GM, Chrysler May Accept Bankruptcy to Receive Bailout

[muriel_volestrangler]

Source: Bloomberg

General Motors Corp. and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout, said a person familiar with their internal discussions.

Auto executives have warned bankruptcy would lead to liquidation as customers abandoned the companies. Staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation, a person familiar with that matter said.
...
The Democrats’ goal of preserving a U.S. auto industry is not doable without a bankruptcy, said Lynn LoPucki, who teaches bankruptcy law at Harvard University and the University of California at Los Angeles.

“A workout requires everybody’s agreement,” he said. “If I own bonds, GM can’t force me to take less than 100 cents on the dollar outside of bankruptcy court. Bankruptcy is the only thing that can work because GM and the government need the ability to force people to go along with the plan. Paying everyone in full is prohibitively expensive.

Read more: http://www.bloomberg.com/apps/news?pid=20601070&sid=adBazxCdli5Y&refer=home

[annabanana]

1. Then they'll go back to their workers and say "Well, we TRIED . .

but sorry boys.. turn in your toolbelts, Security will be here in a minute to escort you off the property. . "

[FarCenter]

2. It is the only way that they can close the brands and 2/3 of dealerships

Due to dealer contracts and state franchising laws, only bankruptcy gives them the ability to abrogate dealership contracts. It also allows this to happen in spite of state franchise laws. These are very one sided in the dealers favor, since the dealers have a lot of influence with their state legislators through their campaign contributions.

[sarcasmo]

3. It's the only way they can get out of paying retiree health care.

Make no mistake that is what this is all about along with destroy the UAW.

[David Dunham]

4. Yup, the UAW is dead

[PassingFair]

5. Did I miss something in that article?

What happens to stockholders?

[w4rma]

8. Frankly, I think the stockholders should be the very last concern. (nt)

[PassingFair]

9. I'm not a stockholder...

It's not CONCERN it's CURIOSITY.

:shrug:

[muriel_volestrangler]

13. That's the general rule in business - stockholders get their money last

because they're the ones who get the profits when things go well.

In Britain, anyway, the rough order that entities get money owed is, I think:
government taxes already due
wages owed
money owed to other businesses for goods and services
short-term loans
long-term loans and bonds
stockholders

[PassingFair]

17. Well....a lot of people non-connected with the automakers...

have money in their stock. Municipalities, pension programs...etc.

My aunt has had Ford stock since 100 BC (just kidding)...
does it go from nearly worthless to completely worthless?

[muriel_volestrangler]

18. Yes, that's the idea of capitalism

Those with the biggest potential profits have to take the biggest risks. By buying stock, a person or body makes a connection with a business.

If it's any consolation, a bit of my pension is in a bank stock that has lost about 90% of the price I bought it at about 3 years ago. It's still possible it could become completely worthless.

[PassingFair]

19. It angers me that a "blue-chip" stock, that is ACTUALLY an

investment in a company that MAKES THINGS and
provides them with capital to buy equipment
and innovate (in my mind, a legitimate stock)
will be destroyed, while the worthless bubbles
of the "financial industry" are bailed out.

:puke:

[w4rma]

20. Me too. But, Republicans have the power for a little while longer and up is down to them. (nt)

[happyslug]

23. As a General Rule Stockholder lose out.

How most re-organizations (Chapter 11 of the Bankruptcy Code) work out is Secured creditors get paid 100% up to the value of whatever they have a lien against. Workers are a "Priority"
unsecured debt and get paid next. Unsecured, general Creditors get what is left. This al assumes all taxes have been paid, given the nature of most business not a concern for most taxes are income taxes on profits and no profits no income tax due.

Now the efforts of the Bankruptcy Court is to keep the business in business PROVIDED that is possible. If it is not then the assets can be sold, either piecemeal or as a whole to a whole new Organization. For example when Schwinn went Bankrupt in the early 1990s the Bankruptcy Court quickly determined that the company was NOT salvageable and ordered the assets (including the name) sold off to the highest bidder (The Schwinn bicycle you see for sale in Stores today is the product of such a sale, you are NOT buying anything that has to do with the Schwinn of old, just the company that owns the name, the bikes are now made in China and the Schwinn name put on the bike).

Cannonedale Bicycles went bankrupt in the late 1990s. In that case the court determined the company was viable, but the debt load was excessive, and sold the assets to a new company which was to be run by the management of the old Cannondale Bicycles (Less the Chairman). Thus Cannondale stayed in business (But is effort to get into Motorized Off Road vehicle ended) but as a new Company, the old Cannondale Corporation was dissolved. Since the bankruptcy the new company has expanded the factory in Bedford PA and producing more bike then it ever has.

