can point to the situation with Chrysler as proof of how fast chapter 11 can happen, giving creditors plenty of reason to see things the General's way. With GM's deadline to meet the terms of the government's terms for financial assistance less than three weeks away, we'll know all too soon whether or not GM is bluffing.
[Source: The Associated Press via Mlive | Image: Bill Pugliano/Getty]
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Reader Comments (Page 1 of 3)
oby 1:02PM (5/11/2009)
Big deal, this was obvious 5 years ago
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Alex 12:46PM (5/11/2009)
It would seem that Chapter 11, while worse in the short term, is vastly easier in the long term. It can make shedding debt, dealerships, and VEBA requirements a whole lot easier when you say "with what money?". Yes, it comes at the cost of brand perception, but when you are teetering on the brink, your brand doesn’t have a good forecast anyway.
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Sea Urchin 12:53PM (5/11/2009)
They KEY for GM and the bankruptcy is to de-Obamanize.
If Obama will be involved in announcing BK and the process as a whole, GM will be #1 news on TV day in day out. Every step Obama takes is usually #1 news. GM needs to have it CFO or its corporate lawyer come out and announce it and get to work immediately. The first day they will be on the news, but after that they will fade away from TV, which is what they need now. The less attention the better, especially now that we are seeing that the economy is improving and people will soon again start buying cars.
Jake 1:00PM (5/11/2009)
Why de-Obamanize?
Obama can come in and strong-arm the creditors and threaten and coerse them into accepting nothing and then Obama can generously give away a bunch of money they can tax me and you for to make it all happen.
I don't understand why so many people think that they have some sort of right to their own money or to re-coup their losses legally in a bankruptcy.
As Judge Smales said to Spalding "you'll get nothing and like it."
mapoftazifosho 1:01PM (5/11/2009)
See Urchin, I hate you, but you're 100% correct this time.
Sea Urchin 1:03PM (5/11/2009)
Well i mean to DE-Obamanize publicly, but behind the curtains they can have him do his "kill the secured creditors act"
GM needs to do everything it can to avoid Kaity Curic and other nightly news.
Tourian 1:37PM (5/11/2009)
That's not the Sea Urchin I know. Someone logical has gotten holt of his computer or just hacked his screen name.
Randy 8:54PM (5/11/2009)
@Sea Urchin
I agree with your general idea... But I have a few things I don't agree with.
1. To say "de-Obamanize"... carries an implied negative connotation as if "Obama" has anything to do with the downfall of GM.
2. It's "President Obama"
3. Any President, including former President G.W. Bush would bring too much attention. But I DO agree that President Obama gets heard more and that's probably because thus far, he's not full of sh*t like previous a previous Presidents.
4. GM is one of the largest companies on planet Earth! EVERYONE will know they went bankrupt for a VERY long time. Globally! To say a President's announcement will make it more widely known or more focused upon for a length of time any greater than that without a Presidential announcement, I truly believe, is an overstatement.
5. I truly believe that a bankruptcy of this magnitude completely warrants an announcement by President Obama, for several reasons.
A: It affects the U.S. Economy
B: It affects the Jobs for over 250K directly employed and an unsaid number of indirectly employed people in the US.
C: Repeat A and B and replace "US" with "Globally"
D: The US People pay the Government of the US Taxes which have been loaned to GM. They (we) should know what's happening with the money.
E: It gets the truth out in the open right away! The talking heads will talk all at once and it will diminish QUICKER than if it leaked slowly. It's like dropping an A-Bomb! One big thump! Versus dropping hand grenades to do the same damage. The A Bomb goes BOOM while the hand grenades go "bang, bang, bang, bang, bang, bang, bang. Meaning, the end result is the same but little bangs take longer! As with news!
Let me drag this part out a little more... Make believe there is a meteor headed for Earth! It's one of the largest meteors ever seen (i.e. Fortune 6 Company like GM). You could either hear little bits from different places that you might not trust and not hear the warning and not get water, food and "duct tape" ;) and then perish when the thing hits Earth. Or you could hear "RUN FOR YOUR LIVES" and then seek shelter and all the things that come with it. In other words, "lets get the shock over with and move on".
Do I think it will instill panic like a Meteor? Hell no, but it will let people know. Which is what being open, honest and transparent is all about. I'd rather know than be on the toilet when it hits...
Finally. I believe the transparency that President Obama's administration said it would have, is a reality. Regardless of good or bad news, we need the truth! And we're getting it!
That's about it... Sorry for the length of this...
Randy
artso06 4:04AM (5/12/2009)
@ Randy
I agree with some points but not the over all statement that the government is transparent.
