Friday, May 22, 2009

GM Bankruptcy Plans Take Shape
GM Reaches Pre-Bankruptcy Deal with the UAW

All signs point to a GM Chapter 11 filing by the end of next week. Is the GM bankruptcy good news, bad news or no news? I'll let you know next week. One of the big impediments is now out of the way. GM came to general terms with the UAW on a restructuring of the 2007 contract. The new deal would be implemented in the course of the bankruptcy. Terms are still secret until the UAW members vote on the contract, but like the Ford contract, job classifications would be strictly narrowed, and there would be some benefit cuts. Up to 1/3 of the UAW jobs could be eliminated, but there would be some type of buyout plan.

Other housekeeping measures went forward. GMAC received over $7 billion in new money from the government in the form of preferred stock. It is expected that the government will inject around $30 billion in the new GM post-bankruptcy. Surprisingly, with a GM bankruptcy expected around May 27 or May 28, Delphi, long a thorn in GM's side has until June 2nd to reach a deal with its creditors, GM and the government. You'd think that Delphi's deadline would be before the GM bankruptcy so whatever the Delphi outcome , that outcome gets incorporated into the GM plan.

There are some signs that GM has learned from Chrysler's experience. Chrysler's abrupt cutting of dealers, effective June 9 was a public relations disaster and promises to result in a fire sale of excess vehicles that will last all summer. On the other hand, GM is stretching its dealer reduction out for more than a year, is allowing appeals and the return of inventory. In other words, GM is taking a kinder, gentler approach.

The GMAC capital infusion is as much to allow financing of Chrysler buyers and Chrysler dealers as to buoy General Motors. Under the Treasury Department Stress test, GMAC was determined to be undercapitalized by $11 Billion, and it's not clear to me whether Chrysler obligations were considered in that evaluation. The bottom line is the taxpayer infusion of $7 billion appears to be just the beginning, with more government money coming down the road.

(Multiple sources)

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