GM considers Chapter 11

[J]

Reuters link

GM considering Chapter 11 filing, new company-WSJ
Sat Feb 14, 2009 5:04pm GMT
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CHICAGO, Feb 14 (Reuters) - General Motors Corp (GM.N: Quote, Profile, Research), nearing a Tuesday deadline to present a viability plan to the U.S. government, is considering as one option a Chapter 11 bankruptcy filing that would create a new company, the Wall Street Journal said in its Saturday edition.

"One plan includes a Chapter 11 filing that would assemble all of GM's viable assets, including some U.S. brands and international operations, into a new company," the newspaper said. "The undesirable assets would be liquidated or sold under protection of a bankruptcy court. Contracts with bondholders, unions, dealers and suppliers would also be reworked."

Citing "people familiar with the matter," the story said that GM could also ask for additional government funds to stave off a bankruptcy filing.

GM declined to comment, the story said.

General Motors and Chrysler LLC face a Tuesday deadline to file restructuring plans to the government in exchange for receiving $17.4 billion in federal loans.

Automakers have struggled as U.S. auto sales have tumbled amid a recessionary economy. U.S. auto sales in January tumbled to a 27-year low.

GM has been in talks with bondholders and the United Auto Workers union to get an agreement on a restructuring that would wipe out about $28 billion in debt for the auto maker, sources have told Reuters. However, it appears unlikely a deal could be reached by the Tuesday deadline, they said.

GM has already announced plans to cut 10,000 salaried workers worldwide, or 14 percent of its staff, impose pay cuts for most remaining white-collar U.S. workers and has offered buyouts to its 62,000 U.S. workers represented by the UAW.

In addition, it is trying to sell its Hummer SUV and Swedish Saab brands and is reviewing the status of its Saturn brand. (Editing by Eric Walsh)

The deadline for GM & Chrysler to prove they are viable businesses is Feb. 17th. That's 3 days away. If they fail it looks like GM will be filing a chapter 11, and that will be cause for panic. On the political side, having GM go belly up on his watch will not be good for Obama's popular support, if he bails them out we have a zombie automaker which the UAW will leech from some more, there's really no way he can come out smelling like roses.

[Darth Fanboy]

I would LIKE to think that people wouldn't give Obama much of the grief for letting GM fail on his watch when the blind eyes of the previous administrations didn't do a damn thing to get the automakers to do anything to make them more viable. But this is humanity we are talking about and its not exactly the species that gives me the most optimism (for reference, the species that gives me the most hope is the Owl Limpet.)

Maybe if he and Michelle autograph every new Chevy off the line...

[Phantasee]

Saab could probably do alright on its own, nah? Hummer... heh.

I figured something like this would happen, but I'm surprised that it wasn't Chrysler first. Although, what with my uncle being an engineer for Chrysler, I suppose I'm sorta glad (for now).

[Bounty]

Saab could probably do alright on its own, nah? Hummer... heh.

Opel, Vauxhall and Holden seem to be pretty viable. The only reason Opel isn't getting any help from the German government is because they're afraid the money will disappear into GM; if they become independant - and IIRC offers on the company have been made - I don't see why they couldn't weather this.

[Starglider]

Opel, Vauxhall and Holden seem to be pretty viable. The only reason Opel isn't getting any help from the German government is because they're afraid the money will disappear into GM; if they become independant - and IIRC offers on the company have been made - I don't see why they couldn't weather this.

The thing is, if they are actually viable, they will be retained. The bankruptcy is about shedding 'undesirable assets' for bargain basement prices. As I understand it those three operations are fairly well-integrated parts of GM; OTOH GM never knew what to do with Saab and both parties may well benefit from a separation.

[tim31]

Opel, Vauxhall and Holden seem to be pretty viable. The only reason Opel isn't getting any help from the German government is because they're afraid the money will disappear into GM; if they become independant - and IIRC offers on the company have been made - I don't see why they couldn't weather this.

The thing is, if they are actually viable, they will be retained. The bankruptcy is about shedding 'undesirable assets' for bargain basement prices. As I understand it those three operations are fairly well-integrated parts of GM; OTOH GM never knew what to do with Saab and both parties may well benefit from a separation.

On the Holden end of things, they locally produce exactly two models, one in three variants(sedan, wagon, ute), and the other a larger sedan/limosuine. The rest is imported from Opel/Vauxhall, Isuzu, Daewoo, and Hyundai and rebadged. The Commodore is(or was, I don't know about the current model) exported to Saudi Arabia and rebadged as a Chevrolet. I don't know how profitable Daewoo and Hyundai are to GM(the latter seems fairly secure), but cutting them from the tree would most certainly affect Holden and require them to defer back to europe for their sensible smaller passenger cars(read: not SUVs).

