General Motors bankrupt, continues to operate under chapter 11 plan (1 Viewer)

[Graney]

GM bankruptcy: What you need to know

The what, when and why behind the fourth-largest bankruptcy in history.

General Motors bankruptcy is the fourth-largest in history. It is also one of the most complex.

For those who feel a bit confused, here's a quick primer on GM's Chapter 11 filing, including the events that led up to it, and the shape of things to come.

What forced the bankruptcy?

In the words of President Obama, General Motors is "buried under an unsustainable mountain of debt."

The company's problems escalated in 2008, when a spike in fuel prices crippled demand for GM's larger gas burners, including SUVs and trucks like the Hummer. As the recession mounted so did the decline in vehicle sales, especially since many consumers could no longer get loans to buy GM vehicles, and GM's market share fell.

The Obama administration provided $19.4 billion to GM to try and keep it out of bankruptcy, under the caveat that its restructuring be a total overhaul, rather than a streamlined version of its old self. But that wasn't enough. The government will provide another $30 billion to keep the company running during the Chapter 11 process.

What's the point of the bankruptcy?

GM will lose a lot of unwanted weight through Chapter 11 -- potentially $37 billion worth of debt.

Its intention is to free itself up to become more competitive. The bankruptcy judge has the power to let GM out of obligations and contracts it can no longer afford.

The company is also in the process of closing 14 under-performing plants and other facilities and putting three more on stand-by. The company is cutting up to 40% of its franchise agreements with 6,000 dealerships. GM is expected to cut 20,000 jobs during this process.

Also, GM will lose its Saturn, Pontiac and Saab brands, along with Hummer, which it sold to a Chinese industrial company. The company has already said it will kill off Pontiac.

Chrysler LLC, a much smaller automaker, was able to shed $6.9 billion in debt and leave behind its unwanted assets, including eight factories and franchise agreements with 789 dealerships.

Who will own the new GM?

You will, at least a lot of it. American taxpayers will end up with a 60% stake.

The rest will be divided among the United Auto Workers union, GM's bond holders, as well as the federal and provincial governments of Canada and Ontario. Individual investors and mutual funds stuck with $27 billion worth of GM bonds will end up with stock in the new company worth a fraction of its prior value.

Holders of GM (GMGMQ) stock, which was converted to a pink sheet listing with the ticker symbol of GMGMQ, will get wiped out when the process is completed.

Why did GM file in NYC?

GM has businesses located throughout the country, providing a wide spectrum of options for where they can file Chapter 11. But the federal bankruptcy court in lower Manhattan has a reputation for handling big corporate restructurings.

Chrysler, for example, estimated that it would win a favorable ruling from a bankruptcy-savvy New York judge. As it turned out, it was right.

From GM's perspective, it was so far, so good at the start. The bankruptcy judge in its case, U.S. Judge Robert Gerber, ruled on Monday that GM will have immediate access to $15 billion in government funds. Also, he wants to get it done quickly.

What happens next?

Judge Gerber said he will make a final ruling on the financing approval on June 25. If he is able to follow through, then he will meet President Obama's desire for a speedy bankruptcy to create a new company from GM's best assets, within 60 to 90 days.

Gerber might take his cue from the Chrysler case, where Judge Arthur Gonzalez approved the asset sale a month after the April 30 Chapter 11 filing.

"Keep in mind, many experts said a quick surgical bankruptcy was impossible," said Obama, in a press conference on Monday. "They were wrong."

GM bankruptcy FAQ: How it works - Jun. 2, 2009

 

[Graney]

I posted this mainly so I could post this related opinion piece on holden.

“Holden has said its Australian assembly operations will continue, without really explaining how.”

“Holden hasn’t made a profit since 2004 and fewer and fewer people are buying its only locally-produced car – the Commodore. Holden recently claimed that it was close to making a profit. If so, when will it be paying back the Australian federal government, and why is it still asking for handouts?”

“To build cars profitably in the 21st century, you need to have a very large local market and/or a very large export market and/or very low costs. Holden has none of these.”

“Holden is betting its future on a small four-cylinder Daewoo, to be built in Australia and then sold as a Holden. This is a laughable strategy. Daewoo is currently losing billions building the same vehicle in Korea.”

“Small cars tend to have small profit margins, which is why Holden has always built large ones. It’s impossible for Holden to successfully compete against the Japanese, Thais, Koreans, and above all, the Chinese.”

“Holden’s assembly operations face the choice between a quick, clean end and a long, painful end. The final result will be the same.”

“Australia has to start thinking of life without a car assembly industry, instead of pretending that the house isn’t on fire.”

“If the Australian government simply shared its $6 billion car industry bailout among the affected car workers, these workers could pay off their mortgages or perhaps start small businesses. At least that way the money wouldn’t be wasted. As things stand, the government’s $6 billion is simply paying the bills for a few multinational corporations, while doing nothing to solve the underlying problems.”

