O
Well it looks like GM is Done.
- Thread starter redlineguy
- Start date
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It's almost like I can see the future or something....
http://articles.moneycentral.msn.com/Investing/Dispatch/market-dispatches-052809.aspx
GM bondholders accept deal
The agreement will help make a smoother bankruptcy for the automaker. Reports on durable goods and jobless claims are better than expected, but a report on new-home sales disappoints. Time Warner will spin off AOL.
[Related content: stocks, investments, stock market, financial crisis, economy]
By Charley Blaine and Elizabeth Strott
General Motors (GM, news, msgs) this morning steered clear of a messy bankruptcy.
The automaker said its major bondholders have accepted a revised deal to exchange their debt for equity in a new company. The bondholders will get 10% equity and then the option to buy an additional 15% of the company when the company hits certain market capitalization levels. The deal still needs acceptance from all of GM's bondholders.
"Implementation of this proposal would result in a New GM with a healthy balance sheet, putting the new company on a clear path toward long-term viability and success," GM said in a statement.
Shares of GM, which had been halted in early trading, were up 18 cents, or 15.6%, to $1.33 this morning.
Stocks were flat this morning. At 11 a.m. ET, the Dow Jones Industrial Average ($INDU) was up 7 points to 8,308. The Nasdaq Composite Index ($COMPX) had lost 2 points to 1,729, and the Standard & Poor's 500 Index ($INX) had added 3 points at 897.
Get free, real-time stock quotes on MSN Money
The yield on the 10-year Treasury note jumped Wednesday afternoon to nearly 3.7% from 3.5% Tuesday and 2.24% on Dec. 31. The spread between two-year notes and Treasury notes hit 2.75 percentage points, the biggest gap since August 2003. The higher yield threatened to push up interest rates in key areas like mortgages and consumer loans. The Obama administration needs low interest rates to help the housing market and the broader economy to recover from the steepest recession since World War II.
"The equity market and Treasury market are reflecting the current concerns about increased Treasury issuance," Craig Peckham of Jefferies told The Wall Street Journal. "It's just more and more supply, and we're really concerned about pressure on the dollar from Treasury issuance and the Fed's balance sheet."
This morning, the yield on the 10-year Treasury moved down slightly to 3.68%.
More on GM's Hail Mary deal
The bondholders agreed to a deal partly because of the Treasury Department's plan to convert $40 billion of the amount of money they plan to give GM into common equity into the new company.
As part of a bankruptcy filing, GM would emerge with its most profitable plants, brands, dealerships and contracts. The government will own 72.5% of the new GM, and a trust fund run by the United Auto Workers would also have a 17.5% stake. It is unclear what will happen to the current common GM equity shareholders.
On Wednesday, bondholders rejected the offer to exchange $27 billion in debt for stock in a new company.
GM has been facing a June 1 deadline by the government to present its restructuring plan. The automaker had to get concessions from both its bondholders and the United Auto Workers union, which it did last week.
In related news, negotiations on the future of General Motors' (GM, news, msgs) European operations broke down overnight after the U.S. carmaker reportedly demanded an additional $415 million in cash.
Meanwhile, New York bankruptcy court judge Arthur Gonzalez is set to rule today on whether Chrysler can emerge from bankruptcy.
He is expected to rule that the sale of the company's most viable assets to a group of investors led by Italy's Fiat (FIATY, news, msgs) can go through. If that's the case, Chrysler will have spent just 30 days in Chapter 11.
http://articles.moneycentral.msn.com/Investing/Dispatch/market-dispatches-052809.aspx
GM bondholders accept deal
The agreement will help make a smoother bankruptcy for the automaker. Reports on durable goods and jobless claims are better than expected, but a report on new-home sales disappoints. Time Warner will spin off AOL.
[Related content: stocks, investments, stock market, financial crisis, economy]
By Charley Blaine and Elizabeth Strott
General Motors (GM, news, msgs) this morning steered clear of a messy bankruptcy.
