GM Bankruptcy

Should have happened a year ago. Billions down the drain for something that was inevitable anyway.

What are we left with? A government run company that will only make cars that appeal to 17% of those that drive during a period where more people will have more trouble than usual affording them.

I'll bust out some more facts and figures later when I'm not confined to the iPhone (and maybe cut and paste some of my old posts in the economy thread if you're lucky) but God this is frustrating.

Good for Obama though. He kept the union voters happy and he'll be able to win Michigan in 2012 by more than a 7% margin.

According to CNN, the 650,000 retirees (and their families) aren't going to see a cut in their pension benefits, just their health coverage. What are the odds that those pension benefits will survive this bankruptcy?

Vauxhall and Opel (its UK and European arm respectivly) have been bought out by a car parts firm.

http://news.bbc.co.uk/1/hi/business/8077255.stm

PBGC insures all pensions within the US.

Ah, good to know. Thanks for the info, Closer. This line from the article concerned me:

The 'for now' led me to believe that there was more risk involved. Losing those pensions would be catastrophic for most of those families.

Great, now a smaller, leaner company can make ugly ass cars no one wants to buy. Yippee for America! The bankruptcy judge should put in writing "You cannot make cars with cheap plastic insides and consoles designed by blind people with no taste".

I'm really pulling for Ford, I hope they stay out of bankruptcy and become the preeminent US automaker.

Isnt that another nail in Detroits coffin? I am not up to speed on manufacturing in the USA, but isnt GM one of the Great Lakes companies that practically WAS the manufacturing industry there?

Sad but true. Michigan as a whole isn't holding up well at all.

GM was also booted from the Dow Jones Industrial Average. It's replacement, Cisco Systems.

I guess they shouldn't have made shitty, unreliable cars that got shitty, unreliable fuel mileage. I guess the whole "let's make it bigger!!!!" thing with their shitty unreliable trucks and SUV's didn't work out to well either once they realized that the fuel mileage was shit. You know 'cause when gas prices soar it costs close to $100 to fill those suckers not even all the way.

Basically what I'm saying is is that they did this to themselves. So boo-hoo.

The government and the unions had a huge helping hand in that destruction. GM was number one in auto sales for 77 years, for them to collapse so spectacularly wasn't because people stopped buying a few million cars over the course of a year.

I was going to mention something about the unions. I'm well aware they had a huge hand in the collapse. Which is why I don't feel sorry for UAW/CAW workers at all. Also, yes, I'm aware too it wasn't just one year of bad auto sales. It's been several years of declining sales. I know they were #1 in auto sales but thats because Toyota and the other Asian car manufacturers don't have the weight in North America like the big three do. There's still that stigma of "gotta buy domestic!! stealing jobs if I don't buy domestic!!". They're getting that weight now (or at least Toyota has and/or IS getting it) since they do make better cars.

Despite what the White House says, them getting a few more miles per gallon isn't really going to improve things.

Looking through a bunch of various resources available online, it looks to me as if GM was never really a well-structured company. Just the fact it had good sales kept it afloat for the past 20 years, they couldnt have weathered ANY larger loss or decline in sales with this whole bunch of top-heavy managment, the heavy hand of the unions, and the fact they really dont produce anything actually good.

Seems to me as if they tried to jump the luxury SUV bandwagon, trying to cash in on the pre-economy-collapse spending happiness, and got burned.
But from all I can gather, which isnt that much in just an hour and a half of research, the company really was never that well-run anyway. Or at least not in the past 20 years.
Its one of these old manufacturing juggernauts that just have built on layer after layer of contracts, unions, managment and marketing.
Now if I just knew WHY exactly anyone thought the luxury SUV market was such a good idea. As far as I can see, these things are dinosaurs from the day of their invention with crappy mileage, mediocre craftmanship, bulky and heavy on the environment.

SUVs were the highest selling cars in the US for a few years. GM thought they could ride the SUVs indefinitely.