Holden still faces grim future - Media Release - The Dog & Lemon Guide

Managing director of Holden in Australia Mark Reuss has been putting up a lot of brave words in the media, saying there's no way Holden will collapse.

Holden is done, how much longer do we have to put up with them bleeding tax payers?

 

[S.H.O.D.A.N.]

I posted this mainly so I could post this related opinion piece on holden.


Holden still faces grim future - Media Release - The Dog & Lemon Guide

Managing director of Holden in Australia Mark Reuss has been putting up a lot of brave words in the media, saying there's no way Holden will collapse.

Holden is done, how much longer do we have to put up with them bleeding tax payers?

TBH I think it makes sense for a controlled failure of such huge but unsustainable companies.

That Obama is pushing for cheap efficient, less polluting cars under the new company is gravy.

 

[Freedom_]

This the the free market working. Allowing Holden/GM to be bankrupt is the market course correcting itself.

In all capitalist based societies a drive for efficiency is to be assured, as it always is on the market, by the compulsion to make profits and avoid losses, and thereby to keep costs low and to serve the highest demands of the consumers. GM/Holden are an incompetent cooperation which suffers from gross inefficiency which deserve to go bankrupt and disappear.

 

[loquasagacious]

You report that Holden has not made a profit since 2004, the same article quotes a car industry source as saying that Holden is a highly valued part of GM's global network. Maybe this sort of accounting explains why GM has filed for bankruptcy.

.

 

[Serius]

Good, these unprofitable strategies and luxury item companies should sink and i am going to laugh while they do. Develop a better model, produce something with the environment in mind instead of your own greedy profits and treat the consumers like intelligent people instead of marks then come back and talk.

Why should the government give handouts and continue to float companies that are so top heavy they are sinking under their own weight? They are encumbered with old ideas and old concepts of doing business, let them die so new innovative companies can step in and fill the gap.

 

[Graney]

TBH I think it makes sense for a controlled failure of such huge but unsustainable companies.

But the current plan is not controlled failure. The government is giving them billions in the expectation they'll return to profitability, something that is hard to see happening.

That Obama is pushing for cheap efficient, less polluting cars under the new company is gravy.

The world is already full of cheap, fuel efficient cars from Europe and Japan. This won't differentiate the American manufacturers in the marketplace. It's not a plan that is going to bring these companies back to life.

 

[S.H.O.D.A.N.]

But the current plan is not controlled failure. The government is giving them billions in the expectation they'll return to profitability, something that is hard to see happening.

Why is it hard to see happening? Were they not crippled by fuel prices and 'invisible' debt from previous decades (like exorbitant pensions and private health insurance to ex-workers). Starting fresh, the company will have neither of these. It's a much better footing.

The world is already full of cheap, fuel efficient cars from Europe and Japan. This won't differentiate the American manufacturers in the marketplace. It's not a plan that is going to bring these companies back to life.

Americans are pretty protectionist - at least the consumers, even when policy isn't. Especially in the case of cars. We'll see.

 

[Graney]

Why is it hard to see happening? Were they not crippled by fuel prices and 'invisible' debt from previous decades (like exorbitant pensions and private health insurance to ex-workers). Starting fresh, the company will have neither of these. It's a much better footing.

Fuel prices are only going to stay at these levels during the global recession. The biggest downturn in consumption in history is the only reason the price of oil has dropped to levels where people might want big 6's and V8's again. And it's come to that affordable price at a time when there is hugely reduced demand to buy all cars, including these big 6's and V8's.

It will only remain there 5-10 years max and oil will start to return to record highs again without doubt. By the time consumer confidence has returned to where people are buying new vehicles again, fuel prices will have returned to the point where the traditional American car will be unsellable again.

Has anything changed in the union policy/pension + insurance entitlements of workers?

The industry could conceivably be sustainable with a radical deregulation of workers rights and protections.

 

[S.H.O.D.A.N.]

Fuel prices are only going to stay at these levels during the global recession. The biggest downturn in consumption in history is the only reason the price of oil has dropped to levels where people might want big 6's and V8's again. And it's come to that affordable price at a time when there is hugely reduced demand to buy all cars, including these big 6's and V8's.

It will only remain there 5-10 years max and oil will start to return to record highs again without doubt. By the time consumer confidence has returned to where people are buying new vehicles again, fuel prices will have returned to the point where the traditional American car will be unsellable again.

Hence Obama's focus on GM producing hybrids, electric cars, and efficient traditional petrol guzzlers. I already know your thoughts on hybrids, but regardless people are interested in them as fuel efficient vehicles.

Has anything changed in the union policy/pension + insurance entitlements of workers?

They're more in line with companies like Toyota and such now.

The industry could conceivably be sustainable with a radical deregulation of workers rights and protections.

Not going to happen, and it would be a bad thing if it did.

 

[katie tully]

Hey quick omg time to go and buy a cheap holden ~


p.s. when they go bust, what do I do when I need new parts

 

[Graney]

Hence Obama's focus on GM producing hybrids, electric cars, and efficient traditional petrol guzzlers. I already know your thoughts on hybrids, but regardless people are interested in them as fuel efficient vehicles.