The automaker said its major bondholders have accepted a revised deal to exchange their debt for equity in a new company. The bondholders will get 10% equity and then the option to buy an additional 15% of the company when the company hits certain market capitalization levels. The deal still needs acceptance from all of GM's bondholders.
"Implementation of this proposal would result in a New GM with a healthy balance sheet, putting the new company on a clear path toward long-term viability and success," GM said in a statement.
Shares of GM, which had been halted in early trading, were up 18 cents, or 15.6%, to $1.33 this morning.
Stocks were flat this morning. At 11 a.m. ET, the Dow Jones Industrial Average ($INDU) was up 7 points to 8,308. The Nasdaq Composite Index ($COMPX) had lost 2 points to 1,729, and the Standard & Poor's 500 Index ($INX) had added 3 points at 897.
Get free, real-time stock quotes on MSN Money
The yield on the 10-year Treasury note jumped Wednesday afternoon to nearly 3.7% from 3.5% Tuesday and 2.24% on Dec. 31. The spread between two-year notes and Treasury notes hit 2.75 percentage points, the biggest gap since August 2003. The higher yield threatened to push up interest rates in key areas like mortgages and consumer loans. The Obama administration needs low interest rates to help the housing market and the broader economy to recover from the steepest recession since World War II.
"The equity market and Treasury market are reflecting the current concerns about increased Treasury issuance," Craig Peckham of Jefferies told The Wall Street Journal. "It's just more and more supply, and we're really concerned about pressure on the dollar from Treasury issuance and the Fed's balance sheet."
This morning, the yield on the 10-year Treasury moved down slightly to 3.68%.
More on GM's Hail Mary deal
The bondholders agreed to a deal partly because of the Treasury Department's plan to convert $40 billion of the amount of money they plan to give GM into common equity into the new company.
As part of a bankruptcy filing, GM would emerge with its most profitable plants, brands, dealerships and contracts. The government will own 72.5% of the new GM, and a trust fund run by the United Auto Workers would also have a 17.5% stake. It is unclear what will happen to the current common GM equity shareholders.
On Wednesday, bondholders rejected the offer to exchange $27 billion in debt for stock in a new company.
GM has been facing a June 1 deadline by the government to present its restructuring plan. The automaker had to get concessions from both its bondholders and the United Auto Workers union, which it did last week.
In related news, negotiations on the future of General Motors' (GM, news, msgs) European operations broke down overnight after the U.S. carmaker reportedly demanded an additional $415 million in cash.
Meanwhile, New York bankruptcy court judge Arthur Gonzalez is set to rule today on whether Chrysler can emerge from bankruptcy.
He is expected to rule that the sale of the company's most viable assets to a group of investors led by Italy's Fiat (FIATY, news, msgs) can go through. If that's the case, Chrysler will have spent just 30 days in Chapter 11.
What Detroit is saying about Detroit
Big Three confront rough road
If government isn't careful, it might worsen woes of carmakers, economy
David Cole and Sean McAlinden
The crisis in Detroit and for the rest of the world's auto industry is intensifying as a depression level of auto sales continues to pummel the industry. If the government isn't careful about how it handles General Motors Corp. and the rest of the industry, it could make the problem even worse and further collapse the country's economy.
Last fall, critics of the Domestic Three automakers were quick to point out that cost structure and product lines were the reasons for the unique problems of Chrysler, Ford Motor Co. and GM. However, the essential crisis is not a result of costs or a lack of products; it is a revenue problem caused by hyper-low sales for all auto companies. If this were a "normal," severe recession, U.S. sales would be in the region of 12-14 million vehicles, while today they hover in the 9-10 million range.
That's why, in the first quarter, Toyota surprisingly lost more money than GM and far more than Ford.
This crisis is not a management problem, but a problem directly attributable to the massive collapse of financial markets. There is growing concern that the industry has the very real prospect of a final collapse initiated by the failure of several of the Domestic 3 or a bottom-up collapse of a fragile supply base.
