Bloomberg reports that the U.S. government has retained white-shoe NYC law firm Cadwalader, Wickersham & Taft to advise the taxpayers’ reps on GM’s restructuring and possible debtor-in-possession financing. The Dickensian-sounding law firm joins Chicago’s Sonnenschein, Nath & Rosenthal (with newly acquired structure finance experts Thacher, Proffitt & Wood) and investment bankers Rothschild (which advised Delphi and gives Buickman conspiracy conniptions) in taxpayer-financed retainer heaven. The troika’s job: get Uncle Sam’s arms around the mess President Bush created by lending money to these failing, futile companies. And here’s the [overused metaphor alert] kicker: the U.S. government failed to get an inter-creditor agreement with the existing lenders done prior to the funding. So, when it all blows up, taxpayers’ claims on Chrysler and GM’s collateral are open to “debate.”
Cadwalder brings specific knowledge of debtor-in-possession (DIP) financing—particularly in terms of representing lenders. That’s you! Especially when it becomes obvious that there are no viable out-of-court restructuring scenarios for GM or Chrysler.
So, the stage is now set. Twelve days to go before the Chrysler and GM trundle back to D.C. for an ass-whooping. If Uncle Sam pulls the plug, don’t say we didn’t warn you. And he doesn’t, ditto.
No way is Obama gonna let the the uAW go through a bankruptcy if he can help it. These unions just gave hundreds of millions to the Dem’s in the last election and a payoff is required.
Hundreds of millions? Did they really?
This will surely help sales.
So, let me ask this question I have been pondering.
If GM goes C.11, does that mean that all vehicle warrantys are void?
I am looking at getting a Silverado here soon, but I also want to pay to extend the factory warranty. My fear, is that once GM goes C.11, my warranty will be void.
Your thoughts…
No, the warranties will not be void. The government would likely step in to make sure that they would be honored. (for better or worse)
Ken-
While it sounds like GM might actually be forced into bankruptcy (where it should have been in the first place), I don’t see Obama pulling the trigger. With all of his scare-tactics in recent days regarding the $800 billion spending bill, he would look like a fool allowing GM to go bankrupt. (I’m ignoring Chrysler, because even Obama knows that they need to be liquidated) What we could see is the Obama administration essentially taking control of GM, and forcing a restructuring. (a bankruptcy in every way except for the name)
If I were a betting man, I’d bet that Geithner will be addressing this situation on Monday.
“No way is Obama gonna let the the uAW go through a bankruptcy if he can help it.”
Can help? How?
Doesn’t look like he has any options left.
In the early 1990s Sweden faced a banking and finance crisis which is sort of a mini-me version of that now unfolding in the US. Sweden’s answer (and by the then heavily right leaning gov’t) was to effectively nationalize the banks. Later they sold off most of the government’s interest in the banks at a profit and catastrophe was narrowly avoided.
Much has been published about those days, including this NYT piece:
http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?em
And here’s the [overused metaphor alert] kicker: the U.S. government failed to get an inter-creditor agreement with the existing lenders done prior to the funding.
Just wondering about that verb – failed – I’d think some of the forces behind that would consider the lack of an inter-creditor agreement giving priority to the gov’t to be a great success.
No?
Just saying.
Well, thank God maybe someone is getting smart,let the chips fall were they may!Since I have sworn off UAW built car’s I could care less,this is way over due.Maybe a fresh start for GM would save there sorry ass’s,but Chrysler is gone and the Black hole that is sucking the life out of us will be pluged.
I highly doubt that the government will put GM through Chapter 11 right now, although that is the only way that GM will ever become a viable, competitive company.
I can only hope that this means Chapter 7 for Chysler, which is a horrible distraction from GM and Ford, which actually have futures.
TheRealAutoGuy:
The economic crisis has provided a great scapegoat for the Detroit automakers, but they were failing long before it.
Even during the boom, when banks, retailers and foreign automakers were thriving, the Detroit automakers couldn’t make a consistent profit.
People that want GM to have a future are rooting for a government backed Chapter 11.
The only people that don’t support GM freeing itself from its oppressive burdens with Chapter 11 are the poor managers, productivity sucking UAW workers and brand dilluting, infighting dealers that leach off of GM.
I drive a 2007 Saab 9-3 2.0T w/ manual. A GM product no less. Now you know.
No_Slushbox has it right. GM should have addressed its problems years ago but didn’t. And Chrysler…well, the Germans didn’t do the company any favors, and Cerberus never injected the cash necessary to make a real go of it.
Frankly, GM does make some great products, but there are too many models, brands, and dealers to support its market share. Jerry York publicly stated this in the winter of 2006 at the Detroit Auto Show and…turns out he’s still right.
All you people supporting bailouts, WAKE THE HELL UP.