And Snaike, if you blame the Unions and the Federal Gov't for GM, what about Ford? Harley Davidson? Toyota and BMW for that matter, which both have large plants in the US

I may very well be wrong, but don't Toyota and BMW use contract workers instead of union workers for their domestic facilities?

I'm not sure either. I do know that the car makers in Europe are heavily unionized. Somehow they remain productive. In BMWs case that is because they make high margin vehicles, so they have a financial "pad" which they can use for benefits etc.

I guess my point is that Ford, BMW and Toyota are well managed companies. GM is not. You can't blame the unions alone when other unionized car makers are surviving or even doing (relatively) well.

...How will we know what works better if nothing fails?

Posted in wrong thread, sooooo -

The MPG is important, but not crucial. Everyone has taken massive hits, Toyota and Honda included. Build quality was spread over too many models and platforms for GM to work. It's inaccurate to say they can't make good cars - the Cadillac CTS and Corvette are a couple of examples that compete with European makers, at a lower price point.

I argued that the government should have escorted GM into bankruptcy at the earliest possible opportunity. Perhaps they have just used this time to prepare as best they can. I don't know. A lot of vulture investors have swooped onto the company within the last year with the expectation of a substantial return in bankruptcy court. I think that is fucking despicable.

Look, for all the (valid) complaints about managements, the unions, and build quality, GM does something important: they build things. Trillions gone on financial firms that do nothing but move wealth around and 'create' new wealth (shit), but we're supposed to let one of our last major manufacturing firms go bust? I would recommend American Theocracy by Kevin Philips, wherein he illustrates the historical trend of finance replacing manufacturing, with the end result being vastly less influence on the global stage. Ready for the Chinese century?

Toyota is a well managed company but by contrast it is a much smaller company (which isn't a bad thing) not to mention they don't turn a profit on every vehicle they produce, instead they're thinking long term and they don't have to deal with the UAW in the same regard as Ford, Chrysler and GM has to. Ford on the other hand was not a well managed company. The reason your seeing this go down he way it did was size, GM was vastly larger then Ford and in contract negotiations with the unions they got hammered. Why do you think the big talk now is about how GM will be a smaller, leaner company with less debt? Because they're getting rid of all the brands that they couldn't get rid of before bankruptcy due to union contract and governmental inference. Ford sold off almost the entire company to stay viable. They sold off hertz ($5.6b), Jaguar, Land Rover($1.6b), Astin Martin($1b), Mazda($.5b) and plans to sell Volvo($6b) as quickly as possible all in an attempt to stay afloat. Now, there is still a possibility they'll go under but as long as they keep selling divisions (Lincoln, Mercury?) to fill the coffers they'll survive, and if the fear that people won't buy bankrupt automobiles becomes a reality, then they're poised to survive with no problems.

The problem GM faced was, they didn't have enough successful divisions to sell off (they did sell one or two before they went to the government) and because of contracts they were required to keep mass producing cars that no one wanted in plants they couldn't afford and their contracts with the UAW meant they had a larger overhead then their foreign competitors (ford also has that same problem).

So their profit per vehicle is less on the ones that do turn a profit and many other models don't even turn a profit (all of Saturn's for example) and they are making more vehicles then any other company (122 models all in all, compared to Totota's...17-22?).. that's a business model to produce debt, not cars.

As to Europe? Yeah, there was profit there for GM because they didn't have to deal with the UAW and the United States government interfering trying to protect antiquated jobs in their states.

Actually, car makers in europe, in particular the german ones which are often lauded, deal with substantial overhead costs on producing here due to a relatively heavy taxation and pretty high ecological standards to live up to. To run a manufacturing plant for cars in germany, you have to move heaven and hell to get your exhaust fumes down and prove you are dealing properly with your waste before a single car goes to sale. Not to mention the pretty powerful unions that are here, too.
Its not cheaper to produce in europe, or rather, in "old" europe (germany, france, britain, denmark, sweden etc.) than in the USA.
122 models is, of course, insane. I didnt know GM had that many different cars in active manufacturing. However, its not like all those 122 just popped up overnight, so at the very least, there must have been a supremely powerful union, utterly incompetent management and a lot of blind eyes turned to this problem for years now to become that big.

