Shocker! GM Will Default on Debt Payments
GM has confirmed that it will be unable to make its debt payments due on June 1st, 2009. The payment due on that date is $1 billion.
It’s a debt for equity exchange, so it’ll never have to be repaid. This is just posturing ahead of the June 1 deadline (that of course will never get extended…) to come up with a plan for viability. Trying to force the debt holders hand, as they have been the most recalcitrant in the negotiations. Read more
Government Motors: Government Wants Equity Shares
The U.S. government is considering swapping some of the $13.4 billion it lent General Motors Corp for an equity stake in a stripped-down version of the carmaker, people familiar with the matter said.
A government stake would mean a smaller share of the new company for bondholders, who own $27.5 billion in GM debt. Bondholders had been offered 90 percent of the new entity’s equity by the company. The swap would be part of an effort to cut GM’s debt as the carmaker approaches a June 1 deadline to come up with a plan to become viable, the people said.
“What the government is doing is stepping them down and easing the blow,” said Albert Angrisani, a turnaround executive who was assistant secretary of labor under President Ronald Reagan. In doing that, “they lessen the rights of the creditors in bankruptcy,” he said.
A government stake, “means you essentially have a nationalized General Motors until such time as the government sells off its equity to someone else, which won’t happen for a while,” said Gerald Meyers, a professor at the University of Michigan Ross School of Business and a former chairman of American Motors Corp. “The problem is it’s political. On the other hand, it’s a cheap way for the good GM to keep going and probably solidify its strengths.”
I can’t wait to see how this plays out – keep a close eye on how the government handles this and if they pull our or not. I have a feeling that D.C. is power hungry and this may just prove that inclination.
GM has been seeking to reduce its obligations to a union- run health care fund, owed $20.4 billion, and bondholders, whose debt is trading at as little as 8 cents on the dollar. Talks with those constituents are held up because of uncertainty about the value of the new company and the unprofitable assets it would leave behind for creditors to fight over, the person said.
Retirees owed health benefits would probably get more equity in the new company than bondholders, who would likely get only “a sliver,” the person said.
But it’s never the union’s fault! I mean, we fired the CEO of GM, but not the head of the union – yet the union is one of the reasons why GM has become so unprofitable. Is it the only reason? No, of course not, but in my opinion, it is the largest reason.
President Barack Obama believes bankruptcy is the most likely way for GM to become a competitive automaker, people familiar with the matter said.
Captain Obvious has graced us with his presence again! How long have fiscal conservatives been arguing for free markets – which would have meant that GM file for bankruptcy months ago? They would not have received a bailout, taxpayers would still have more money in their pockets, the government wouldn’t be as in debt, and the government would not be in control of a private, free market, company. If they do go bankrupt does that mean we get our money back that was obviously wasted on a company that never could have dug themselves out in the first place? Yeah… I thought so…
Supporters are Getting Upset with Their Guy
Did Obama actually think that his decision to cut off GM and Chrysler from the government’s faucet of money would be taken well by the labor faction of that industry? His biggest supporters were labor unions.
I personally suspect he will still give money to them in the long run, but his initial decision has not been taken well at all.
People are seeing a man who campaigned against special interests, lobbyists, rich fat-cats and Wall Street, but ever since he took office those are the only people he has been paying any heed to, promoting to his cabinet and giving more bailout money to.
I just hope that people wake up and realize that voting for someone on the “inside” of DC will always be on the “inside.” Look at a candidate’s record to see if they were willing to call anyone out in their own party or otherwise. Reform sounds like a nice word but actions count. Obama’s actions speak louder than his teleprompted rhetoric.
Many assembly line autoworkers reacted with skepticism and anger Monday to the Obama administration’s tough tactics, which stoked long-simmering feelings that the people who put the country on wheels get treated differently than the wizards of Wall Street.
“It’s the age-old Wall Street vs. Main Street smackdown again,” said Brian Fredline, president of UAW Local 602 at a plant near Lansing. “You have all kinds of funding available to banks that are apparently too big to fail, but they’re also too big to be responsible.”
Update: Obama Mandated Step-down; Wagoner to Step Down as GM CEO on Eve of Obama’s Auto Industry Announcement
UPDATE:
Be afraid – be very afraid…
The White House confirmed Wagoner was leaving at the government’s behest after The Associated Press reported his immediate departure, without giving a reason.
General Motors issued a vague statement Sunday night that did not officially confirm Wagoner’s departure.
“We are anticipating an announcement soon from the Administration regarding the restructuring of the U.S. auto industry. We continue to work closely with members of the Task Force and it would not be appropriate for us to speculate on the content of any announcement,” the company said.
The surprise announcement about the classically iconic American corporation is perhaps the most vivid sign yet of the tectonic change in the relationship between business and government in this era of subsidies and bailouts.
Wagoner has been CEO for 8 years and at GM for more than 30. It is not yet clear who would replace him, or what role the administration would play in that process.
The Auto Companies Manage to Hang On: Obama will Provide Another Bailout with Strings
Can we please just let them go under? What is the point of keeping companies that can no longer compete, produce or create profit and value? We may as well not have bankruptcy law anymore… I mean you can just ask for a bailout and the taxpayers will just keep your business afloat. I need to quit my job and just create a bad business, hoping that it fails, so I don’t have to pay anything – Taxpayers and those who do produce will just pay for me.
I come from a GM family, my father has been a GM mechanic for over 30 years, and he has quite a few ideas of his own – but being a peon and a lowly mechanic will not get you heard on Capitol Hill these days nor in the board rooms of the auto giants, which really is too bad. My Dad believes the following:
“File for bankruptcy, Chapter 11, restructure the debt, the union contracts and the management of the company – consolidate the brands (there are too many) – regain focus on only several lines of cars (i.e. get rid of cars like Buick, Saturn etc.) – create the focus much like the foreign car companies in the U.S. with a luxury-end vehicle (Cadillac) and the “regular” class vehicle (Chevrolet). Still keep some of the cars like Pontiac, or GM trucks etc. and their bodies/frames which are recognizable and likable, but just name everything Chevrolet again.”
I whole-heartedly agree with him and believe that bankruptcy is the best option for the companies, the taxpayers and everyone else involved whether they moan and groan or not. Filing Chapter 11 allows a company to hold off creditors while it attempts to restructure its finances. Which is why I do not understand the following quote from Obama’s recent Online Town Hall…
“We will provide them some help,” Obama said. “I know that it is not popular to provide help to auto workers — or to auto companies. But my job is to measure the costs of allowing these auto companies just to collapse versus us figuring out — can they come up with a viable plan?”
He added: “If they’re not willing to make the changes and the restructurings that are necessary, then I’m not willing to have taxpayer money chase after bad money.”
Earth to Obama – then let them file Chapter 11 – that’s the best way to force them to restructure!
