Cerberus is Tired of Being Tired,
Offers its Entire Stake To Chrysler's Creditors




The big wet THWAP! you hear is the sound of Cerberus throwing in the towel on Chrysler. Even after nominally receiving a federal commitment for $4 billion in bailout funds, Cerberus has offered its "unions debtholders and other stakeholders" its entire 80% stake in Chrysler LLC. This amounts to a tacit admission by Cerberus that Chrysler is effectively bankrupt, and its equity interest is worthless. Daimler came to the same conclusion earlier this year when it wrote down its interest in Chrysler to zero.

The timing of Cerberus's offer, right after the bailout deal might suggest that Cerberus would rather not disclose information on its other operations if it is not going to ever get any money from Chrysler anyway. As with everything else relating to this bailout, things would have been a lot easier if it just would have taken this step a month or two ago.

Breaking New: White House OK's $17 Billion in Loans to GM & Chrysler

This morning the White House announced that it was directing the Treasury Department to release up to $13.4 billion in loans to GM and Chrysler in December in January, with the remainder of a $17 billion total presumably being available between January and March 31, 2009. By March 31, the automakers are expected to have long-term plans in place to be competitive with other automakers including the transplant factories in the US.

The restrictions on the loans are said to be similar to those roughed out in the House of Representatives bill last week. The government will be getting nonvoting stock warrants, and there will be restrictions on management salaries and bonuses. The automakers are expected to get concessions from labor, suppliers and bondholders.

This announcement follows the news yesterday that Chrysler was shutting all its plants for a month, and GM said it was putting on hold its crucial engine plant for the Volt electric car and Chevrolet Cruze compact. Yesterday, the White House made what I believe was an unnecessary and irresponsible announcement that one option they were considering was for an "orderly bankruptcy." The image that that announcement conveyed was that, after more than a month in crisis mode, President Bush didn't even know what type of plan he was going to implement, much less actually having the plan ready to go. It's like when your kid has a month to work on the project, and the night before it's due, he says, "It's going great, I've almost picked a topic." (Yes, it's happened to me too.)

Finally, just because the loans have been approved, I need to remind you that loan programs imagined by the Bush administration haven't lived up to their expectations. Take, for example the Hope for Homeowners mortgage loan project: billions of loans were authorized, but hardly anybody can qualify for them, and the terms are so lousy that hardly anyone even bothers to apply.

Is GM's Law Firm Constructing a "Futuristic" Bankruptcy Solution?

According to the ABA Journal, that informational repository for big-building lawyers, one of the lawyers that GM recently contracted, Martin Bienenstock of Dewey & LeBoeuf, is constructing a bankruptcy plan to "remake the automaker into a 21st century success".

The plan would whack down legacy costs and prune redundant brands and dealers. The goal would be for the plan to be completed in 30-90 days. In other words, this plan is exactly what lower-paid and unpaid pundits have been recommending for months.

How much doe such planning artistry cost? In another case, Dewey bankruptcy counsel asked for fees in the range of $100,000 per day, or $950/hr. for partners, $605/hr. for associates and $285/hr. for summer associates. That's right friends and neighbors, they bill $285 for law students. I guess some law students have an easier time paying their student loans than others.

Now to a marginally relevant joke culled from this site.

Comforting Call

One day the phone rang in the law office of Dewey, Cheatham and Howe.

"Dewey, Cheatham & Howe, may I help you?" The caller asked, "I want to speak with Mr. Dewey." "We regret to inform you sir that Mr. Dewey died just yesterday." "Oh, is that right? Good-bye."

Every day for the next two weeks the same man called back, and the same exchange occurred. Finally, the receptionist said, "Sir, I told you that Mr. Dewey died. Why do you keep calling?" The man replied, "I just like to hear it."

Auto Bailout - No News is the News

Nothing new today regarding the auto bailout. The Bush Administration is still working on it. Not much else to say.

Clear Your Mind

Bad news weighing you down? I can clear your mind. Just play the embedded video three times, and no longer will you think about your endangered job or your ex-401k. "Hey Little Goldfish" will be all you think about for three days or so.