The Union contracts were negotiated by who? GM Management. The same "management" that thought 122 models of vehicle was a great idea. And the EU is not exactly a Union Free zone. What is different in the EU is that Corporation Management and Unions recognize common goals and collaborate, vs the "Us Vs Them", "Win at any cost" mentality on both sides in the US

They had all those models because they were forced to keep plants open and you have to produce SOMETHING there. Yes, GM Management is to blame, they caved to the union demands time and time again because of pressure both external (government) and internal (union workers) and instead of standing and fighting their ground they caved and forced out those that would fight.

Honestly, if 12 years ago GM had battled the unions to change their policies, do you see it actually working? Clinton as President (Democrat), we're in a strong economic boom (dot com boom) and sales are through the roof on autos. They'd be painted as a villain, an evil conglomerate trying to expand their bottom line. If they said if we don't change now, we'll be bankrupt and owned by the government and the UAW before 2010, they'd be laughed at and lambasted by every person on both sides of the political aisle.

You're already seeing governmental interference in action even during the bankruptcy. Senators are protesting plant closures in their state, trying to bend arms to keep dealers open that are constituents, leveraging the fact that the government has a stake in them now. It never ends.


edit
actually, I found an article. Here you go.

According to CNN, the HUMMER line has been sold off to a mystery buyer.

From the article you just linked to:

The picture of a heedless union and a feckless management says a lot about what went wrong at GM. There were many more mistakes, of course -- look-alike cars, lapses in quality, misguided acquisitions, and betting on big SUVs just before gas prices soared. They were all born of a uniquely insular corporate culture.

Drum roll....in China. *GASP*

http://www.ft.com/cms/s/0/cd00d2c6-4...44feabdc0.html

It's long, but worth the read.

I dont buy the "Obama did it" at all. Yeah its popular, but its agenda-driven bullshit, as 95% of the problem happened before his inauguration, AND not even a year ago everyone, including republicans around McCain, were singing a vastly different song.
Sure, it may have been possible, with hindsight, to do FAR better. It may have even been possible to save the corporation that is GM (though it seems no matter what, the workers would be SOL anyway) for whatever that is worth, but the political realities during the late Bush years, when the house started to come crashing down, were that it was a necessity to be seen acting, and do something, quick, right now.

I've read all these links above and a couple more, its an interesting case, and one which I think will be material for economics classes for many years, because its a remarkably slow decline with a remarkable series of bad decisions.
Its sort of like the frog you put in a pot, and slowly heat it. The poor froggie cannot detect the small increments of heat, is never alarmed, and just dies when it reaches too high a temperature. Seems to me thats the way with GM, almost regardless of what had been done.

You know whats the most disgusting though? Blaming it on a few month old administration to make political hay, when everyone with an inkling of a brain knows Obama would not be where he is now if he cut off the UAW in order to PERHAPS (again, hindsight doesnt count) do something different.

To be honest, I doubt it would have changed much, because frankly, the rotten core is still there, as the articles agree. And frankly, it doesnt really matter if a hundred or so suits at GM get to keep their precious company, when in fact they have to lay off, sell off etc. practically everything anyway, but can do so at their terms. Chances are, they d just get themselves those golden parachutes and be gone.
Corporate America will always go the way of the quick buck.