Transparent??? Really?? I have large issue with government, talking about the countries business plans (although rules and regulations ARE needed), and how products should or shouldn't be made because it is almost never attached without a $ sign. Making a large display through the Government only lessons the value of the product even more. GM is on the path of having strings attached from every angle. The administration, although more informative than the previous, still hides things in a melody of words that the average American is to emotionally attached to to deviate fiction from fact.
My biggest fear out of this whole ordeal is ill informed media or politicians writing about situation that are half done or under researched. Causing a greater negative opinion about GM and there products. Read these blogs about new GM products (usually very positive about there new automobiles) then watch a show that the mass public watch with politicians and news casters and you get a very different story.
IOMTT 9:17AM (5/12/2009)
Did someone say the POTUS was not full of excrement? Very funny. POTUS = politician = full of it.
zamafir 12:46PM (5/11/2009)
Yup, they will, and they need to, to get as close to a fresh start as they can. The last few weeks have caused me to jump on the republican bandwagon, bankruptcy it is. The job loss while they trim down the company will be nothing compared to what we've seen the last eight years.
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Taglane 12:53PM (5/11/2009)
Time to get this over with. Declare Bankruptcy plz
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e46_M3 12:58PM (5/11/2009)
I have always supported the fact that GM needs Chapter 11 to make a real new company...
But i also think about all the employees at dealerships right now that are going to lose their jobs, just what we need more people losing their jobs and all those factory workers that are going to lose their job too.
On another note, and just to summarize, GM is in this position because of a crappy portfolio and don't give me that crap about the Volt, Camaro, Corvette zr1, those are 2010 Models, but check this out, this whole decade, 2000-2009, there hasn't been a single car in GM's lineup worth renting at Avis.
My really good 2 cents.
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C.W. 12:56PM (5/11/2009)
pending this happens... the way it is intended to... i almost feel that Ford will be getting the shaft down the road. Ford is the only company doing it 'the right way' and pushing forward with new product, and investing in plants, and growing globally and becoming more 'green' and yet they will be the ones stuck with current debt obligations and union contracts. GM will be able to write off large portions of debt, restructure contracts and by screwing things up so badly will be allowed to position itself to succeed when the dust settles.
it's a lot like the housing market... we reward those who made poor decisions and the one's trying to do things the right way get the shaft and have to work twice as hard to keep on level ground.
I hope to God that Ford gobbles up every bit of this market share....
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Sea Urchin 1:00PM (5/11/2009)
Hey, why don't you take your free market, capitalistic ideas elsewhere buddy. We are socialists in here and we proud of it. Me and Mr. Oak will takeover anyday now.
But seriously, once GM and Chrysler will break UAW i do not see them not giving the same deal to Ford, however that dealership issue will be a big one. In BK GM will kill some of the dealers, Ford will not have the opportunity to do so.
mapoftazifosho 1:09PM (5/11/2009)
break the UAW? What are you smoking? Obama has given them a stake in Chrysler!!!
The Luigiian 1:30PM (5/11/2009)
@SeaUrchin:
Yeah, it's true that Ford's having to keep all its dealers may be a detriment, but it could also be an asset.
It really depends on what dealers GM and Chrysler decide to cut. Consider small-town Carlsbad, NM. There's a Toyota dealership here, a Ford dealership, a Chrysler dealership, and a GM dealership. If Chrysler and GM cut their dealers here, for poor performance or whatever, it becomes a two-horse race, and Ford's entry in the stakes becomes an asset.
On the other hand, in big-town Albuquerque, NM, we have multiple dealers, Don Chalmers, Rich Ford, and Bob Turner's, all being forced to have a price war for limited sales. If Chrysler and GM cut their unnecessary dealers, Ford's three become detriments.
However, let us ask what happens if Ford's dealers voluntarily decide to shrink and sell off some of their unnecessary land and buy fewer models from the Ford corporate mothership. Well, then Ford's three dealers aren't necessarily detriments anymore. They end up being three dealers where the guy on the northwest side of town buys from the northwest dealership (Chalmers), the guy on the east side of town buys from the Eastern side dealers, and whatever else have you. Then it's not nearly as bad as a detriment.
The only question: Will multiple dealers in metro areas be willing to shrink to adapt to the smaller buyer market?
The Luigiian 1:32PM (5/11/2009)
Edit: and also C.W., of course.
koloth44 1:07PM (5/11/2009)
Am I the only one that finds the polls on this site oddly/irritatingly formatted? The bar for "Yes" at 86% is only a tiny bit longer than the bar for "No" at 7.5%. wtf?
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sk 1:12PM (5/11/2009)
must be your browser, it looks right on my screen.