Last time I checked, Hello Down There wasn't available on DVD. Happy to say, now you can take home all its goodness for $13.49 from Amazon.com. Yes, that's Richard Dreyfus of Jaws fame as the band's lead singer.

Bailout Dies in Senate
It's in Bush's hands now

Last night marked the two-minute warning for GM & Chrysler. The good news is that they still have the ball, but the bad news is that it's 4th and long, ball on their own 4 yardline, Garo Yepremian is their quarterback, and anyone who could block has already taken a bailout.

There was never strong support for the bailout in the Senate, and last night, the bailout died there. Tennessee Senator Bob Corker tried to do weeks worth of work negotiating a cramdown in one night, but it didn't happen. The UAW balked at having its contract immediately crammed down to wages akin to the transpant automakers.

Here's where it stands this morning. General Motors finally announced that it had hired bankruptcy counsel. Now, it's all up to Nero, I mean President Bush, if there is any chance in avoiding an imminent bankruptcy. The President has the authority to release TARP funds, just as he always has. If he ends up releasing the funds, this means that he has let the country go through a month and a half of added financial turmiol to get to where we should have been all along. I wonder how many billions will be lost in the stock market today?

Nerd Break!


Time for a nerdy Youtube video link. This one is to a Robot Chicken clip where stormtrooper Gary takes his daughter to work on Take Your Daughter to Work Day. (Thank to Eric H. for the link.)

The Good Old Days . . .

1978, Ford owned Hertz, the #1 car rental company, and O.J. Simpson was the spokesperson.

Rick Wagoner gets very, very personal, Details at 11:00.

Heads Up for Employees of Self-Insured Companies
Your Loss of Health Insurance Coverage Could be Immediate and Retroactive

When it comes to health insurance, the UAW Legal Services Plans are self insured. We have Great West as an administrator, but with the possible exception of stop-loss and catastrophic claims, the money comes from the firm's general fund. An article in today's Wall Street Journal, available online from wsj.com here, illustrates clearly the hazards faced by workers when their self-insured company promptly goes bankrupt. Claims payments stop immediately. If you have received treatment and submitted a claim, and that claim has not been paid, tough luck.

Given the troubles in the auto industry, my advice to all of my UAWLSP colleagues is to avoid discretionary medical procedures and claims until you can be sure of at least a couple months of continued funding, especially if the plan that pays your paycheck is sponsored by one of the most-distressed automakers. While today's news states that there is an interim deal with Congress to supply some money, that money is not yet in the bank. Moreover, Even if the automaker is funded, it is likely that each of the automakers will renegotiate its contract with the United Auto Workers. We don't know what that contract will and won't include, but we know there will be significant cutbacks.

Also note, if your insurance is cut off because your employer goes bankrupt, there is no right to COBRA continuation of benefits. If your insurance is cut off abruptly because your employer discontinues it, and if your spouse is covered by a plan at work; try to find a plan administrator who can sign a Certificate of Group Health Plan Coverage. This should allow you to enroll in your spouse's plan without waiting for the next open enrollment period.

If you are laid off by an employer continuing operations, you will likely be entitled to COBRA coverage. The problem with COBRA coverage is that it is expensive, and many times, it's outside of the budget of a person who doesn't have a job. One thing to remember is that each covered member of your family has an independent right to COBRA continuation coverage. This means that even if you can't afford coverage for the whole family, you may be able to afford coverage for one family member who has a medical condition that makes that person uninsurable otherwise.

Headline from 20 Hours ago: Chrysler Hires Bankruptcy Counsel
Headline from Now: Interim Deal to Supply $15 Billion in Bailout Money

Yesterday afternoon it was reported (leaked) that Chrysler hired the lawfirm of Jones Day to give it bankruptcy advice. It may be debatable whether this step was primarily intended as a ploy or a serious bankrutpcy planning. I think it is (and should be) a lot of both. It makes no sense for Chrysler or General Motors to hide bankruptcy plans when they have both admitted to the public that they can't last much past the end of the year without borrowing new money. If anything it will help them negotiate cramdowns with their creditors that would be necessary to avoid bankruptcy.