If it were possible for GM to make money producing these cars, why would they not have done so before? Again, the market is flooded with these sorts of cars from other manufacturers, producing them won't differentiate the American manufacturers in the market, there are so many on the market, China, Korea and Thailand are always going to be able to undercut the Americans significantly. The American car industry can not sell a small car manufactured domestically at the same price as their asian competitors.

Americans are protectionist in their buying habits, but they're also price conscious and intelligent. 76% of Americans reported when surveyed that they thought the American car companies should be allowed to collapse. Harley Davidson would have gone bankrupt in the 80's if protectionist legislation hadn't been introduced.

Ford (I don't know if GM and Chrysler do also) already produces several hybrids.

Not going to happen, and it would be a bad thing if it did.

The reason American car manufacturers have always produced large cars is because there are high profit margins to compensate for their high labor costs. If they're going to survive and compete internationally in a small, efficient car market, they need to reduce labor costs.

It's a basic choice, labor costs are what keeps the American car industry from being competitive. You can either cut labor costs and keep jobs, or you can protect high wages, but the industry will not generate a profit.

 

[S.H.O.D.A.N.]

If it were possible for GM to make money producing these cars, why would they not have done so before?

If search and advertising was a good way to make money, why didn't Microsoft/Lycos/Excite/Yahoo/AOL make such magnitudes of money at it before Google - why did some of those companies fail?

Companies get stuck in their ways and stop innovating, especially if those ways are decades old.

It's a basic choice, labor costs are what keeps the American car industry from being competitive. You can either cut labor costs and keep jobs, or you can protect high wages, but the industry will not generate a profit.

If a company can't abide by basic labour laws without getting into debt it needs to shut down. Luckily it's not the false dichotomy you make it out to be.

I'm not optimistic about the future of car companies in Australia or America, but it's no where near so black and white.

 

[Riet]

Hey quick omg time to go and buy a cheap holden ~


p.s. when they go bust, what do I do when I need new parts

Hope someone starts a company that supplies them to take advantage of the situation.

 

[Laika_]

so many holdens around, there will be lots of parts.

 

[Riet]

If it were possible for GM to make money producing these cars, why would they not have done so before? Again, the market is flooded with these sorts of cars from other manufacturers, producing them won't differentiate the American manufacturers in the market, there are so many on the market, China, Korea and Thailand are always going to be able to undercut the Americans significantly. The American car industry can not sell a small car manufactured domestically at the same price as their asian competitors.

Americans are protectionist in their buying habits, but they're also price conscious and intelligent. 76% of Americans reported when surveyed that they thought the American car companies should be allowed to collapse. Harley Davidson would have gone bankrupt in the 80's if protectionist legislation hadn't been introduced.

Ford (I don't know if GM and Chrysler do also) already produces several hybrids.


The reason American car manufacturers have always produced large cars is because there are high profit margins to compensate for their high labor costs. If they're going to survive and compete internationally in a small, efficient car market, they need to reduce labor costs.

It's a basic choice, labor costs are what keeps the American car industry from being competitive. You can either cut labor costs and keep jobs, or you can protect high wages, but the industry will not generate a profit.

The reason GM failed has not so much to do with the types of cars they were producing, but with the structure of the company itself. Their organisation and things like workers agreements, pensions, health insurance were all based on the companies standings in the glory days of the 50s and 60s when they had virtually no competition (from foreign companies, anyway).

Since then everythings changed though, Germany has reestablished itself and its automakers have much more streamlined manufacturing processes etc. (Though the German companies have their own problems too) Similarly Japan has led the way in manufacturing automation and the like, while their cars have progressively gone from economy boxes to true classleaders.

It is completely unrealistic to expect GM to have the same market share as it once did, and so it finds itself in an unsustainable situation. As the baby boomers have started to retire their liabilities have increased (have to pay pensions and wages of replacement workers).

When Toyota and Honda began manufacturing cars in the USA they intentionally avoided hiring memeber of the UAW as they too would have had to make concessions to them. This is why they have maintained profitibility for the most part.

This is ignoring redundancy within their supply chains and even in many of the cars themselves (they have way too many brands, for a start), but I haven't read enough about that to properly comment.

It's not a matter of them making the wrong cars, or bad cars even (not anymore, anyway). Many of GMs cars are truly worldbeaters in their class. The Problem is that the company was structured for when it had a massive market share and it doesn't anymore, simple as that.

 

[Graney]

Yeah, I'd agree, I endorsed that they created the right cars in general, there's definetly a substantial market still existent for large cars, of which many American built cars, such as the mondeo, are often among the best. I don't think there's a future for domestically built small cars from the USA, unless there are radical changes to wages and conditions.

I guess it's hard to run a company to supply a market that, for the foreseeable future, is going to be continually declining. Every time oil prices increase in the future, they're going to be forced to revise down production numbers for their large cars, unless they can find a way to continually steal market share from other manufacturers.