Sorry to be so blunt but supporting the bailout is akin to supporting Hitler or Lenin.
You are giving far too much control to your government because you are hurting.
Every despot and authoritarian government came to power during a crisis like this.
We gave Paulson unlimited power to use trillions of dollars as he sees fit. To stake our future on a gamble that will never pay off.
You do realize that the government doesn’t make money, it only steals money. Name one thing that the government manages well. Go ahead name one thing. There isn’t a single thing at all. Everything the government touches burns.
The US government has been bankrupt since the depression. The creation of the federal reserve was essentially the Chapter 11 of the US government. The US government stole the hard assets of the American people to create a central bank that would print fake money to prop up the economy.
They then created social programs that would steal even more money to increase the size and scope of the central government. The promise would be that you would get paid back at a later date. The idea was that very few people would actually live to the age to collect benefits, or just a few years after collection began and the government would make out.
The US government is broke. In fact it is trillions of dollars in debt. Every bailout dollar will turn in to 10 that must be paid back by taxpayers due to the massive inflation this will bring in the next few years.
GM cannot be saved. The company is too big to ever return to profit. The UAW will force GM to remain too large to exist due to labor contracts. GM also needs to liquidate the couple hundred billion white collar pension fund that is invested separate from the company.
It is a big secret that GM has a huge fund they are unwilling to tap because they don’t want to touch the golden parachute every executive will get when the company does fail. They really don’t need the bailout. They just want to use other peoples money rather than allow a pension fund for millionaires to drop a buck. I am sorry for the workers at GM, but you work for a bad company.
One that deserves to go out of business. One that will die regardless of the bailout. The entire business model is flawed and they will not be able to turn it around in 2 or three years.
GM still sells more cars than any other company on the planet, even right now in the middle of a recession.
If they can’t survive selling more cars than any other company, how can they survive when the economy gets worse. I can’t believe that people actually support the US government intervening in business. Actually buying shares in corporations with tax dollars.
DO you people get it.
DO you get that we are turning into the USSR, into China.
You think you are doing the American thing supporting American companies but you are just playing into their hands. Into what they want, to keep their cushy executive jobs. To keep the ability to steal money and run stock scams.
There shouldn’t be a big three. There should be a small 30. The economy was great when you had Packard, Studebaker, DeSoto, Hudson, and the rest. When you had competition. The Big 3 have been dead for decades because they killed off the competition. If it wasn’t for the Japanese and Germans we would still be driving Buiks from the 1970’s.
We are preventing the destruction of the monopolies. The mega corporations that use their size to destroy the middle class. The middle class was built on small business. The hundreds of thousands of independent stores. Where everyone made a decent living but didn’t make obscene wealth.
Supporting the bailout only keeps the economy in its hole. It only keeps the middle class down. If I could get a loan from the feds to restart DeSoto or AMC I would turn it into a competitor in 5 years and pay back the loan in full. I would leave GM in the dust. See GM needs to fail because it is too big to be kept alive.
We need many more small companies that each employ less people but pay people more. Overall the economy would be better off. That way if one company fails it will not take down a few hundred thousand workers. It needs to be done now before it is too late. Before we are left with singular entities that control entire markets.
That is where we are going. One US bank, one US car company, one phone company, one retailer, one singular government that controls all.
Hey, I am all for vigorous discussion on issues, but let’s be realistic in our rhetoric. Supporting the bailout is nothing like supporting Hitler or Lenin.
Plus, DeSoto was a Chrysler product line, which was sold at your friendly Plymouth dealership.
Why do you think that Obama will let GM and Chrysler go down? He has stated, time and time again, that he will not let them go bankrupt.
Witness the tremendous sums of money being thrown at our banks and insurance companies.
928sport :
“Well, thank God maybe someone is getting smart,let the chips fall were they may!Since I have sworn off UAW built car’s I could care less,this is way over due.Maybe a fresh start for GM would save there sorry ass’s,but Chrysler is gone and the Black hole that is sucking the life out of us will be pluged.”
The UAW does not build cars. The UAW represents the workers employed by the companies that build the cars. The UAW has no authority over company policies or products. The typical UAW worker does not even have the authority to push the button that stops the line.
“taxpayers’ claims on Chrysler and GM’s collateral are open to “debate.””
In that case, why would anyone with a brain cell in their heads put one red cent of taxpayer money into these companies, if there is even a possibility of the collateral not being shared back into the treasury, during any liquidation?
Oh, sorry, I answered my own question, then; I obviously falsely presumed that our esteemed politicians might have two brain cells between the lot of them, to rub together.
menno:
At the risk of revealing the silver lining under my fur felt, the fix is in. And I don’t mean that in the “repair” sense of the word “fix.”
As already mentioned, a lot cheaper fix would be for the government to assume the warranty costs, this would be a finite number as the warranties would eventually run out and the taxpayers are out.
