GM’s major bondholders are asking for a 58 percent stake in a reconstituted General Motors, but there are a number of challenges facing any debt-swap to relieve GM’s crushing $28b debt load. First of all, the Freep reports that some $2.7 billion worth of GM debt is covered by credit-default swaps. Since this means that ten percent of GM’s bondholders stand to receive face value for their bonds, the odds that 90 percent of GM’s creditors will take up any haircut offer seem slim. Add a bunch of angry, populist small bondholders to the equation, and you have yet another obstacle to the restructuring goal.

TTAC commentator and contributor David Holzman writes:

Like just about everyone else whose car is at least four years old, my windshield (1999 Honda Accord) is pitted enough to make driving into the sun a real chore. What can I do about it, if anything?

I tried some glass polish from one of the big mail order car stuff places, in Wash. State I think. (I’m blanking on the name, but I used to get their catalog). Cost about $20, didn’t do squat.

BTW, Car Talk got this question in the last two years, said there wasn’t anything you could do. That’s hard for me to believe.

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Bloomberg reports that GM bondholders have made a counter-offer to the feds’ debt-for-equity swap proposal. Two days ago, The Presidential Task Force on Automobiles (PTFOA) offered the bondholders a 10 percent piece of a newly reconstituted “good” GM in exchange for $27 billion of paper. The bondholders reckon that should be . . . wait for it . . . 58 percent. To avoid C11, GM must convert 90 percent of its debt into equity. So, forget it. “Old” GM’s toast.

And that’s why we’ll give Chrysler and Fiat 30 days to overcome these hurdles and reach a final agreement—and we will provide Chrysler with adequate capital to continue operating during that time. If they are able to come to a sound agreement that protects American taxpayers, we will consider lending up to $6 billion to help their plan succeed. But if they and their stakeholders are unable to reach such an agreement, and in the absence of any other viable partnership, we will not be able to justify investing additional tax dollars to keep Chrysler in business.

Those damn hedge funds and their secured debt! Despite enormous pressure from the US Treasury, “holdout creditors” rejected the federal government’s offer to increase the cash part of a proposed debt-for-equity swap to $2.25 billion (up from $2 billion). A high noon Wednesday deadline came—and went. Hey! What happened to Chrysler’s “owners” Cerberus? Anyway, according to Automotive News [AN, sub], the feds—under Presidential Task Force on Automobiles leader Steve “Chooch” Rattner—are stepping-up their campaign to blame the recalcitrant bondholders for ruining their non-C11 plans to recreate the ailing American automaker as a Fed-Fiat-UAW partnership. “While the Administration was willing to give the holdouts a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler’s future success,” an “official” told AN. “Their failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward.”

TTAC Commentator 70 Chevelle SS454 raises some good points about rumors (perpetually perpetuated here) that the feds’ plan to combine Chrysler and GM into “American Leyland.” The clever member of our B&B wrote his analysis in response to John Horner’s comment, which addressed the UAW’s role should they parlay their (allegedly) forthcoming shares in Chrysler and GM into shares in the combination of the two.

100% mergers of competing companies are happening all the time, so I don’t think one entity having major ownership stakes in two competitors is going to run afoul of whatever is left of anti-trust enforcement.

70 Chevelle SS454‘s reply

No. That’s not how DOJ/FTC review of mergers goes. They look to see whether the resulting company would have power over price, or market power. There’s actually a formula that’s used to combine market shares and calculate the resulting company’s market power, called the Herfindahl-Hirschman Index (HHI). Anything with an HHI score above 1800 is considered “highly concentrated,” and is rarely approved. 

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For the past 60 years or so, Fiat has had what amounted to a compulsive gambler’s business model: invest tons in one single car, cross fingers that it sells like hotcakes, and run the rest of the company with disinterest. This one-pony strategy has often delivered  what, in the end, were the most desirable small cars of each decade. How else to describe the 1950’s 1100, the 1960’s 124, the 128 from the 70s or the Uno from the 80s? All, as well as the Punto from the 1990s and the Panda from the present decade, adhered to a simple but elusive formula: cheap to buy, brilliantly packaged, surprisingly robust, and a hoot to drive. (Most other Fiats, let’s not fail to mention, have been crap).

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Reuters reports that the UAW membership has “overwhelmingly approved” its deal with Chrysler, paving the way for union ownership of the firm. So it’s fair to say that Obama’s “what we’ve seen is the unions have made enormous sacrifices on top of sacrifices that they had previously made” line sent the right message?

