As Detroit holds its collective breath on President Bush’s plan to pull the automakers’ collective fat from the metaphorical fire, the autobologosphere’s been quiet. No doubt something’s up, including GM’s stock. [NB: a large percent of bupkis is still bupkis.] And the longer this jury stays out, the more likely bankruptcy’s the final verdict. Yesterday, Moody’s published this report pegging the odds of a pre-pack with (federal debtor-in-possession financing) C11 at 70%. To which nobody said nothing (excluding own Bertel Schmitt). Today, The Wall Street Journal published a piece saying consumer resistance to buying a car from a bankrupt automaker is declining. And then there’s this, from Bloomberg…
“A source told that [GM’s new bankruptcy lawyer Martin] Bienenstock hopes to help GM use the bankruptcy process to create a ‘futuristic’ automaker for the 21st century. Bienenstock was the lead lawyer on the Enron bankruptcy and was a former GM lawyer until he left Weil Gotshal for Dewey in 2007. Bienenstock’s plan is to create a new company to oversee GM’s best auto lines, with the proceeds going to the auto unions to win their support.
‘Redundant brands, surplus dealers and so-called legacy costs would be hived off in bankruptcy court,’ the story says. Most reorganizations can take two years or more, but Bienenstock has told GM his restructuring plan can be completed in 30 to 90 days.”
GM will get some sort of money in short order; Chrysler is a toss up.
I suspect that there may be some politics related to the timing. The GOP congressmen are caught between a rock and a hard place, they need to figure out how to keep the president from causing problems with their voters, all while juggling to keep the economy afloat.
Also, the markets got a nice rush out of the huge Fed rate cut yesterday and from the TARP-bailout announcement last Friday, so they may as well stagger out the good news in order to get the full benefit of it.
Does this include Ford? I sure hope they’re considering that this bankruptcy filing for GM and Chrysler will bankrupt suppliers and then take Ford down as well.
Will this pre-packaged deal also go for the suppliers bound to go down or are they on their own?
This will still be damn ugly, but I gotta say, I think this probably does make the most sense. Now why didn’t they do it for the banks? This bank issue is still one I have problems with. Why the blank checks??
I was really wanting to see Ford make it without help. It would have been a major PR positive for them, to go along with all the other big strides they’re taking. Now I fear they will get sucked into this.
On the flip side, I actually think that besides the jobs lost, etc, bankruptcy looks better from a PR standpoint (people will view it negatively but will get over it) vs bailout bucks(people would not forgive these companies for taking their tax dollars).
Its still gonna be a bad bad hit on the economy. And SE Michigan is still going to hurt royally. But overall, this probably makes more sense, hopefully costs less overall (though what about pensions and health care, as well as unemployment costs?), and will hopefully get this over with more quickly while saving as much face as possible.
I suspect the announcement won’t be until late Friday, especially if it’s plan 11 from Bancuptcy Court. Or worse, Plan 7 from Hell.
I suspect it may well be Plan 11 for GM and GMAC, and Plan 7 for Chrysler.
Wouldn’t it be weird if Ford ended up with Jeep’s Toledo operations and the Wrangler?
Historically speaking, it’d fit (since during WWII, Ford built GP’s to the Willys pattern, while Willys built Jeeps – they were essentially identical). During a war emergency, to heck with the normal rules of paying royalties, etc. It was all ordered “so” by the Washington powers that were.
Would Ford need a C11? If GM wants to remain in business it can’t let its suppliers croak, so it will probably help keep them up. You could certainly expect some government aid one way or the other to keep the supply chain fairly stable.
Tons of sales would go Fords way via dead cat bounce, esp. if Chrysler goes C7. Hell, GM and Chrysler declaring might be all Ford needs to make it to the fabled land of 2011. Not to mention the UAW will be crapping nickels and give Ford at least as much as GM got.
Am I making any sense?
I don’t see Uncle allowing GM to file 11. The economic fallout would be too great, in light of what is happening elsewhere in the economy.
I also wouldn’t misinterpret the report. The report is not advocating a prepack, but putting odds on what the government might do. It gives odds to the prepack being the most likely outcome (and I suspect that their prediction will be proven wrong, but we’ll see.)
Rightly or wrongly, Moody’s is expecting the prepack to occur, but they would prefer a bailout. Their report is written from the perspective of debtholders, so their view of what is best is based upon what is best for the creditors, not necessarily what is best for everyone else.
Hat tip?
PcH…
A bankruptcy of some kind is going to happen.
You can call it Obama’s Happy Fun Time Unicorn Reorganization if it makes people feel better, but bankruptcy is going to happen.
A bankruptcy of some kind is going to happen.
I doubt that anything like this will happen soon. The timing would be bad.
I could see GM slowly fizzling out, selling off some overseas pieces as it quietly disappears. The big blowout with fireworks has low odds of happening right now, they can’t afford it. Moody’s doesn’t see it, either, for what it’s worth.