There are only 3 ways for D2.451 to survive:
1. Hyper-inflation – Which is a criminal’s way of “writing down” debt.
2. Taxpayer theft – Which is a criminal’s way of “writing down” debt.
3. Running illegal narcotics – Which is honorable and satisfies consumer demand (Ask the Kennedys).
Count on “1” and “2” occuring.
Luther: 3. Running illegal narcotics – Which is honorable and satisfies consumer demand (Ask the Kennedys).
That is always an iffy proposition – remember what happened when DeLorean tried that. Yes, I know he was acquitted, but it was a final nail in the coffin of DMC.
No way is Obama gonna let the the uAW go through a bankruptcy if he can help it. These unions just gave hundreds of millions to the Dem’s in the last election and a payoff is required.
How many times do we go through with this? If you’re a gay unionized worker, are you really going to vote Republican? If you’re a gun-owning pastor of an Evangelical church in Missouri, are you going to vote Democrat? Answer to both: no.
The Democrats no more need to pander to the unions or the GLBT community than the Republicans need to pander to the NRA. Those votes are a given, and can be taken for granted. The benefit is in chasing the middle, which is why you have Republicans and Democrats both doing things that ostensibly betray their “core” platforms.
That’s why Obama can do whatever he wants to the unions: they have nowhere else to go. Congress and the Senate are a little more responsive because voting on party lines is weaker in the houses than in the presidency, but it’s still a given.
psharjinian: How many times do we go through with this? If you’re a gay unionized worker, are you really going to vote Republican? If you’re a gun-owning pastor of an Evangelical church in Missouri, are you going to vote Democrat? Answer to both: no.
Actually, in past elections, a fair number of blue-collar workers have voted Republican in national elections. Just google “Reagan Democrats.”
The Democrats cannot necessarily take those union voters for granted – especially if the union that funnels money to them via campaign contributions is seriously weakened when two of the major corporations that employ its members collapse.
The UAW and individual union members are not necessarily the same thing.
Personally I would rather see a headline that states “Bob Lutz out-runs DEA” than “Wagoner/Gettlefinger pay politicians to steal from taxpayers for them”.
Geeber,
You’re right, there. I was being overly simplistic, mostly because I don’t get into this discussion very often in terms of unions.
Generally it’s people who are expected Democrats (or their international equivalents) to mandate gay marriage or force collectivization of property that I have this talk with. In a duopoly (the US) or limitied polyopoly (Canada, the UK) the extreme wings of any given party can be essentially ignored.
@ Thanks magoo for trying to set the record straight.So few people understand the culture inside the plant.I can read two sentences of a comment,and know the commentater has never been near a modern auto manufactoring operation.
The line worker has zero input,you are told what to do, how to do it, and how much time it will take.GM standards are 55 seconds to the minute.
A good superviser will accept a little worker input,but generally gets overruled.It wasn’t always that way.The modern superviser is a glorified clerk.Just like the guy on the line he/she is told what to do,and how to do it.
Management and only management runs General Motors.Thats the first paragraph of the first page
of the 700 page UAW/CAW-GM Master Agreement.Is been that way since the thirtys.Every rookie gets a copy of the plant rules.
Rule# 1 Failure to follow the direction of your superviser will result in discipline up to and including termination.The union does NOT have as much power as the outsiders think they do.I personally have seen many people take that rule on.I can also say I’ve seen many people lose.
They got fired and they stayed fired.Union or no union.
The govt will not axe GM or Chrysler right now because they have no idea (nor does anyone else, for that mater) what the broader economic repercussions will be. No idea.
They will pump money into Detroit, including the suppliers, until they can get the credit markets fixed.
There is no point trying to fix any auto maker while at the moment nobody can buy anything from anybody (see “Toyota”).
I really don’t see this particular moment as union pandering. Lehman’s collapes is universally considered a colossal mistake. A Detroit C11, in this environment, COULD be the same. And nobody is willing to risk that.
“Sorry to be so blunt but supporting the bailout is akin to supporting Hitler or Lenin.”
You lost my interest in whatever you may have said after that with such over the top rhetoric. Japan, for but one example, has been relatively successful with heavy government involvement in its industries. Sure Japan has some serious problems, but those problems do not include genocide during its post WWII development.
To a more serious point. The US is a replacement automotive market. The annual scrap rate in the US is around 12 million units. For many years now the new vehicle sales rate has exceeded the scrap rate by millions of units per year. Now that the easy credit bubble is over, we are back to a market where most of the cars being sold are actually needed, not just wanted. I expect the US market to stay in the ~10 million unit per year range for quite some time. To make matters more difficult, the volume is also shifting towards smaller, cheaper, much lower profit margin vehicles. High profit Escalade, Hummer and Navigator sales have evaporated. What is selling are much lower profit margin vehicles. Given a volume contraction by about a third and a gross margins contraction of about a half; the weaker players are going to die out. There really is no way around that brutal reality.
