Here’s a crazy idea. Instead of relying on a bunch of politicians with little to no business experience to sort out GM’s problems, let’s find out what someone who actually turns around failing companies for a living would do. How about, say, William Ackman of Pershing Square Capital? After all, his Fannie/Freddie restructuring ideas seemed pretty well put-together. What say you, Mr Ackman? “GM should be allowed to succeed, and the only way GM can succeed is if it has a balance sheet its business can support,” Ackman tells Reuters. He goes on to say that he would expect GM to get to that position by agreeing to a “prepackaged bankruptcy in which GM’s creditors erase large amounts of liabilities in exchange for equity in the newly restructured GM.” Should a newly restructured GM still need more liquidity for its balance sheet, “then the government can play an important role while protecting taxpayers from losing money.” This, in a nutshell, is why Treasury Secretary Hank Paulson refused to let GM into his TARP. Unless GM massively corrects its balance sheet blues, any federal loans will just be so much good money thrown after bad. Restructuring means jobs will be lost, but if the alternative is subsidizing jobs for their own sakes, then we’ve reached an impasse. Now, all GM and the UAW need to do is stop worrying and learn to love the bankruptcy court.
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I wonder when this simple fact is going to suddenly register in their collective minds. Handing out the tax dollars of ordinary Americans to a company like GM is obscene and immoral.
William Ackman is a jackass. He, just like GM, is more than happy to destroy long-term profitability in favor of short-term quarterly profits. Just look at his brilliant ideas for Target – sell the profitable credit arm! As soon as they do that, as Target sees a stock increase, his evil ass is going to sell and run. Screw assholes like him, his philosophy is just what distracts from what the real aims of enterprise should be – to make money by producing desirable products and to have a workable plan to continue doing so long into the future.
oboylepr-if only they would.
This will not be about doing right by the taxpayer. It will be about creating the best image they can in the media and hoping (sadly with good reason) the most will swallow it.
AAAAAAAAAAAAAAAAAARRRRRRRRRRRRRRGGGGGGGGGGGGGGHHHH!
Bunter
This proposal is a bit to sane at first scan.
I can’t imagine Barry, Nancy and Co. liking it.
It wouldn’t look like they were the rescue party.
Fuggeddabouttit.
Bunter
Chpt. 11 means Wagoner will be out of his high-paying job! We can’t have that!
Fixing the balance sheet and dumping legacy costs including union and dealership contracts can be done in a C11. However, C11 will not make Rabid Rick nor Maximum Bob one bit smarter. New management is also needed.
I originally suggested a pre-packaged bk back in DW207 in late October. The problem is that in order to do a quickie deal, all of the parties need to agree to the plan ahead of a filing. Getting the UAW to accept pennies on the dollar for their VEBA may not happen. Worse, there would be additional UAW job losses without those workers getting the same “payoff” under the attrition plans. In addition, GM would have to arrange new financing as well, and that is not a certainty either given the outlook on the auto industry.
The best idea is to avoid a bk, but withhold any government funds unless all the parties agree to a restructuring of sorts, as was done with Chrysler. The one major obstacle to a non-filing is that it does not allow GM to shed its brands/dealers. In a pre-packaged bk, it is not clear either that the judge would approve it given the opposition from dealers.
However, Wilbur Ross is another company turnaround expert with the opposite viewpoint to Ackman on a GM bankruptcy:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a4fkXMgMVIxM&refer=home
I concur with Ken Elias. For GM to be competitive, it will have to reject the collective bargaining agreements with the UAW and the CAW. I can’t see the unions agreeing to that–it would have to be crammed down under a special provision of the bankruuptcy code relating to rejection of collective bargaining agreements(sec. 1113). That section requires a fairly elaborate process before the judge can approve contract rejection. GM would also have to close a lot of dealerships and jetison several product lines. I doubt if the dealers would agree to a pre-packaged plan that would just cut them loose.
Then there is the issue of DIP financing–I can’t believe GM could make it through even a quick case without new financing. Who would the DIP lender be?
I am not in favor of a bailout without a restructuring of the kind you could probably only get in Chapter 11, but I don’t see an easy Chapter 11 answer. In fact, I don’t see any good answer, in or out of bankruptcy court, and with or without federal money. I hope there is one out there somewhere.
Nut:
The balance sheet is the symptom of GM problems. It needs to be addressed but will do squat if they don’t figure out how to build desirable cars.
Wilbur Ross is another turnaround expert who’s taken the opposite stance to Ackman on a GM bankruptcy. Let me see if I can get a weblink to work properly here….
autonut, I think your comments were entirely uncalled for and oddly insulting. I have my BS in Mass Communications and Creative writing, as you can see from my resume. I do have a job. I don’t agree with short-sightedness in any business matter and I’m disgusted with where the lack of ethics in modern business, which is why I get so worked up hearing about these corporate raiders, whether they be Wagoner and his buddies or the scuzzbag corporate raiders who conduct business dishonestly in any industry.
Perhaps you are yourself William Ackman, otherwise I don’t see why you would take such offense and make such angry, odd comments after my admittedly fiery post. Regardless, I think you need to cool it with the personal attacks, it doesn’t further the discussion here.
Hmmm…Ross says his bucks in the auto industry are not part of the reason. May be true, don’t know the guy.
I think his assumption that the death of one is the death of all three is the weakest part of his stance. Some suppliers would die, nothing like all.
Without major changes in direction we can only delay GM and CryCo’s dirt naps. Expensively.
Ford is turning…fast enough?
Bunter
Ross doesn’t appear to consider scenarios in which the Feds act as DIP or otherwise contribute to a bankruptcy arrangement to make it “make sense” to would-be participants. The article is a little short on reasons it wouldn’t work.
Also: Ross’s holdings include auto-parts maker International Automotive Components Group, which he assembled by buying assets from Lear Corp. and bankrupt Collins & Aikman Corp. He said he isn’t advocating a U.S. industry bailout to aid his interests.
I’m sure that bankruptcies in the Big 3 wouldn’t help his interests, either.
JeremyR, the problem with the federal government as a DIP lender is that the current powers that be in the federal government will not support GM’s rejection of its collectivee bargaining agreements with the unions. Since that would be a primary goal of a Chapter 11, I don’t see it happening. The government probably would support getting rid of Wagner et al, and that would probably be a good thing also, but without shedding the union contracts, I can’t see how GM can compete long-term against the Japanese.
Astronut: I agree with kazoomaloo that you should not resort to personal attacks, even if you disagree with him.
Now that you mention it, I’m not sure that the government would be able to make such a tough (i.e. politically charged) decision.
Thank you guys for bringing both Ackman and Ross to my attention. Fun to read the 2 sides.
What is a DIP?
We keep thinking that GM has a choice in whether or not to use bankruptcy as a way to reorganize. Can’t their suppliers get tired of the way GM has been treating them and force bankruptcy?
I liked the analogy someone used a while back about the mother who starves her kids and when the police come to arrest her she says, “but you can’t take me away – who will feed my kids”.
Just one more vote for the “let them go bankrupt” side of the argument.
Chapter 11 bankrupcty is a time-honored, highly developed method to save companies that are FUBAR. Seems like the right medicine for GM.
All this bailout will do is bailout the unions. Bankruptcy gives GM the opportunity for a clean slate.
Giving out more government money is making me feel somewhat nauseous.