This morning - the big news is that there is a tentative deal between Congress and the White House to supply $15 Billion in interim aid to the auto industry. The Republicans apparently won the battle regarding the source of the money. The money will come from the $25 billion previously authorized for encouraging energy efficiency. There is some sort of vague promise to replace the money within a matter of weeks. The amount of the loans is likely to be just enough for Chrysler and GM to limp into March, by which time the Obama administration will (hopefully) have its feet on the deck firmly enough to take the wheel and set a planned course.

Mellow out and Listen to Some Floyd, Man

You can here Uncle Floyd's music at the Record Robot blog. Far out.

Dating Video or Plea for Billions?
You Be the Judge

Here's GM's Chief Financial officer, Ray Young, in an official corporate video explaining why GM deserves a dozen or two billion bucks. Looks like something you'd watch at Great Expectations, and you'd probably go on to the next one after a few seconds. I dare you to watch the whole thing. (I didn't make it.)

General Motors: "There is No Plan B"
$18 Billion request Calls for Drastic Cuts - No bankruptcy

It's 1:00 AM on Wednesday, and I'm finally getting to the Detroit News summary of the GM plan. GM wants $18 billion in government funds. It plans to cut 30,000 jobs, close 9 plants, eliminate 1,750 dealerships (about a fourth of the total). Pontiac will be cut back to specialty cars. Saturn will be "reviewed". All of this cutting will allow the government to be paid back by 2012 according to the plan. Oh yeah, they're selling the jets, and Wagoner will take a dollar a year salary.

Naturally, the devil is in the details. GM's plan would require deep concessions from the unions including -who knows what- will happen to the VEBA. Also, the dealers will need to be paid off if the restructuring is taken outside of bankruptcy court.

Quite frankly, I don't see how the math adds up. It takes time (and money) to do a restructuring. To get people to give up benefits without making a fuss, you have to offer them something. What about legacy costs, pensions? Retiree health care? In 18 months, GM will owe just the VEBA $12 billion. It took them 3 years to shut down Oldsmobile. GM is losing up to $3 billion per month right now. Burning through $3 billion per month, $18 billion only buys GM 6 months. Right now, it doesn't look like the auto market is going to be a whole lot better 6 months from now than it is today.

With a Chapter 11 and $40 billion in new money, GM has an excellent chance at emerging as a new strong company. All $18 billion does is buy some folks a paycheck for half a year or so.

Song of the Day
Long December - Counting Crows (1996)

GM & Chrysler Need $ Billions to Make it to the New Year
Total Request for 3 Automakers is $32 Billion
UAW Contract Likely to be Reopened

The first reports of the Begfest on Capital Hill are in. Chrysler says that it needs $7 Billion in cash to make it to the end of this month. GM says it "only" needs $4 billion to make it to December 31st. Overall, the Detroit 3 are asking for $32 billion in emergency aid. None has proposed bankruptcy, but Chrysler and GM are using the veiled threat in an attempt to get immediate cash. As expected, Ford displays the least immediate need for cash and correspondingly demonstrates that it both deserves the cash more, and can put it to better use.

There's more going on than I can even summarize in this blog format. To keep up, go to www.autonews.com, www.detnews.com, and for a less reverent outlook, www.ttac.com.

It seems like the conventional wisdom is shaking out as follows: Chrysler is doomed. It's beyond saving and needs to be parted out. GM can be saved but probably only through Chapter 11. Ford might be able to avoid Chapter 11 with some cheap government money and (hopefully) a rebounding auto market in a year or so. The current UAW contract for all three will need to be renegotiated, and everything (including the legal services benefit) is on the table.

GM's Top 10 Strategies for Using Your Taxpayer Bailout Money

I have an advance copy of GM's plans to use the $25 Billion in bailout money to get out of its financial mess. Here they are:

10. Forex Trading
9. Canadian Lottery
8. "Come on Seven!"
7. Vega II
6. You see, there's this oil minister in Nigeria . . .
5. Improve Hummer fuel economy 10%
4. Baseball cards
3. Short sell stock in Chrysler & Ford
2. Convert unused factories to ostrich farms
1. Everybody's last resort, hire coach Larry Brown

(What do you expect for a 5 minute post?)