Either way, an enlarged auto depression could quickly trigger another massive decline in the U.S. economy by the end of the year.
Our research group estimates that prolonged bankruptcy proceedings at both Chrysler, which already is in Chapter 11 hearings, and GM, which is teetering on bankruptcy, would result in more than 1.3 million U.S. job losses by December. In that event, the Obama administration would have the dubious honor of being the 21st-century version of the Hoover administration.
The job losses and other economic impacts would be much less severe if both automakers quickly emerge from bankruptcy.
The automotive business is, by any measurement, the largest and most complex industry in our economy. Unfortunately, unlike every other industrialized nation in the world, the U.S. government has little understanding, at the policy level, of the importance and complexity of manufacturing in general and the auto industry in particular.
Government's failures
Our industry problems are rooted in two failures of government policy.
First, there is the lack of any real energy policy, which set the stage for the crisis with the wild ride of energy prices in recent years.
Second, the notion exists that every American should have a home, even if he or she cannot afford one. This policy was the seed, fertilized by financial corruption, that brought world financial markets to their knees.
Since our government was so complicit in the challenges now faced by the industry, it is only reasonable that the government participate in its resurrection. In fact, GM and Chrysler would not be with us today without strong government support.
Every auto company in the world has either now or in the past received aid from their home governments. The difference between here and overseas, however, is the intelligent blend of policy with support in other countries compared with the politics and grudging support here at home.
We can look forward to the federal government's detailed involvement in much of our private sector for some time if this trend continues. This is a special challenge for a government that will produce a $1.8 trillion deficit this year and massive deficits for years to come.
Takeover concerns
The experience so far with the government's Auto Task Force leads to the following questions and observations about the prospect of a GM bankruptcy and the government's partial takeover of the auto industry:
• What does the government want from its control? Do government officials expect to be repaid or to maximize union jobs? Do they want to build politically correct vehicles, even if not desired by consumers? This can be a recipe for failure.
• The emerging union control of GM and Chrysler is as great a contradiction as the government's control and must be managed so it does not compromise the primary goals of the company. A successful company can have only one master -- the market. It will determine success or failure. Will the government allow Chrysler and GM to profitably respond to the market?
• While government officials claim they do not want to run the industry, they will probably appoint the majority of the industry directors. The task force seems to be managing on a day-to-day basis even though its members have little experience with the industry's complexity. Who will be in charge?
• The financial markets now view GM and Chrysler as pariahs. No one will invest in or loan anything to a government-run company that so willfully violates contracts and 125 years of bankruptcy law. How will the government restore the trust between lenders, investors and the companies?
• The only solution is completely independent boards at GM and Chrysler with no strings from the government except a mandate to repay the federal loans. The boards should be able to hire and compensate the best management talent available, from the CEO down throughout the organization, to ensure that the companies can perform at a high level of excellence. The government does not possess this talent and may not even be aware of the need for it.
• One critically important question is the impact of the government's involvement on companies without government support. Will their futures be jeopardized by companies with a special relationship with the government?
• Of course, the ultimate owners of the companies will be us, at least temporarily, or "we the people" as shareholders. We want to be paid back; we don't want to manage companies; we want great companies producing great products for us to buy; we want good jobs in the industry; and we want the companies to be highly successful, pay their fair share of taxes and ultimately see that America's auto industry is returned to its rightful owners in the private sector.
The next few weeks will be very interesting. We are watching history being made on a daily basis, and the stakes could not be higher. It is a puzzle with many moving parts of workers, creditors, shareholders, management, regulations, suppliers, dealers and a government that is, hopefully, here to help us.
Bankruptcy is likely for GM and, unfortunately, for all too many other companies that are a part of this vitally important industry. The key question related to bankruptcy is: Can it be managed without escalating out of control? If it cannot be, we are in for a dangerous and very wild ride.