“Actually, in past elections, a fair number of blue-collar workers have voted Republican in national elections. Just google “Reagan Democrats.” ”
Sure enough, they shot themselves in the economic foot, hand and head by falling for rhetorical sops to God, Guns & Gay Bashing. Look how well blue collar workers have fared in the US’ economic system since Reagan.
I’m sorry, despite the hiring of bankruptcy law firms, I still believe the bailout bonanza is just getting started. No one in our government knows anything about business. They are afraid of changing the status quo and Barack isn’t about to waste political capitol on a diffucult issue that has dire implications for the future of our country.
Sir,
You may want to consider hunkering down in your bunker, shutting down your Internet connection (never know who might be watching!), stock up on Spam, and load up your Remingtons — the gummint is trying to take over your land!
Hitler or Lenin? With loons like you, no wonder so many people, both here and abroad, think we’re all a bunch of idiots.
Robert Frankfurter :
February 6th, 2009 at 4:46 am
All you people supporting bailouts, WAKE THE HELL UP.
Sorry to be so blunt but supporting the bailout is akin to supporting Hitler or Lenin.
To anyone considering the purchase of a GM or Chrysler product:
While the gov’t will find some way to make sure your warranty gets honored, think a minute about WHO will do the honoring. That is, someone will be doing the actual work to fix your car at some point. That someone will be working at a dealer for a defunct carmaker? Probably not, those dealers will close. Those that do stay open will be paying people next to nothing to work for them and fix warranty problems. Those aren’t the guys you want working on your car!
So who will fix it? Some other dealers’ mechanics who have little to no experience with your make/model and could care less if you have a ‘less than satisfactory’ experience.
Just think about that when you ponder the actual value of the new car you are considering to purchase. It may be a lot lower than you initially thought.
Robert Frankfurter :
February 6th, 2009 at 4:46 am
All you people supporting bailouts, WAKE THE HELL UP.
Sorry to be so blunt but supporting the bailout is akin to supporting Hitler or Lenin.
bomberpete :
February 6th, 2009 at 11:56 am
Sir,
You may want to consider hunkering down in your bunker, shutting down your Internet connection (never know who might be watching!), stock up on Spam, and load up your Remingtons — the gummint is trying to take over your land!
Hitler or Lenin? With loons like you, no wonder so many people, both here and abroad, think we’re all a bunch of idiots.
psarhjinian:
“The Democrats no more need to pander to the unions or the GLBT community than the Republicans need to pander to the NRA. Those votes are a given, and can be taken for granted.”
That’s what the Republicans said 50 years ago about the black vote. They were the party of Lincoln. And the Democrats wrote the Jim Crowe laws. That’s what the Democrats said 50 years ago about the Cuban vote, right up to the Bay of Pigs fiasco. My wife’s family members still talk about it and they will never vote Democrat. The only Hispanic US Senator (a Cuban) is Republican. After you’ve been ignored/taken for granted so many times you will (eventually) wise up. If the Soft Drink does what some here think (force a C11/restructuing) and thousands of jobs are lost it may be the tipping point for the UAW.
John Horner:
“Sure enough, they shot themselves in the economic foot, hand and head by falling for rhetorical sops to God, Guns & Gay Bashing. Look how well blue collar workers have fared in the US’ economic system since Reagan.”
Blue collars have suffered more from NAFTA and globalization, pushed by Clinton/Gore then anything from Reagen who actually used tarrifs and quotas. But as Psarhjinian said they could take the votes for granted.
Considering some of the recent “revelations” concerning our politicians and their so-called “participation” in the taxation system I humbly suggest that until every member of the House and Senate, and the President demonstrates that they are current on their taxes they not be allowed to spend any more of ours.
“Taxation without representation” is one thing, I wonder how much “representation without taxation” we have.
Bunter
On the issue of warranties of a bankrupt GM, I think the pieces that are left, say chevy and cadillac will have dealers. Being GM dealers from the past will be able to fix other GM products and bill the warranty to uncle sam or whoever is appointed to pick up the tab. It would only be in the even of a complete collapse of GM that independent garages would try and do the warranty work. I also believe, the longer GM waits to restructure and truly downsize their menagerie of auto brands, the more likely they will be too damaged to make a come back.
When oh when will GM/Chrysler file – please stop the madness of bailout – they are BANKRUPT- This country will survive without them –
Whether or not C11 will be allowed this go-around, I’m madder than hell that no intercreditor agreement was recorded prior to issuing the “loans.” It’s beyond irresponsible. Why we keep reelecting politicians who allow or facilitate such negligent and borderline criminal activity is beyond me.