The Week of the Plan

Tomorrow is the big day - General Motors (and the others but the action is with General Motors) is set to deliver its plan for the government bailout money. Because Congress actually demanded something akin to a business plan to get the billions of dollars, Rick Wagoner's crew will actually have to show up with something on paper that can convince a halfway reasonable person that maybe, GM has a path out of its financial mess. Because Wagoner is dead set against a Chapter 11 bankruptcy, you can expect that GM will come up with something that does not propose a C-11.


News sources have been masters of the obvious, and not necessarily in agreement regarding what the plan will include. I'll go over some highlights. On Wednesday (Nov. 26), Bloomberg News reported that GM was considering killing off Saturn, Saab and Pontiac. This would be in addition to Hummer which it already said it would kill or sell. Personally, I think GM may eventually kill brands, but with the possible exception of Saab, they're not going to announce it tomorrow. For one thing, when GM eliminated Oldsmobile, it took billions of dollars in cash to pay off the Oldsmobile dealers. Although some domestic dealerships are valued at zero now, it would still take billions of dollars to kill brands unless they went through bankruptcy court and broke the franchise agreements there.

On Friday, the Wall Street Journal reported that GM is negotiating with creditors to exchange debt for equity. The article cites JP Morgan for the assertion that GM has $43 billion in debt outstanding for an annual interest expense of $2.9 billion. It's not clear whether that includes the $10 billion or so that GM owes the UAW for the retiree health care VEBA, but it looks to me like it doesn't. It doesn't take a genius to figure that all of this debt isn't going to get paid down by the $10-15 billion that GM would get from a $25 billion federal industry bail out. It would be completely impossible to negotiate this debt except that the current creditors may have not spent anything close to the face amount to acquire the debt. GM bonds are trading for about 10 cents on the dollar. An unknown portion of this debt has traded hands to hedge funds that are speculating on the future of the company, including a buyout, and may just be looking for the right deal in a debt to equity swap. It seems to me that prearranged negotiations on debt are essential to getting anything through Congress, but it's going to be hard to make the numbers work without almost complete cooperation; and the debt may be in too many hands to make that workable even if the creditors aren't outright hostile.

The most persuasive plan that I've seen so far is one by bankruptcy lawyer Richard N. Tilton that was published at thetruthaboutcars.com on November 25. It's a detailed argument on why GM must go through a Chapter 11 prepackaged bankruptcy. Tilton proposes a prepackaged Chapter 11 bankruptcy with the government providing $40 billion in debtor-in-possession financing. Here is Tilton's pro-forma (projected) balance sheet for GM post-bankruptcy:

GM’s Hypothetical Post-Reorganization Balance sheet

Projected Assets: $90b

Estimated Liabilities
$4.4b: existing secured line of credit
$10b: secured term note to US Treasury
$12b: secured term note to the Department of Energy (GM’s share of the DOE funds for alternative vehicles)
$1b: trust or secured letter of credit established to guarantee payment of consumer warranty claims
$2b: current tax liabilities

Subtotal: $29.4b of secured and priority claims

$9b: accrual for consumer product warranty liability
$10b: for current claims arising in during the Chapter 11 case which will be paid by GM in the ordinary course of business
$5b: new unsecured debt (payment in kind) set aside for miscellaneous claims, with maturities deferred and no cash interest payment
$5b: subordinated debt, issued with laddered maturity dates timed to fund the retiree trust only if it runs out of money in the future
$15b: accrual for pension and retirement obligations for current employees
$5b: leases and other obligations, including liabilities to foreign subsidiaries

Subtotal: $39bof unsecured debt and unsecured liabilities

Total estimated liabilities: $78.4b

Equity distribution

90 percent of newly issued GM common shares distributed to bondholders, the retiree trust, and other unsecured creditors
10 percent of new equity reserved for the US Treasury.