The problem for GM and Chrysler is do their assets and liability match up to the Schwinn or Cannondale options. Schwinn, in 1970, was the second recognized name in the World (Second to United airlines), but by 1990 had stopped its production of bikes in Chicago and had become more a distributes of bikes made in the far east then what it made in the US. It also had excessive debts, more to do with the Schwinn family member living off the financial assets then anything else. Attempts were made by one Schwinn family member to save the high end Schwinn bikes, but that was NOT enough to solve the problem of excess debts to assets that the Court found to be the situation. Thus Schwinn was dissolved.

Cannondale, on the other hand, had become the premium bicycle maker in the US during the same time period as Schwinn's decline (Trek bicycle was and is the main US Competitor of Cannondale and followed a similar course as Cannondale, making most of their bikes in the US). Cannondale's fall was do to an attempt to make Four Wheel off roads ATV in the US. Cannondale, unlike Trek, has never imported foreign made bikes (Through has used foreign made components on their bikes). Cannondale bicycle was a viable on-going concern, even as it became clear its ATV project was doomed. Thus the Court divided up Cannondale, selling its bicycle manufacturing group to a new corporation founded by the old management of the old Cannondale Company (less the Chairman who had wanted to go into ATVs). Thus Cannondale lost its money losing section, the ATV section and came out stronger on bicycles then it ever had been. The reason the court did this was Cannondale not only had a good name BUT a viable manufacturing base (Unlike Schwinn whose main assets by 1992 was its name).

Now I see the Big Three more like Cannondale then Schwinn (Through I have my doubts as to Chrysler), but we will have to see.

[glinda]

6. Don't give them any money but instead

give the money to the public to buy the more energy efficient cars off the lots, then recycle the shitty ones and with the income the companies can go into production of totally energy efficient cars. If they do not then they fall. The companies higher ups responsible for all this mess should sell some of their properties also. I smell a lazy over blown rat on this one and so if we are paying for this crap, give us the cars that are decent or to those who need them. The influx of cash will give them money to start over and keep employees.

[Phred42]

7. The main purpose of Bankruptcy (in this case) is to kill the Unions and steal the pensions

The Reich's final gift to itself

[madrchsod]

11. no shit....liquidate and pay 10 an hour to make cars

[madrchsod]

10. no one will be able to finance a car or truck if gm and chrysler go bankrupt

no one will buy a their products if they could find financing....



guess we`1l have to wait and see just how far this country will sink into a depression.

[PassingFair]

12. There is so much jealousy and outrage that union workers have retirement packages...

that many Americans don't seem to CARE if
we are all plunged into depression.

(If we aren't there already....)

[Sub Atomic]

14. The thing that bothers me about this article is this line:

Auto executives have warned bankruptcy would lead to liquidation as customers abandoned the companies.

Now if I recall correctly, there have been several airlines that have gone through bankruptcy and their customer base didn't abandon them in droves.

I think that perhaps this is yet another attempt to use fear and scare tactics to get what they want.

That just really doesn't sit well with me.

[AndyTiedye]

15. An Airline Ticket is a Smaller and Shorter-Term "Investment" than the Purchase of a Car

People buy airline tickets a few weeks (or less) before they intend to fly.
The only longer-term concern is whether your frequent flier miles will be worth anything.

An car will need service. If the company goes bust, you may not be able to get parts to repair your car.

[Sub Atomic]

16. Oh please...

If the company goes bust you'll still be able to get parts to repair your car. If there are a million Ford ABCs on the road you can bet your ass that somebody will make parts to repair them until there's no longer a market. Then they'll make something else.

My lord, the drama queens on here make my head spin.

[AndyTiedye]

21. But the Warrantee Would be Toast and so Would the Dealerships

Most of us don't know any good, independent mechanics, and have dealt with a number of Mr. Badwrenches looking for one.

Are there any non-dealer mechanics who will work on hybrids?

Parts that involve embedded microprocessors and firmware may be extremely difficult to replicate.

I own a Ford Escape Hybrid. Very nice car, very good mileage.
I got a service manual CD on ebay, just in case I end up having to fix it myself.
I really hope it doesn't come to that, though!

[amandabeech]

22. I used to have a GM German Opel.

When GM stopped selling the cars here, it was impossible to get parts.

Same thing happens to a lesser degree with discontinued models. It becomes more and more difficult to get decent parts.

You can call me a drama queen if you like, but I've been there, done that and don't want to do it again with my Mom's Buick.

She's been talking about getting a new car, and I would not advise her to get a GM car now.

I drive a Ford, and I'm not even sure about that even though Ford appears to be a going concern.