Top 10 Talking Points To Sound Smart About GM Bankruptcy
Look, you're a car person, I'm a car person... we're car people. As such, friends, family and the watercooler crowd are depending on us to explain what the hell is going on with General Motors filing for Chapter 11 bankruptcy. So that we don't all end up regurgitating the five-second sound bites from TV newscasts, we've assembled the Top 10 talking points you need to know. Remember these tips and the ignorant masses will see you as wise as a cable news show pundit. For everything else, you're on your own.
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Reader Comments (Page 1 of 2)
Shamdiddly 12:41PM (6/02/2009)
Nice summary. Thanks Autoblog.
Now, let the bitching begin...
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Cougs 1:35PM (6/02/2009)
I'm just about tapped out for economic and political discourse at this point ;-).
Time to grab the popcorn and sit back...
notYou 1:58PM (6/02/2009)
(First blush bitch)
AB: "The biggest sacrifice made by the United Auto Workers on GM's road to Chapter 11 bankruptcy filing was exchanging money owed to its VEBA trust for equity in the company"
I can't help but notice that there's no mention of what the bondholders lost (note to graduates of the US public school system: "bondholders" are the people that actually lent GM money). And/or the fact that that they got screwed while the UAW made out like pigs at the trough (considering they're at least 50% responsible for the where GM is at and had no equity stake until the Obama cramdown).
Reading the AB slide makes it sound like the UAW are practically heroes, not the self-serving leeches* that they have been for the past 5 decades.
But then again, who really cares.
(* by that I mean the UAW organization, and the SOB members who milked it for all it was worth like there was no tomorrow. That's not every member, but it's enough to have wrecked the apple cart for everyone else).
Cougs 2:14PM (6/02/2009)
@ notYou
Very exciting (and correct) yes! More please!
Sea Urchin 12:53PM (6/02/2009)
I think now that GM killed all those brands, weakened UAW, got rid of debt and has Jesus on its side (Obama) they should be able to do pretty well.
The big test will be Cruze, first of all it will go head to head with new Civic, also GM said that Cruze will be priced slightly above the competition because it will have more content. Now that GM has to pay less to build cars i hope Cruze will be prised BELOW similarly equipped cars, because that is the only way people will pay attention to it. Also i worry about MPG for Cruze, i believe it will get 40 on the highway but they new Civic will also improve in that area, plus according to Motor trend Cruze will be 3 inches longer than Cobalt and will be one of the largest cars in the segment, so MPG will not be Cruze's strongest point going forward.
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BigWill 2:41PM (6/02/2009)
GM should be grateful people are still prejudiced against Hyundais and Kias 'cause if you park a Kia Forte next to a Daewoo Lacetti/Cruze you'll see one looks way sharper than the other, and it ain't the Cruze. BTW, the Forte with the Fuel Economy Package (156 hp 2.0L World Engine, Hyundai's 5-speed auto, and electric steering) is expected to rate at 36 mpg highway EPA. No expensive tiny displacement turbo'd engine needed. Considering the Lacetti isn't exactly getting raves at the moment, the Forte is a no-brainer, particularly if you're of the mindset to boycott Government Motors.
thomasd 2:02PM (6/02/2009)
talking points? TALKING POINTS ?
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jamie 12:58PM (6/02/2009)
First of all, it is good that GM is restructuring to about 3600 dealers. This would have worked well if their sales were still around 4 million units annually, but they are not.
In fact, GM's sales have dipped considerably to about 173,000 vehicles per month.
Now, they are planning to eliminate Pontiac, Saturn, Saab and Hummer which will further reduce their market share to about 153,000 units per month or about 1.8 million vehicles per year!
News flash!: You only need a single channel of 1800 dealers to move 1.8 million vehicles!!!
Back to the drawing board boys...
From the proposed restructuring guide:
"$9 billion of perpetual preferred stock with a 9 percent annual dividend, payable quarterly in cash, $2.1 billion of which will be issued to the U.S. Treasury, $0.4 billion of which will be issued to the Canadian and Ontario governments and $6.5 billion of which will be issued to the New VEBA."
FAIL!
Did GM fire all their number crunchers?
Last month GM sold 173,007 vehicles...
Now deduct 10,838 Pontiacs (soon to be eliminated from the portfolio)
7,367 Saturns (ditto)
913 Hummers (ditto)
892 Saabs (ditto)
That leaves GM sales at about 153,000 vehicles per month x 12 months = 1.8 million vehicles annually.
At an average of about $20,000 per vehicle that would bring in revenue of about $36 billion.
If 5% of that is the actual profit, GM would net about $1.8 billion.
Now, the $9 billion of perpetual preferred stock with a 9 percent annual dividend paid quarterly works out to be about $1 billion interest annually.
That only leaves about $800 million annually for GM to pay for all its other obligations listed in the new agreements, plus for R&D of new and/or updated products. $800 million won't even pay for one new platform!
What are the chances of GM ever paying off their 'loan' to the American taxpayer?
NIL!
What are the chances of the federal government ever relinquishing control through an IPO?
NIL!
What are the chances this is a sustainable plan?
NIL!
"Just the facts, Mam...just the facts."
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tuxchown 3:58PM (6/02/2009)
The problem is, your post is NOT facts. It is speculation and opinion. Nobody knows for sure how this is going to play out. GM could end up public again, or it could be liquidated, or anything in between.