This is another reason why this bugs me so much. Attempting to vilify bondholders by labeling them as "speculators." Gimme a fucking break.

http://www.theglobeandmail.com/repor...rticle1129647/

The Closer, isnt that piece you are quoting actually a pretty clear outline of what the problem is, and why doing the same stuff that has been done doesnt work?
I am referring to two things in particular:

First of all, this article claims that selfishness in terms of getting money out of this thing, by waiting/speculating on a government bailout, is absolutely okay and everyones right. Isnt it this kind of behaviour, surfing the edge of financial meltdown for maximum gain, that got us all into this situation? I am not even american, I dont particularly care for the way your economy seems to function at that level, but its interesting nonetheless.

So if I get it right, the writer actually believes that its a bad thing to attempt a change in how things are run, in particular, which is the second part, that government supervision of the process is a bad thing.
The details are largely there to paint the entire thing as oh so unjust, because Fund X and Wellfare Y are going to lose money from it, but at the bottom of it I think I just see the first case of the goverment saying "sorry, this one isnt going to get ripped to pieces for maximum gain, doing maximum damage." The legal basis for that I dont know. Actually, I dont care much, as its blatantly obvious that the financial industry hasnt particularly bothered to stick to the legal basis in the past years, and neither did the Bush administration anyway.

I fail to see the horrendous, evil thing going on here though. Seems to me that under the faux rage and cries of wolf, its just a different approach, instead of one that doesnt work well in the first place.

I mean, lets take a step back for a moment: Am I the only one who thinks its a really stupid idea to have an economical system where people can directly profit from a company going almost belly-up, get a bailout, then finally go bankrupt and die? Details aside, isnt it a patently stupid idea to encourage the death of companies by actually rewarding raider-like behaviour?

One of the main reasons why investors purchase bonds is because in the event of a bankruptcy, they are always first to be paid. Its part of a legal agreement between the bond issuer and the bond holder. This give up a potentially much higher rate of return by deciding not to take ownership in the company (via stock) and instead settle for lending the company money in order to function. The fact that, in a sense, the company would not be able to pay for stuff without them puts them at the top of the ladder.

In a bankruptcy, a bondholder has a very, very good chance of receiving significant less than if the company remained viable, obviously. So its usually never in a bondholders best interest for a company to file for bankruptcy...unless, of course, the alternative is the government coming in and (many would argue) overstepping their boundaries by "forcing" a deal using some of the tactics detailed above all for the sake of making a large block of voters happy.

By their vary nature, corporate bonds are far from speculation (under normal conditons). They are sold at a fixed price, paying a fixed interest rate, for a fixed period of time. Holders of these bonds are not speculators but creditors of GM. GM borrowed this money for capital investment, expansion, R&D, etc with the promise via a legal contract of GM paying this money back with interest at a pre determined time. To now say the bondholders are just “out of luck” or lower on the totem pole than literally anybody else is worse than criminal - it is illegal.

Alright I get it, I misunderstood something on a fundamental basis there. Got hung up on a sentence along the lines of investors hoping for a bailout and driving towards it, and/or holding back an otherwise already made deal to see if they can get some government cash as sugar coat.

I ll have a look at the differences between europe and the USA in this regard, but what you say sounds as if indeed, bondholders arent supposed to be the first to fall in such an event, if judged by a moral and legal point of view both. Thanks for clearing that up

as GM goes, so goes the US, isn't that the old saying?

That may have been true 40 years ago but not now. GM hasn't been a barometer for the health of American in general in a long time. America's manufacturing base, sure, that I can buy. For the life of me I just do not understand why anyone would now buy a GM or Chrysler car. Why? What justification is there unless you enjoy pissing on your money.

http://www.breitbart.com/article.php...show_article=1

Liberal Supreme Court Justice Ginsberg tells Ultra-Liberal Socialist Obama to go fuck yourself.

Well OK, not exactly that but there is a real possibility that the Supreme Court may actually uphold the law, since the Obama administration can't pressure them (they're appointed for life) and force them to break the law like they did with the lower courts... awesome, maybe Ginsberg SHOULDN'T retire.

Um. All federal judges have life tenure. Obama can't pressure any federal judge, who already has been appointed, to do anything. The only way to get a federal judge out of the bench is to impeach him or her, and that requires Congressional action.

