$77 billion more to bail out bankrupt GM?
Filed under: Company News
Thanks to decades of mismanagement, General Motors Corp. (GM) is on the brink of bankruptcy. For instance, under its recently fired CEO Rick Wagoner, GM's North American market share fell from 33 percent to 19 percent and between 2004 and 2008, GM lost $74 billion . It now has about six weeks to accept the outlines of a Treasury plan and fill in its blanks.
And GM will not simply be liquidated. Instead, $77 billion more in taxpayer money -- on top of the $13.4 billion it has already received -- will be needed for GM to die a good death and be reborn as a smaller company.
How will this work? Using a section 363 bankruptcy (about which I posted here), the good part of GM -- such as Chevrolet, GM's Chinese operations, and Cadillac -- will go into a new company in the next two weeks with the help of $7 billion in U.S. debt. And the bad part -- everything else -- will require $70 billion more in U.S. debt to cover GM's health care obligations and the liquidation of the factories making all of GM's other products.
Still unresolved in this plan is the fate of a $13.5 billion gap between GM's pension assets and its liabilities, as well as how much of a haircut the holders of $29 billion in GM bonds will be forced to take. Finally, there's the matter of whether this restructured GM will be able to attract any customers, who might be nervous about whether a bankrupt company can stand behind its warranties.
Meanwhile, there is wonderful news for Boston Consulting Group, which will get $5 million in fees to develop a business plan for GM. And S&P is earning its fees by announcing that GM and Chrysler are likely to default on their debt obligations. Too bad they didn't make that call a few years ago when it could have helped saved people from losing money.
No word on how the U.S. will get back the $90 billion will have lent GM to cover all its mistakes. And all the GM stockholders -- who have already lost 98 percent of their investment since Rick Wagoner took over -- will see that remaining two percent wiped out.
Update: GM CEO Fritz Henderson now states that the new GM will include Chevrolet, Cadillac, Buick and GMC. He says there are multiple bidders for Hummer and that plans for Saturn should be resolved quickly.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in GM securities.
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Reader Comments (Page 1 of 15)
4-13-2009 @ 8:23AM
Dave said...
Another arm chair quarterback. GOD BLESS THE UNITED STATES OF ASIA
Reply
4-13-2009 @ 3:25PM
Larry Klamerus said...
I'm retired, pay my own health & dental ins. All those freeloaders of the UAW that get all their ins. for FREE is a good part of the problem. Retired UAW workers need to start paying the piper !!! No MORE FREE RIDES.
Reply
4-13-2009 @ 10:29AM
john said...
To Larry: Many years ago YOU made a decision to work for your company, so don't be jealous of the U.A.W. members who negotiated fairly with the big 3. YOU chose to work for a company that didn't provide decent retirement benefits so suck it up and deal with it.
4-13-2009 @ 12:56PM
Bob Sirop said...
Larry, Those UAW workers worked for their pension, and benifits. The cost of autos is only 10% labor. You may not have been as luckey in that you must pay for your own health care. However you are wrong to pin it on the UAW. Big shot business types are the ones who made this mess, not the little guy breaking his back on the line. Flush out you head gear.
4-13-2009 @ 2:02PM
Shelly said...
Freeloaders???? Do your homework buddy!!!
4-13-2009 @ 9:53PM
Dave said...
How much did you get in retirement to pay for your own insurance? We GM retitees are close to poverty level now and would not be able to have any insurance at all.
4-13-2009 @ 9:07AM
Linda said...
I am sorry Larry but the people that worked under the Union did a good job on the GM cars and worked real hard to perfect their jobs and worked 7 days a week for this money. Everything fell apart when GM started to low bid their parts and caused the suppliers to make cheap parts and from their the company was ruined and spent the rest of the money sending all the work to China and Brazil and got slapped in the face with high cost shipping from these company's. This is what caused GM to falter not the UNION. The UAW never fell under a free ride the company was the one that wanted a free ride which caused them to put out cheap cars to put more money in their pockets which caused the people to start buying foreign well built cars and took the sales away from GM. Now with the lay off's in the states going on the people cannot afford to buy any car never mind GM products. Their is no one to blame but management.
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4-13-2009 @ 10:07AM
Geordi said...
GM failed because they could never make a profit on small cars. You can say whatever you want about foreign parts suppliers, etc., but the fact of the matter is that GM bet the farm on colossal gas-guzzling vehicles, thinking that gas prices would be cheap forever. When gas prices skyrocketed, which they will do again, GM had sales lots full of SUV's they couldn't sell, and that's the only thing they can make a profit on thanks to their cost structure. GM's quality has never been better or worse than other vehicles'. GM just gave away too much and backed themselves into a corner when their big cars and trucks wouldn't sell and their small cars wouldn't pay the bills.
4-13-2009 @ 4:57PM
Elijah said...
Linda:
I do not doubt that unionized workers did their job faithfully, however, because of the ridiculous wages they paid their factory workers ($100/hour!) they were forced to cheapen their parts to even have the possibility of making a profit. (Even after they retire, the workers get $80/hour for practically the rest of their life!) Not only that, but they had to compete with Honda and Toyota, who are known for their long lasting, fuel-efficient cars.