Cameron 12:58PM (6/02/2009)
The armchair economist in me believes we're doing capitalism no favors by keeping a company on life support. Let failing companies fail.
Do I have faith that GM can turn it around? Yes. Corvette. Cadillac. Cobalt SS turbo. New Buick. Volt. Cruze. GMT900 trucks. Engineers are being listened to these days and people that are actually passionate about cars are starting to win against the bean counters.
But is this level of government intervention appropriate? No.
Had GM gone to chapter 7 liquidation this situation would be a lot worse for a lot of people, but GM didn't need government takeover to ensure chapter 11.
Now, some informed observers state that had GM gone chapter 7 it would have caused a ripple effect through suppliers that would eventually bring Ford down along with them. I can't verify that, but I would HATE to see Ford (who's really turning it around, and fast) be pulled down by GM's failure.
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jamie 1:22PM (6/02/2009)
Tier 1 and Tier 2 suppliers are going to be hit hard. A large number of them are already teetering on bankruptcy, and I rather suspect more filings to be apparent in the next couple of weeks. That means more job losses spreading throughout the industry.
All it takes is for one key supplier to go down and everything will grind to a halt. GM and Ford have protected themselves by propping up their Visteon and Delphi counterparts.
Once the ball starts rolling, its going to take more than an act of Congress to stop it.
Supplier says GM bankruptcy will kill businesses, decimate Michigan
http://www.wzzm13.com/news/news_story.aspx?storyid=109980&catid=14
jamie 1:42PM (6/02/2009)
The new watch list:
"The collapse of new car and truck demand has forced Visteon Corp., Metaldyne Corp. and other auto parts makers to seek bankruptcy protection this year.
In addition to American Axle, analysts say Lear Corp. and TRW Automotive Holdings Inc. are more vulnerable in the wake of GM's bankruptcy. "
Delphi sold in $3.6B deal
Transaction with private-equity firm may lift parts-maker out of bankruptcy
http://www.detnews.com/article/20090602/AUTO01/906020359/1148/auto01/Delphi+sold+in+$3.6B+deal
BoxerFanatic 1:00PM (6/02/2009)
That's a tasty propaganda meatball.
But I don't trust it a bit.
talk is talk. The loans were supposed to be loans, and when I and others said that they weren't, we were criticized.
Now, all said and done, between money given, promised, and forgiven, it is going to take $100B, not $50B out of the rest of the economy, with no concrete certainty that the company will have learned anything, or be any more viable after the fact.
GM couldn't pay back, or regain that much value on it's previous best day extrapolated out to years and years, beating all of it's competitors. A shrunken and emaciated company, under government control and regulation is never going to be ABLE to pay back.
The US Dollar is on borrowed time due to this sort of behavior by the government, spending, printing, and conjuring up money after inconceivable debt levels.
How is anyone going to be able to afford a car if the dollar tanks because the government has flooded the market with dollars thinner than the paper stock they are printed on?
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BigWill 2:45PM (6/02/2009)
@Boxer
You obviously didn't drink the Kool-Aid that ACORN dropped off in your mailbox.
http://campaignspot.nationalreview.com/post/?q=YjEwY2IyMzNjYTg1MjFjOTI0ZmY2ODQ5N2I5ZWQyZmQ=
Shamdiddly 2:46PM (6/02/2009)
You will be assigned a new "people's car" by Government Motors, Comrade.
Do not worry...
compy386 1:04PM (6/02/2009)
Actually the government is going to get more back than what I originally thought. In total the government is going to get 6.7 billion in debt + 60% of the new GM. That means in order for the government to be repaid 100%. The new GM would have to be worth (50 - 6.7)/.6 = 72.2 billion in equity alone. That may sound high but right now Ford is worth about 165 billion with 20 billion in equity and 140 billion in debt (almost of all of that if Ford Credit). If the new GM emerges with no debt (other than the government 6.7 billion) then GM would have to be worth half of Ford (80 billion in total) in order for the government to get all its money back. Since GM is getting 30 billion from the government, that means it will have operating cash without having to raise too much more privately. Lots of numbers and assumptions but it makes me feel better about my investment by default.
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J 1:32PM (6/02/2009)
Nice list of 10 Autoblog! It makes it a little easier for people to follow, including me.
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Chris 1:43PM (6/02/2009)
So if by some weird chance GM gets forced into liquidation, how is the warranty going to be handled if the parts come in short supply? I can imagine replacement panels for discontinued brands will be fine early on but going forward I am curious what it will be like
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Cougs 1:46PM (6/02/2009)
Knowing the government...not well at all. Probably have to outsource parts production to Mexico to keep the cost for the taxpayer down (I know, laughable right?).
Judy Zik 2:22PM (6/02/2009)
Another interesting point is that GM Canada is not in Bankruptcy. No mean feat considering. They also have quite a few plants still running during this process.
The interesting one is going to be Spring Hill TN. They have spent a fortune on that plant over the years but they have it idled with tooling to build just the Traverse. Seems like a huge waste considering the Traverse could easily be built alongside the Acadia and the rest of the Lambda twins. Will Spring Hill get a new product or (a real longshot) will it be sold off along with Saturn? This is too good a plant to be left sitting idle.
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