GM Bankruptcy Tomorrow

Play Us Out Keyboard Cat

The Code Nazis got a hold of my last post.  I can't remember what the post was about.  Something about the theoretical value of General Motors.  At any rate, GM is set to file Chapter 11 before the markets open tomorrow.  Play us out Keyboard Cat.

Our Mailbag

Hey Steve

Do you know the difference between Lebron James and the Boston Strangler?  

A.  - The Boston Strangler never choked in May.   

(Editor's note: I checked, he didn't.  Stabbed yes, choked, no.)

The Inevitability of Deterioration: a photo essay

(source: http://www.allvoices.com/contributed-news/2482445-arnold-schwarzenegger-then-and-now)

Auto News May 28, 2009:
Visteon goes C11
Opel Sale Hits Roadblocks
GM Sweetens Offer to Bond Holders - Some Accept

Here's the quick & dirty. Visteon Corporation, formerly part of Ford Motor Company, has filed for chapter 11 bankruptcy, at least for its USA operations. General Motors is having trouble giving Opel away. General Motors sweetened its offer to its bondholders, and the bondholders committee has endorsed the proposal. No time for analysis now.

Toyota Boosts Prius Production

After receiving preorders exceeding 100,000 units, Toyota announced that it is boosting production of its Prius hybrid from 43,000 per month to 50,000. Multiply that by 12 months, that's 600,000 units per year. Multiply that by an average selling price of $23,000 per unit, and that makes $13.8 billion dollars in revenue from this model alone. That's not too far off Chrysler's total revenue projection. The Prius is only manufactured in Japan for now. Toyota was planning on assembling the Prius in a new factory in Mississippi in 2010. Even though the production plant was 90% complete, the project was mothballed in December 2008 due to the worsening economy. I wonder if current sales projections will give the Toyota brass enough confidence to restart the Mississippi project.

GM-GOVERNMENT-UAW REACH DEAL
Lack of Creditor Deal Portends Chapter 11 Filing

I'm still trying to comprehend the details of the deal reached between GM and the UAW. Officially, it's a restructuring of the 2007 collective bargaining agreement, but to make the deal work, the government had to put billions worth of sweetening on the table. The UAW keeps their base wage, keeps their pension, gives in some on healthcare, and gives in a lot on work rules. An increased government cash outlay makes the GM healthcare and pension less at the mercy of future GM stock valuations, and in return, the government will own as much as 80% of the stock of the corporation. There will be cutbacks in plants, and buyouts. It looks like GM will be bringing part of Delphi back as a wholly owned subsidiary, but that's contingent on getting teh deal approved in the Delphi bankruptcy, and there may be some snags there. GM committed to building a small car in the United States. It's not clear whether they are talking about the Cruse or a different one. GM might still import some cars from China, but there will be limits. For complete coverage of a deal including a pdf of the agreement itself, check out the Detroit Free Press coverage at freep.com.

A Simple Bad Used Car Sale - Or Is It?

I don't even remember how I came to read this story on the shreveporttimes.com website. At first blush, this appears to be a typical consumer reporter story about a woman who couldn't get her car title from a used car dealer. When you actually think about the facts as described in the story, they don't add up. Why would this woman aquiese in having her son trade cars in her name several times without her signing or seeing any paperwork? What was the real relationship between the parties? After you read the story, read the comments left by readers. I don't have any idea what the true objective facts are here, but this case reminds me of so many cases I worked when I was in private practice where I thought I had an iron clad case only to find that there was a secret backstory that only became known when I was too far into the case for a graceful (and cheap) exit.

The Pressing Question of the Day
Penguins? or Squirrels?

Penguins



Squirrels

Alec Baldwin wants to "Pull the Plug" on Detroit

I didn't actually read his whole tirade, but actor Alec Baldwin thinks we should "pull the plug" on the Detroit 3 automakers. Alec, buddy, I admit that the Detroit 3 aren't what they could be, aren't what they once were, but if deterioration is grounds for euthenasia, then you and I would both be soylent green by now.

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)