Three Weeks to Midnight


Let’s see, GM has three weeks until it must pony up a plan for saving itself to the Feds.

That means getting concessions from the UAW on: wages and work rules, paying for retiree health care, and bickering over planned job cuts and plant closings. There will be bickering not just with Ron Gettelfinger, but with the Canadians: The CAW was told by its government on Thursday to negotiate a new deal with GM.

And the deadline also means getting bondholders who hold $27 billion in GM debt to settle for a minority 10 percent stake in the new company. They want a majority stake, but Treasury won’t buy that. Moreover, there’s the small matter of the company’s cash burn rate. It plowed through $10.2 billion in the first quarter of this year, worse than some analysts expected.

The prospect of bankruptcy in turn creates an impact on sales, which are dismal. GM has to figure out how to move product, eliminate or sell brands, and close hundreds of dealerships protected by state laws—all in three weeks. Oh, and let’s not forget, it also has to negotiate a deal with Fiat to sell Opel, plus get rid of Saab, Hummer, and Saturn.

We have a cascade of really difficult scenarios, all playing out at once. I have a hunch that if GM could get the bondholders in line, some or most of the other problems might get resolved, but the probability of that happening is remote. So bankruptcy looms, as Fritz Henderson acknowledged in his online press conference this morning.

fritzHe got some puffball questions about how good the company’s cars are and put off most of the hard ones (which he more or less had to do):

I understand the concern and quite bluntly fears that people have today. We will need to take further measures in this area to lean out our management structure and simplify the work of our salaried work force, which will mean we need further moves. I anticipate communicating our plans in this regard by the end of this month.

I don’t know if it’s good or bad news, but it was also reported today that GMAC, the financing arm for GM and now Chrysler, could receive up to $7.5 billion more from the Treasury in TARP funds. This bank still looks like a big loser to many people, and though it will still need more money, don’t look to private investors.

We can all remember the wretched onslaught of TV ads from Ditech, the noisy online lender that was absorbed into GMAC and contributed mightily to the current mortgage mess. If the government wants/needs to fund the GMAC enterprise, whose failure would cause real systemic problems, they are welcome to do so.

GM stock was selling at $1.46 at 1:30 pm today.

Do you think GM will successfully emerge from bankruptcy? How?



  1. @Randy
    Thanks for pointing out the stock dump, Randy. I was thinking of writing about it, but we’ve sort of done GM to death, and there’s little more to say in this sad story.

    I pretty much agree on the linkages with the economy at large. They are letting the banks off too easily, and the economy will just stumble along with all the bad assets out there. Look at foreclosures, still climbing, as reported today.

    Re your suggested remedies: Congress won’t do anything like what you want without a big push from the top, and there’s still (maybe a little?) hope of that. The public has to be constantly reminded of what brought us here, and the further we get from those events of 2008, the more their outrage will diminish. And the more Congress will punt. Lehman and AIG don’t get headlines any more.

  2. I notice the news yesterday is that the top executives at GM are dumping their stock. That is a clear signal that the decision has been made to go into bankruptcy and simply hasn’t been announced yet. The media reports the $1.09 was the lowest stock price even since the Great Depression, but when you factor in the difference in the value of the dollar, it’s dropped far below that.

  3. Recent experience with Chrysler should be a guide, and I think Obama will end up on TV complaining about the same “speculators” forcing GM into bankruptcy that forced Chrysler into bankruptcy. These are the assorted rabble of hedge funds and speculators that had a lot to do with the mortgage crisis, the explosive rise in fuel prices in 2008 (which help trigger the housing bust) and the current rise in fuel prices even with a glut of oil and record low demand for gas.

    Until the government addresses the abilty of speculators to drive up prices and create crisis after crisis, we will continue to have an unstable economy. Fuel speculators can easily be reigned in by forcing them to actually take delivery on the fuel products they purchase. (Eliminate middle-man brokering.) As for other speculation, taxing their profits at rates higher than 50% (I think 90% is appropriate) will effectively eliminate this kind of investment and move these folks into honest capital markets that strengthen, rather than destroy, our econmomy. The main problem with this is a rather corrupt government where elected officials are largely living off donations from these folks. The past few decades offers a lot of proof that there is no such thing as a “free” economy and that bank and investment companies have no interested in acting responsibly or ethically when it comes to making money, forcing the government to closely control their activities.

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