I’m not convinced that when a reorg of GM happens, that GM should have ever receive “special” treatment. Why re-invent the wheel for one company? Chapter 11 bancruptcy is what is needed.
Of course, I’m also a person who cannot fathom why on earth our “representatives” could possibly see fit to drop (how much is it really adding up to by now? $4 trillion?) $700 billion (cough cough) in the laps of the banksters.
With no accountability.
And virtually no conditions.
And no requirements for “let’s see your game plan” before handing over the dough.
And with the Administration essentially saying that if the banksters didn’t get the dough, there would be Martial Law. (Or did everyone miss that? It sure wasn’t played up in the lame stream media as I thought it would be – since they all hate GWB with a purple passion).
30-90 days??? I want to see THAT plan – it’s gotta be a doozy.
“Banksters…” that’s a great term.
Dewey, Cheetum and Howe would be the perfect law firm for this sort of work.
I’ve always been somewhat torn on this bailout malarky. On one hand, I don’t think failing companies and industries should be propped up by the government at the expense of taxpayers. On the other, so much of the current financial crisis was directly caused by the government insisting on meddling with the economy whenever they could, so in some way they have an obligation to repair the damages. Sadly, government is incapable of doing anything except screw things up more, and the money always comes from taxpayers who did nothing wrong.
I would like to see a little more depth in the question of how many people would buy from a bankrupt automaker.
Some one should break it down and show the percentages seperately for domestic intenders and import intenders.
I have a sneakin’ hunch that the bulk of the “no way” 60% (or whatever) are import oriented anyway.
Debt-roit doesn’t have these folks anyway.
The Debt-roit leaning buyers are already pretty inured to pain and suffering (otherwise the last few decades would have finished this long ago).
Perhaps the sales loses would not be that great.
toxicroach-Obama’s Happy Fun Time Unicorn Reorganization
Thank you. I enjoyed that immensely.
It does sound like the “La Casa Blanco” crowd is giving this a strong lookover. They may make conditions that will drive this BK yet.
We’ll see.
Bunter
They do not need to win the unions’ support, but to break them. No automaker can compete against the very well run Honda and Toyota with unions hanging around their neck. Sorry folks.
@OldandSlow:
Good 3 Stooges reference
@ Airhen…
Great point…
@Pch101
I said the exact same thing a couple days ago, GM goes under, Ford
won’t be far behind, unless of course, they can ramp up production
in Europe and Australia. Why build them here??
SteveL
To Bunter1 – like all surveys, those attempting to determine the willingness to purchase from a bankrupt supplier are incredibly influenced by the people putting them together, and most specifically, the wording. Merrill Lynch was able to get different results than CNW (the group most commonly cited for the statistic that the majority of people not being willing to buy from a bankrupt OEM) by adding lines about the bankrupt OEM being financed by a government backed Debtor in Possession facility (very likely in Chapter 11 – no bank is going to lend it, unless it is guaranteed by the government). This study showed that the majority would be willing to buy from a bankrupt OEM. Merrill also makes the key point that in the other survey, it is likely that the respondents were unaware that a company continues to operate in bankruptcy – there is a world of difference between Chapter 11 and Chapter 7.
As to when / if they will get money, it makes sense for G.W. to delay as long as possible to prevent any opportunity for somebody to challenge this decision before the holiday. It is probably coming soon.
I wonder if some sharp pencil is working on a way for the banks that got the sweetheart deals (PNC, CITI, etc.)to finance the bk of the automakers, thus making the banks a big huge pile of cash.. Nothing like helping out your boys at the expense of the tax payers!
The underlying problem for the car makers is that Bankruptcy will lower the pricing of the car to “cost of production” plus profit.
Cars are priced according to ability to pay of the target market. Any Dad of a family of four or more will marvel at how the car a foot longer and eight inches wider is 15k more than the next down, even if both use the same engine, running gear and electronics. I guess steel is more expensive than I thought.
With a Bankruptcy the cars go for liqidation. That 45K vehicle which cost $15k (?) to make and sells for $22K distressed will destroy the ability of anyone to ever sell for the bloat price ever again.
@ Bunter1 and @ AutoCorpFin
I would like to see a little more depth in the question of how many people would buy from a bankrupt automaker.
Some one should break it down and show the percentages seperately for domestic intenders and import intenders.
While I’m not in that department, I can tell you in the research our company did we eliminated respondents who said they would NOT consider a GM/Chrysler product anyway.
The critical question we were trying to determine was if you could improve the result by backing any Ch11 warranty further. The answer appears to be yes and the result is better than the current situation (ie nearly bankrupt).
The Merrill data looks like ours, but as a lowly internal operative, I can’t see who we sold it to.
As usual there’s lots more data there, but I’m also not sure why the MSM are missing the critical question on the warranty issue. It should be all about the relativities of being nearly bankrupt vs in Ch11.
I can save them.
I would like to see a little more depth in the question of how many people would buy from a bankrupt automaker.
Hell – It’s already happening. Take your new GM car in for warranty work and you’ll feel like GM is already in bankruptcy!