[Chardok]

Be honest - How many of you actually thought you would live to see the day that GM would file Bankruptcy? That's so fucking huge it's unbelievable. that's like, GE or Boeing or Kraft. the surest sign I saw recently of "Fuck, we're screwed for awhile" was an article on Yahoo! News indicating that Wal Mart was laying off 100 people at it's headquarters. Sure, it's only 100 people, but it's WAL MART; the only real bright spot in this whole dismal mess.

[aerius]

On a related note, the '09 ZR1 Corvette could become a serious collector's item if GM files chapter 11. If I had a place to store one I'd be tempted to blow the money we've saved up for a home on a ZR1.

[Starglider]

Be honest - How many of you actually thought you would live to see the day that GM would file Bankruptcy?

I certainly did. The bad news about the American car industry has been coming thick and fast since the late 70s, with only brief (and mostly illusionary, like the early stages of the SUV craze) respites. The financial logic was inexorable; eventually something major had to happen to eliminate those 'legacy costs'. Frankly it could've been worse; at least the Volt shows that GM is at least attempting to innovate and adapt now. I thought they might remain stubbornly backward right to the end.

[Elfdart]

I think a car company that files for bankruptcy has more or less written a suicide note. Can you imagine what's going to happen when all those people who bought GM cars recently find out that their warranties and service agreements are null and void at the whim of a judge? Another reason I'd never buy a GM product.

[Darth Wong]

GM's collapse was inevitable. It was so gigantic at the height of its power that it was bound to have the most overcapacity as the market began to even out, and the UAW fought every plant closure and layoff tooth and nail. The question was whether the federal government would find a way to help them restructure without forcing them to declare bankruptcy with all that entails, and it's pretty obvious that car companies are nowhere near as important to the government as fat-cat Wall Street firms.

[Ryan Thunder]

Be honest - How many of you actually thought you would live to see the day that GM would file Bankruptcy?

As soon as I realized that their assembly-line workers were making more per hour than I was for doing a job that required less expertise...

[Elfdart]

One of GM's major gripes is that their so-called legacy costs (health benefits for retired workers) are too high. If that's the case, why didn't they push for socialized medicine all these years? Maybe if they had put as much lobbying into that as opposed to lobbying for their gas-guzzlers, they might not be in this pickle in the first place.

[ArmorPierce]

Well they did support national health care, not to the extent that they should have however.

[frogcurry]

Saab is a terrible company, they have no natural market anymore. Their cars are out of date compared to the competition, and they don't have enough options in their range. Volvo and Lexus have largely taken over the non-germanic premium car market that Saab used to be in, with Audi added to the mix and at their strongest ever. There's no room for Saab anymore, and no-one will put up the money to fix them, as the investment return compared to the scale and period required would be poor.

The biggest problem that GM (like all the US car companies) has had for years is a fear in the company management of change, and an unwillingness to accept the need to become a smaller trimmer company. There just isn't room for three large US-centric car manufacturers anymore, with so many international competitors in the same market. Sell most of their assets in the US excepting all of research, development and the part of production where there is a good economic case for it, use their international assets properly by standardising between markets and brands more, and reduce the dealer network. Stop discounting cars so that they sell at a loss. They might end up only being the 4th or 5th biggest car company in the world, but they'll be able to make a profit and keep the american jobs that are left secure.

[Ma Deuce]

One of GM's major gripes is that their so-called legacy costs (health benefits for retired workers) are too high. If that's the case, why didn't they push for socialized medicine all these years? Maybe if they had put as much lobbying into that as opposed to lobbying for their gas-guzzlers, they might not be in this pickle in the first place.

GM has not been particularly successful at lobbying for anything for at least 30 years now. Why would it have been any more so at lobbying for universal health care, when all the other businesses that have a vested interest in maintaining the current system (especially the HMOs) could have upped the ante in lobbying for the opposite? And those pensions don't just cover healthcare; they have to pay that for current workers too, as does every other company that does business in the United States, yet the fact remains that GM spends 3 dollars on it's retirees for every 2 it pays to it's current workforce. How many other US employers have that kind of ratio? Going over the events past 40 years I simply cannot come to any other logical conclusion except that this is primarily the UAW's fault, who got greedy in the good times, and the workers who originally demanded those conditions are sitting pretty on fat defined-benifit pensions (which they will retain even if GM is liquidated) while their successors suffer the consequences. Perhaps what GM was really guilty of is not taking a hard line with it's union like US Steel did in the early '80s, but otherwise I don't see how they had any control over their ultimate fate: The ball is in the Government's court, and has been for a long time now.