I'm pretty sure that the bankruptcy courts and the Second Circuit have, you know, followed established precedent in making their findings that the sale could go forward.

Perhaps you have some bankruptcy court expertise that you would like to share with the rest of us who know what we're talking about.

The fact you said you're "pretty sure" tells me you DON'T know what your talking about. Being a lawyer gives you zero cred, I know lots of bad lawyers.

I'm sorry that I, you know, have a full time job that doesn't allow me to just read every single opinion that comes out of the 2nd Cir. regarding the asset sale of Chrysler. All of the legal blogs that I frequent (Volokh Conspiracy, Dealbreaker, etc.) haven't batted an eyelash until today, as very few people expected SCOTUS to step in. Let's see what RBG has to say.

The fact that you assumed that Obama could pressure lower court federal judges into anything suggests that you fail to grasp even the most basic, foundational concepts of our judicial system.

From SCOTUSblog:

The fact you presented yourself as an expert and then changed the tune on how you haven't kept up on it (thus, not an expert), pretty much speaks for itself.

You're also woefully ignorant of how the government works if you think the executive branch can't leverage lower court judges through promises of upward mobility, who do you think nominates them for higher courts!? the only ones exempt are the <drum roll> Supreme Court!

Go back to your "full time job" of chasing ambluances* man, you're just digging a deeper and deeper hole here.


*presumably

Everybody be friends.

I smiled when I saw the news but I fear it will be just a minor setback.

Hopefully the pensions keep fighting and bring some other major bondholders out of the woodwork to not accept less than what they are entitled.

I apologize for the unnecessarily aggressive stance and for, in all fairness, sounding like a douche bag. I'm taking a bad day out on you. Friends?

I still, however, disagree with your assertion that the Executive Branch somehow steamrolled the federal courts into accepting this asset sale. Judicial independence is one of the few things that have kept this Republic afloat, and I don't think that has or will change in the near future. My operating assumption is that the federal courts are doing their job as constitutionally mandated. After I have some time to inform myself on the issues, I will comment on whether or not that has remained true. The fact that the mainstream press hasn't had a conniption over the asset sale suggests that everything is well with the third branch of government. I don't think the promise of possible advancement to higher courts is enough to influence a judge, as the winds change every 4 to 8 years.

As a friend of mine said rather recently: "bondholders of the world unite!"

Not really. The judicary has a hard time keeping judges on the bench because of compensation issues. Not every judge wants to do appellate work. So this concept of upward mobility doesn't make any sense. Not unless that judge wants to private judging. And let me tell ya, being an appellate judge doesn't really get you into mediating cases.

And btw calling Spook an ambulance chaser is a cunt manuver. I don't know what you do and I don't care. But I'd go with the word of a guy who is a practicing attorney over the word of some guy who some how has all the time in world to be the contrarian on every issue in existance. So if that's some kind of achievement, kudos. Otherwise, apologize and knock this shit off.

Is that something they teach at Top Gun in Del Mar?

(Btw, thanks Ed).

I don't know, I'm not a pilot. You'll need Frank to answer that question.

Oh you betcha. They are the silent type...usually.

CNN is reporting that the "US Supreme Court will not stand in the way of Chrysler sale to a consortium led by automaker Fiat."

No story link yet.

ETA: MSNBC has one posted.

Facts behind GM "paying back its loan."

The rest of the article is pretty interesting, too. I'll admit, when I first saw the new GM commercial I thought to myself "Wow, I guess I was wrong."

So did I. Now I'm wondering about how all those banks supposedly paid back their bailouts years ahead of schedule. How much of that TARP money was used to do just this, to pay back Paul with the robbed funding from Peter?

Most of the banks made assloads of cash by borrowing money from the various classified Fed windows at 0%, purchased treasuries paying 4%, and pocketed the profit.

They havent only been doing that over the past 2-3 years, either.