(Via AP/Google)

Deb Price, Detroit News: Thank you, Mr. President. On the domestic auto industry, have you determined that bankruptcy is the only option to restructure Chrysler? And do you believe that the deep cuts in plant closings that were outlined this week by General Motors are sufficient?

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Barack Obama is set to addresses the nation tomorrow, announcing Chrysler’s death and rebirth. The president will frame the government’s intervention in familiar terms: hope and change. Only in the reverse order: change and hope. Obama will say that the federal government is helping Chrysler transform into a viable American automaker. This we (yes we) are doing because President Obama has hope for the future of the American automaker and, not-so-incidentally, American automaking. Chrysler, the United Auto Workers (UAW) and Fiat will now build the kind of economical, environmentally friendly vehicles America needs. Unfortunately, Obama’s “plan” is the exact opposite of what it pretends to be.

Bloomberg reports that not-entirely-unexpected news that President Obama will announce Chrysler’s bankruptcy tomorrow. The president will outline the automaker’s restructuring, along not-entirely-unexpected lines (known in these parts as “good” Chrysler / “bad” Chrysler). In other words, Uncle Sam is reconstituting ChryCo as a partnership between the United Auto Workers (55 percent), Fiat (20 percent) and you, the people (25 percent). And guess who gets to put in the $6b plus to make this happen? That’s right: you! But then you’ve already put in over $4b, so what the heck. Anyway, Chrysler buyers (both of them) shouldn’t worry that C11 will stop Auburn Hills in its tracks; you’re very generous. Automotive News [sub] reports that Chrysler will extend current consumer incentives (a.k.a. employee pricing plus) until Monday. Meanwhile, The Wall Street Journal reports that President Obama is laying the blame for Chrysler’s collapse right where it doesn’t belong: Chrysler bondholders. (Read More…)

It’s getting to be sports metaphor time for the ChryCo deal: the fourth quarter, the ninth inning, the obese lady’s vocal warm-ups. Automotive News [sub] quotes a White House spokesperson as saying “hurdles still remain, but we remain optimistic and hopeful that something in the next many hours will get done that will provide a pathway for Chrysler’s viability without continued government assistance.” Maybe the White House should read more news. And not just assurances from the UAW’s Ron Gettelfinger who sounds downright thrilled at the possibility of seeing his union gain a controlling stake in ChryCo. No, The Detroit News points out that a grassroots UAW effort to scuttle the deal (which must still be ratified by a full union vote) is underway. “It’s time to stop the concessions. Send them back to the table. We need a week to see the agreement before the vote. Jeep workers should be allowed to vote. Vote no,” runs a letter being circulated amongst UAW workers. Why so confrontational? The (proposed) lack of confrontation.

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Ok, it’s not really a secret. But I sure wasn’t aware that the Italian automaker is “the biggest player in the market for natural gas engines,” selling 68k natural gas-powered rides last year and aiming for 120k unit sales this year. Thanks for the heads-up, NY Times! In yet more evidence of Fiat’s politically-savvy strategy, Italy’s scrappage scheme currently doubles the rebate for paisans who junk their clunker for a natural gas hoopty. Naturally though, one government incentive isn’t enough: “Fiat is collaborating with fuel companies and the Italian government to provide more than 1,000 stations where motorists can fill their tanks with natural gas.” Though most NG Fiats are “dual-fuel,” US infrastructure will have to be significantly upgraded (with help from taxpayers) to cash in on NG’s green promise stateside. Nonetheless Fiat’s natural gas technology is raising hopes for Chrysler’s future, if a deal is done, if infrastructure is upgraded, and if US consumers spring for the emerging fuel. But a word of warning: eco-tech enticement sent several billion GM bucks down the Fiat rabbit hole in search of competitive diesel technology not that long ago. And we all know how that turned out.

The question of a sales recovery looms large in discussions of GM and Chrysler’s road to viability. In particular, GM has been accused of overestimating demand recovery, as its successive viability plans have consistently revised demand assumptions downwards. But a survey and followup by RL Polk (full report in PDF) suggests that not only are a significant number of American consumers considering vehicle purchases, but many would buy American to “support the economy.” In all of the surveyed regions at least 50 percent of vehicle owners aged 18-64 said they planned a vehicle purchase in the next two years. Good news for Detroit? Polk’s breathless press release for updated regional data sure makes it sound like it. “In fact, more than a quarter of consumers we talked to as of the end of March plan to buy a new car or truck within the next year, even better news for automakers struggling to move excess inventory from dealer showrooms,” says Polk’s Lonnie Miller. But a closer look at the original survey shows that it’s too early to start counting chickens.

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