[J]

Going over the events past 40 years I simply cannot come to any other logical conclusion except that this is primarily the UAW's fault, who got greedy in the good times, and the workers who originally demanded those conditions are sitting pretty on fat defined-benifit pensions (which they will retain even if GM is liquidated) while their successors suffer the consequences.

Those pension plans may not be safe afterall. When various US airlines went into chapter 11 in the years following 9/11, all of their pensions took a hit, even the retirees with their supposedly safe defined benefit pensions. As I recall they had their pensions taken over by the PBGC which resulted in some pensioners losing half of their retirement income. If GM files chapter 11, the UAW retirees who are currently living large on their pensions could get a very unwelcome surprise as they're bent over and forcibly sodomized.

[Ma Deuce]

If GM files chapter 11, the UAW retirees who are currently living large on their pensions could get a very unwelcome surprise as they're bent over and forcibly sodomized.

Well I guess that would be the silver lining if GM went under: At least the greedy assholes responsible would actually be among those getting buttfucked for it.

[Solauren]

I'm more interested as to what this will do to GM Canada + the CAW / Retires from same.

[Elfdart]

Going over the events past 40 years I simply cannot come to any other logical conclusion except that this is primarily the UAW's fault, who got greedy in the good times, and the workers who originally demanded those conditions are sitting pretty on fat defined-benifit pensions (which they will retain even if GM is liquidated) while their successors suffer the consequences.

Those pension plans may not be safe afterall. When various US airlines went into chapter 11 in the years following 9/11, all of their pensions took a hit, even the retirees with their supposedly safe defined benefit pensions. As I recall they had their pensions taken over by the PBGC which resulted in some pensioners losing half of their retirement income. If GM files chapter 11, the UAW retirees who are currently living large on their pensions could get a very unwelcome surprise as they're bent over and forcibly sodomized.

In some cases, yes. But a number of UAW employees have a pension set up through their union, which can't be touched since GM has nothing to do with it. When I was in school I worked and paid dues just long enough to be vested in the UFCW pension, which I get to collect at age 65 even if the company I worked for at the time goes under. Other unions (the smarter ones) do this precisely because companies try to weasel out of their pension commitments by filing bankruptcy, and in some cases steal pension funds. Back in the the 1950s, my grandfather and other members of his electricians' union set up a pension separate from the one their employer established, and was paid for out of dues and direct contributions from members. Retirees made more off this side pension than they were earning while working. The company's pension was a joke. Social Security paid more. If the company had gone bankrupt, those who went with the company's plan by itself would have received nothing.

[montypython]

GM's collapse was inevitable. It was so gigantic at the height of its power that it was bound to have the most overcapacity as the market began to even out, and the UAW fought every plant closure and layoff tooth and nail. The question was whether the federal government would find a way to help them restructure without forcing them to declare bankruptcy with all that entails, and it's pretty obvious that car companies are nowhere near as important to the government as fat-cat Wall Street firms.

If GM had been split up by the Anti-trust supporters back in the 1960's, it may have done far more good than harm looking back.

[Ma Deuce]

In some cases, yes. But a number of UAW employees have a pension set up through their union, which can't be touched since GM has nothing to do with it.

If GM goes down, it'll probably take the UAW with it. And given the sheer size of GM's pension liabilities that it has wanted to offload to a union-run trust fund for some time now (something the UAW only recently agreed to), I doubt the number of employees currently pensioned by the Union is all that many.

[GrandMasterTerwynn]

GM unveils restructuring plan.

Chrysler and GM seek further aid

Troubled US carmaker Chrysler has asked for another $5bn (£3.5bn) from the US government, saying it plans to axe 3,000 jobs and cut three car models.

The moves form part of its restructuring plan submitted to the Treasury Department on Tuesday.

Meanwhile General Motors has said it would try to borrow up to $16.6bn more from the government, on top of the $13.4bn it has already received.

Its plan includes cutting 47,000 jobs and closing five more US factories.

GM says that it could but it could be in profit within two years and fully repay its loans by 2017.

'Lot of work'

In December GM had said it would cut the number of plants from 47 in 2008 to 38 by 2012, but has now added another five factories facing the axe, with would leave it with 33 facilities.

The carmaker's brands would also be reduced from eight to four - Chevrolet, Buick, Cadillac and GMC.

GM chief executive Rick Waggoner said the company's plan was "comprehensive, responsive, achievable and flexible".