While the near-term prospects are bleak, the mid term and longer term look very good. There are many trends that could fuel future demand for vehicles.
America is growing households in our economy at the rate of a million a year. More than 13 million vehicles are being scrapped each year. And there is no competitor for the function that cars and trucks provide.
In addition, money-saving moves will help with future profits. Automaking capacity in the United States is being reduced by more than 4 million units.
The Domestic Three will have wage and benefit parity with their international competitors. And the break-even volume is being lowered dramatically to about 10 million vehicles.
This is the end of the buyer's market that has lasted for more than 10 years. Consumers should beware; those incentives that they have learned to love are mostly going to disappear.
The challenge for GM and others in the industry is rather stark and simple: Live until we get to that better future.
Please e-mail comments to letters@detnews.com.
Big Three confront rough road
If government isn't careful, it might worsen woes of carmakers, economy
David Cole and Sean McAlinden
The crisis in Detroit and for the rest of the world's auto industry is intensifying as a depression level of auto sales continues to pummel the industry. If the government isn't careful about how it handles General Motors Corp. and the rest of the industry, it could make the problem even worse and further collapse the country's economy.
Last fall, critics of the Domestic Three automakers were quick to point out that cost structure and product lines were the reasons for the unique problems of Chrysler, Ford Motor Co. and GM. However, the essential crisis is not a result of costs or a lack of products; it is a revenue problem caused by hyper-low sales for all auto companies. If this were a "normal," severe recession, U.S. sales would be in the region of 12-14 million vehicles, while today they hover in the 9-10 million range.
That's why, in the first quarter, Toyota surprisingly lost more money than GM and far more than Ford.
This crisis is not a management problem, but a problem directly attributable to the massive collapse of financial markets. There is growing concern that the industry has the very real prospect of a final collapse initiated by the failure of several of the Domestic 3 or a bottom-up collapse of a fragile supply base.
Either way, an enlarged auto depression could quickly trigger another massive decline in the U.S. economy by the end of the year.
Our research group estimates that prolonged bankruptcy proceedings at both Chrysler, which already is in Chapter 11 hearings, and GM, which is teetering on bankruptcy, would result in more than 1.3 million U.S. job losses by December. In that event, the Obama administration would have the dubious honor of being the 21st-century version of the Hoover administration.
The job losses and other economic impacts would be much less severe if both automakers quickly emerge from bankruptcy.
The automotive business is, by any measurement, the largest and most complex industry in our economy. Unfortunately, unlike every other industrialized nation in the world, the U.S. government has little understanding, at the policy level, of the importance and complexity of manufacturing in general and the auto industry in particular.
Government's failures
Our industry problems are rooted in two failures of government policy.
First, there is the lack of any real energy policy, which set the stage for the crisis with the wild ride of energy prices in recent years.
Second, the notion exists that every American should have a home, even if he or she cannot afford one. This policy was the seed, fertilized by financial corruption, that brought world financial markets to their knees.
Since our government was so complicit in the challenges now faced by the industry, it is only reasonable that the government participate in its resurrection. In fact, GM and Chrysler would not be with us today without strong government support.
Every auto company in the world has either now or in the past received aid from their home governments. The difference between here and overseas, however, is the intelligent blend of policy with support in other countries compared with the politics and grudging support here at home.
We can look forward to the federal government's detailed involvement in much of our private sector for some time if this trend continues. This is a special challenge for a government that will produce a $1.8 trillion deficit this year and massive deficits for years to come.
Takeover concerns
The experience so far with the government's Auto Task Force leads to the following questions and observations about the prospect of a GM bankruptcy and the government's partial takeover of the auto industry:
• What does the government want from its control? Do government officials expect to be repaid or to maximize union jobs? Do they want to build politically correct vehicles, even if not desired by consumers? This can be a recipe for failure.