4-13-2009 @ 9:13AM
TomW said...
Since I don't worship any politician on the right or left I always try to look at the entire picture. Who profits from putting GM under and why would Obama want that? I am now convinced, after voting for him, that Obama does not really exist as a President, he is just a front man for more sinister types. I watched Obama's "town meeting" and marveled that no one in the audience got to ask a question, you know like a town meeting, but that he answered only questions that came in from a focus group, online, from the White House, and that he reads his answers to staged questions at press conferences from a teleprompter. So who makes out if GM goes down? A lot of foreign investors for sure. Who makes out as Obama talks about putting down coal, our most abundant source for energy? Why in the mix for new energy are we doing solar and wind (which would hold over half the country energy poor) and not talking about hyrdo which is available for any river in the US and is clean too? Who is making the money? Ask those questions as you watch Obama's handlers dismantle this country.
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4-13-2009 @ 10:06AM
Geordi said...
You are not the neutral observer you pretend to be-anyone with even rudimentary reading skills can see that. You're just another republican hypocrite masquerading as an impartial observer. Worse than that, you're a liar and an agent provocateur from Rush Limbaugh's camp. Do you really think people are as stupid as you are and can't see through your smoke screen.
4-13-2009 @ 5:01PM
CHMc said...
You are so right. I voted for him to and am extremely dissappointed. His wife has done 5-6 magazine photo shoots, one even with "granny," he gets made when asked tough questions about the economy. To top it all off no one at my bank (Wells Fargo) claims to know how his "help the homeowners" plan is supposaed to work. This is a HORRIBLE MESS.
4-13-2009 @ 5:12PM
Dee said...
He is a Front for those behind the scenes.
Google "Bilderberg Group." Very few politicians in this country care one bit about what happens to us. It's all about payback, kickbacks, power & wealth accumulation.
Read your history on the IMF & the World Bank and how they are bankrupting and indebting 3rd world countries.
Read about the bailout and how there were almost no provisions for how the money would be spent (executive bonuses & foreign banks). But all the foreign banks lead back to the US in the end.
Obama and Geittner are VERY smart and scholarly men. Don't believe their pretend "outrage" when they are suprised that the bailout money is being used for bonuses for multiple banks.
You think it didn't occur to them that it would be used this way?
Of course it did - that's WHY it is happening.
Obama may be "cool" but never forget he is just another politician...and nothing more.
4-13-2009 @ 9:20AM
Donovan said...
Warranties? I've owned Cadillacs since the mid 1960's and I still own three Cadillacs. In so far as warranties go. Unless GM issues a recall for something or other. It seems very little to nothing is covered under their warranty. At least this is what your friendly GM service adviser will tell you. Trust me. A GM service adviser will come up with any excuse necessary in order to avoid a (FREE) warranty fix on your GM vehicle. Once you drive your GM car off the dealership lot. Find a private mechanic you trust, to do all the routine service on your GM car. You'll save a small fortune on oil changes, tire rotation's, air filters etc.
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4-13-2009 @ 3:28PM
CadillacTech said...
i dont know what dealership you were visiting but the four cadillac dealers i have worked at, its a battle for the techs to not have the service writers warranty everything. like the bottom feeder owners who smash their mirror on the side of the garage and then get upset because we cant warranty it for them. then they go to jiffy lube to have the wrong oil put in.......too funny
try going to work for 8 or 10 hours and then getting paid for 4 because no one does maintenence and gm warranty pays squat
4-13-2009 @ 4:20PM
Tom said...
I assure you if you are buying NEW Cadillacs and have a warranty issue,it will be taken care of. I work in a Cadillac store and there are no problems with legit issues on a Cadillac under its factory warranty.
4-13-2009 @ 7:07PM
RICH said...
You are absolutely wrong about the GM warranty program. I've owned several GM products and never had an issue with the warranty. Even the one time it was my fault and they fixed the part cost free.
4-13-2009 @ 9:24AM
fred said...
The only ones that haven't lost anything in this fiasco are the retirees of GM. Billions are going to them, not making a better product. They will not take concessions, though taxpayers have paid billions, thousands have lost their jobs, 401k plans have gone to crap and much more. If they won't take concessions, they should reorganize their debt to retirees, not force the taxpayers to pay for their lavish retirement plans that include private resort access, golf memberships, top insurance plans for life and up to 90% of their salary at retirement. That's simply too much burden to put on a corporation that pays 5 retirees for every active employee. Unions have crushed the backbones of our largest industries, just ask the steel companies.... Oh yeah, they all went ot China because of union demands.
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4-13-2009 @ 10:10AM
Art said...
To bad you you have so much hate for retired people I hope you make it to retirement and some ass hole like you want to take it away from them. I didnt work for the car companys lots of luck Fred
4-13-2009 @ 12:28PM
Tiffany said...
Yes Fred, retirees have lost in this problem as well. My dad is a retiree and pays $15,000 a year for his own medications out of pocket another $12,000 a year for my mothers prescriptions and that is above the montly premiums. Medical coverage is also 100% out of his pocket as well as his stock is gone, his life insurance policy that he had for 52 years is gone and once they go bankrupt then his pension is gone. I would say you are correct, it has cost the retirees nothing!