"We have a lot of work in front of us, but I am confident it will result in a profitable General Motors," he added.

The plan came after Chrysler, which was given a $4bn loan by the US government at the end of 2008, revealed its own survival plan.

Unveiling its proposals, Chrysler said it now expects the current downturn in the US car market to last another three years.

'Said right things'

The US's third biggest carmaker said its radical surgery had the support of the United Auto Workers (UAW) union, dealers, and suppliers.

The UAW says it has also reached tentative agreement with Ford and General Motors to help cut those firms' labour costs.

Meanwhile, Chrysler also said it planned to cut outstanding debt by $5bn and reduce fixed costs by $700m in 2009.

Analyst Lincoln Merrihew, of TNS Automotive Consulting, said: "I'm curious to see how the government responds to this plan, but Chrysler has said all the right things."

Fellow troubled US car giant General Motors is also set to reveal its cost-cutting programme in order to secure multi-billion government loans.

Earlier on Tuesday a US official said GM would get another $4bn on top of already received loans worth $10.4bn.

Union talks

GM's cost-cutting plans are expected to include the closure of several plants, and sale of brands like Hummer and Saab.

The company confirmed last week it was cutting 10,000 jobs worldwide by the end of 2009. About 3,400 jobs will go in the US under GM's initial restructuring plan submitted to the government last December.

However, GM is not expected to reached detailed redundancy agreements with the United Auto Workers (UAW) union by the government's deadline.

According to sources, the sides cannot agree on such issues as contributions towards run retiree health care expenses, elimination of productivity bonuses and unemployment pay period, though they are said to have made progress.

Future funds

The US Treasury will be studying the survival plans for several weeks before making a decision whether to call in or extend the loans. The decision is due by the end of March.

GM and Chrysler received their first bail-outs at the end of last year, warning that without the support they risked financial ruin.

Ford, the third of the "Big Three" US carmakers has yet to require any bail-outs, but says it may need funds in the future.

GM, Ford and Chrysler have all seen sales fall sharply in their home market.

While this decline reflects an industry-wide fall that has also hit European and Japanese carmakers in the US, the Big Three have also been criticised for not offering an attractive range of vehicles.

They have been said to be too slow in responding to the growing popularity of smaller, more fuel-efficient vehicles.

'Expertise'

Meanwhile, it has been reported that US President Barack Obama has decided to create a new car task force, designed to restructure the struggling industry.

However, no formal announcement has been made so far.

According to Obama administration officials, the force is an alternative idea to the option of a single "car czar" with far reaching powers.

US Treasury Secretary Timothy Geithner and top presidential economic aide Lawrence Summers are said to head the multi-agency operation.

White House spokesman Robert Gibbs said the task force would provide "a vast amount of expertise that crosses a number of governmental agencies and departments".

The Detroit carmakers are considered to be too big to fail, as their collapse would trigger serious problems for suppliers, dealers and other businesses, potentially resulting in massive job cuts.

Notes:

Chrysler expects the downturn in the automotive market to last three years. The comedy just writes itself.

As expected, I think, GM is going to sell off unprofitable makes. May Hummer die the death it so richly deserves. If you happen to own a Saturn or Pontiac, I feel your pain.

[Glocksman]

As expected, I think, GM is going to sell off unprofitable makes. May Hummer die the death it so richly deserves. If you happen to own a Saturn or Pontiac, I feel your pain.

It won't be that bad for any of those owners because GM will still have to honor any warranty on the car and parts availability shouldn't be a problem if my Oldsmobile is anything to go by.

Where Hummer, Pontiac, and Saturn owners will take it in the shorts on is perceived resale value.
Also, I wonder just how much GM will have to pay those brands' dealers when the brand is shut down.
Converting them to surviving brand dealers just adds to the dealer saturation problem GM has in a lot of areas.

[TrailerParkJawa]

Where Hummer, Pontiac, and Saturn owners will take it in the shorts on is perceived resale value.
Also, I wonder just how much GM will have to pay those brands' dealers when the brand is shut down.
Converting them to surviving brand dealers just adds to the dealer saturation problem GM has in a lot of areas.

Those owners can alwasy drive the car from craddle to grave which isn't really a bad option in my opinion. If they get 10 years out of the car then junk it thats not bad at all and its probably what a lot of people should be doing instead of renewing cars every 5 years or so.

But I can see your point, a 10 year old Honda with 180K, is going to get you something while a 10 year old Pontiac might be a haul away.

As for GM paying the dealers what happens if the dealer simply goes out of business? Is GM still on the lease to offer some equivalent of severance?