• The emerging union control of GM and Chrysler is as great a contradiction as the government's control and must be managed so it does not compromise the primary goals of the company. A successful company can have only one master -- the market. It will determine success or failure. Will the government allow Chrysler and GM to profitably respond to the market?
• While government officials claim they do not want to run the industry, they will probably appoint the majority of the industry directors. The task force seems to be managing on a day-to-day basis even though its members have little experience with the industry's complexity. Who will be in charge?
• The financial markets now view GM and Chrysler as pariahs. No one will invest in or loan anything to a government-run company that so willfully violates contracts and 125 years of bankruptcy law. How will the government restore the trust between lenders, investors and the companies?
• The only solution is completely independent boards at GM and Chrysler with no strings from the government except a mandate to repay the federal loans. The boards should be able to hire and compensate the best management talent available, from the CEO down throughout the organization, to ensure that the companies can perform at a high level of excellence. The government does not possess this talent and may not even be aware of the need for it.
• One critically important question is the impact of the government's involvement on companies without government support. Will their futures be jeopardized by companies with a special relationship with the government?
• Of course, the ultimate owners of the companies will be us, at least temporarily, or "we the people" as shareholders. We want to be paid back; we don't want to manage companies; we want great companies producing great products for us to buy; we want good jobs in the industry; and we want the companies to be highly successful, pay their fair share of taxes and ultimately see that America's auto industry is returned to its rightful owners in the private sector.
The next few weeks will be very interesting. We are watching history being made on a daily basis, and the stakes could not be higher. It is a puzzle with many moving parts of workers, creditors, shareholders, management, regulations, suppliers, dealers and a government that is, hopefully, here to help us.
Bankruptcy is likely for GM and, unfortunately, for all too many other companies that are a part of this vitally important industry. The key question related to bankruptcy is: Can it be managed without escalating out of control? If it cannot be, we are in for a dangerous and very wild ride.
While the near-term prospects are bleak, the mid term and longer term look very good. There are many trends that could fuel future demand for vehicles.
America is growing households in our economy at the rate of a million a year. More than 13 million vehicles are being scrapped each year. And there is no competitor for the function that cars and trucks provide.
In addition, money-saving moves will help with future profits. Automaking capacity in the United States is being reduced by more than 4 million units.
The Domestic Three will have wage and benefit parity with their international competitors. And the break-even volume is being lowered dramatically to about 10 million vehicles.
This is the end of the buyer's market that has lasted for more than 10 years. Consumers should beware; those incentives that they have learned to love are mostly going to disappear.
The challenge for GM and others in the industry is rather stark and simple: Live until we get to that better future.
Please e-mail comments to letters@detnews.com.
O
Ollie
ACCOUNT CLOSED
"The government will own 72.5% of the new GM, and a trust fund run by the United Auto Workers would also have a 17.5% stake."
There are 2 things wrong with that statement.
1: the government by law, can't run a company in direct competition with another privately held company. If you own 72.5%, you are the majority stock holder and pretty much run the company.
2: Isn't it illigal for the union to own part of a company they are also the union boss of?
There are 2 things wrong with that statement.
1: the government by law, can't run a company in direct competition with another privately held company. If you own 72.5%, you are the majority stock holder and pretty much run the company.
2: Isn't it illigal for the union to own part of a company they are also the union boss of?
The guy who wrote the article is wrong about the financial crisis is what's killing the big 3.
In 2007 GM sold most cars in company history. Gas was cheap, loans were given to anyone breathing. Yet in 2007 they lost 38 billion dollars, the year before that they lost billions, the year before that they lost billions, the year before that they lost billions.
All the financial crisis did with make the bankrupcy happen sooner rather then later.
In 2007 GM sold most cars in company history. Gas was cheap, loans were given to anyone breathing. Yet in 2007 they lost 38 billion dollars, the year before that they lost billions, the year before that they lost billions, the year before that they lost billions.
All the financial crisis did with make the bankrupcy happen sooner rather then later.
Didn't the Aeronautical Industry do something similar?
Saw this on Autospies.com
so often we need to stand back from the issues at hand and regroup.
My case in point for today is the bailout of General Motors. I challenge you to forget whatever we may have done for Chrysler in the past or present. What works for one company doesn’t necessarily work for another. We can’t group all of the fruit together and call them all apples.
After propping GM up with $20 billion in bailout loans the New York Times is reporting today that the federal government will conservatively need another $50 billion just to make GM through bankruptcy.
So let’s total that up real quick, and we get $70 billion in “loans” that by most accounts will never be paid back. There simply is no way that initial $20 billion will be repaid, because it will be forgiven in bankruptcy court. There also is little doubt that any significant portion of projected $50 billion needed to maintain the company through bankruptcy will ever make back into the taxpayers hands as well.
So now take the time to step back.
If you look at Fortune Magazines Top 500 for 2008 you will find that GM employes 266,000 employees. Certainly that figure is lower in 2009, but if you apply that number and divide it into the conservative projection of $70 Billion invested to get GM through bankruptcy. The figure you get is over $263,000 per job saved at GM. Now that assumes that none of these 266,000 jobless won’t find a job and will be considered unemployable. In reality almost all of these people will find other sources of income either at a competitor or somewhere else in the economy.
Whatever happened to the notion that if one company failed the market would fill in the gaps? You can argue that GM is too big to fail, but logic dictates that the market void will be filled by the survivors and they will benefits from GM’s missteps. Capitalism is self healing so to speak.
So I guess as we get to the bottom of the barrel we have to ask ourselves two questions.
1. Should we pay over a quarter of a million dollars per employee to save a sinking ship?
2. Would these same employees spend a quarter of a million dollars to save my job?
It is all in how you look at it, I say cut our losses and let the system correct itself.
so often we need to stand back from the issues at hand and regroup.
My case in point for today is the bailout of General Motors. I challenge you to forget whatever we may have done for Chrysler in the past or present. What works for one company doesn’t necessarily work for another. We can’t group all of the fruit together and call them all apples.
After propping GM up with $20 billion in bailout loans the New York Times is reporting today that the federal government will conservatively need another $50 billion just to make GM through bankruptcy.
So let’s total that up real quick, and we get $70 billion in “loans” that by most accounts will never be paid back. There simply is no way that initial $20 billion will be repaid, because it will be forgiven in bankruptcy court. There also is little doubt that any significant portion of projected $50 billion needed to maintain the company through bankruptcy will ever make back into the taxpayers hands as well.
So now take the time to step back.
If you look at Fortune Magazines Top 500 for 2008 you will find that GM employes 266,000 employees. Certainly that figure is lower in 2009, but if you apply that number and divide it into the conservative projection of $70 Billion invested to get GM through bankruptcy. The figure you get is over $263,000 per job saved at GM. Now that assumes that none of these 266,000 jobless won’t find a job and will be considered unemployable. In reality almost all of these people will find other sources of income either at a competitor or somewhere else in the economy.
Whatever happened to the notion that if one company failed the market would fill in the gaps? You can argue that GM is too big to fail, but logic dictates that the market void will be filled by the survivors and they will benefits from GM’s missteps. Capitalism is self healing so to speak.
So I guess as we get to the bottom of the barrel we have to ask ourselves two questions.
1. Should we pay over a quarter of a million dollars per employee to save a sinking ship?
2. Would these same employees spend a quarter of a million dollars to save my job?
It is all in how you look at it, I say cut our losses and let the system correct itself.
A goverment and union run company doesn't exactly make me think of the well oiled machine it will have to be to survive.Besides the fact that I dont think many of us would buy a car warrantied by the Goverment and the UAW.I sure as hell won't and I am pretty sure my GMS discount went Bye Bye anyway which is the only reason I have stayed with GM this long. They are screwed either way just finish it quickly!
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