Credit Default Swaps (CDS) are a fairly complicated financial instrument. The bottom line: a significant number of GM debt holders stand to make more money if GM defaults and enters Chapter 11 than if it doesn’t. “According to the Depository Trust & Clearing Corporation, investors hold $34bn in CDS on GM,” the Financial Times reports. “Once off-setting positions are considered, the DTCC estimates CDS holders would make a net profit of $2.4bn if GM were to default.” That’s net profit. Reuters puts the total pay off at $4 billion. But don’t worry about the CDS payees; the Bank of America says “any payments are unlikely to cause widespread losses.” Easy for them to to say. The feds gave the Bank of America a $20 billion bailout in January and $118 billion worth of guarantees against bad assets. Anyway, CDS are not THE reason why GM’s debt holders won’t agree to restructure the ailing American automaker outside of bankruptcy. Some may actually believe that a liquidation offers a better chance of recouping their money. But CDS are not exactly at the bottom of the causation pile, either. Especially as the Treasury’s out-of-court debt-for-equity offer requires a 90 percent conversion rate. Say goodnight, Dick.

Folks, we’re well into headless chicken territory here, as GM slides towards an end-of-the-month bankruptcy filing, pretending that it has clue one what to do next. Automotive News [sub] reports the latest End of Days delusion. GM’s circulating a “plan” amongst its legislative sponsors announcing its intention to sell 17,335 Chinese made somethingorothers in the US by 2011, and triple that number (51,546) by 2014. “The gains would come,” the document says, “as GM’s total US sales surge 50 percent in the next five years.” From current levels? Bullshit. Also, batshit. Why would GM seek to antagonize the United Auto Workers with all this import folderol? Surely the GM that I know and love would want to tell the world that the new GM will be an all-American carmaker, building American cars in American factories with American labor for American consumers taking full advantage of American subsidies and American incentives, with a warranty backed by the American government. Even—no, especially—as it’s not true.

Automotive News [sub] reports that Vice Chairman of Global Product Development, Bob Lutz, has cashed in his GM chips, selling all his remaining shares in his bankruptcy-bound employer. The ex-Car Czar dumped 81,360 GM shares, slipping $130,989 into his pocket. The sale follows Lutz’s recent filing in Chrysler’s bankruptcy case: an effort to settle an unspecified, but most likely, pay-related claim. Meanwhile, “According to the [SEC] filings, the five other executives who sold all of their GM stock holdings were: Lutz’s successor, Thomas Stephens; GM North America President, Troy Clarke; Chief Information Officer, Ralph Szygenda; manufacturing chief, Gary Cowger; and head of European operations, Carl-Peter Forster.” Apparently, insider trading laws had prevented this mass display of confidence in GM previously. But a “trading window” opened on Monday that allowed the transaction without any legal repercussions. Morally, well, that’s a different story. Bottom line: GM C11 by June 1.

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Our own Ken Elias (who predicts a May 29 filing for The General) is torn between two motors, feeling like a fool. Loving a BMW is breaking all his rules. The man puts about 12k on the odo per year, and claims he only drives fast on rare occasions [when it is safe to do so or Jack Baruth is in the car]. Obviously, Ken should have read one of our TWO BMW vs. Infiniti comparos, but didn’t. So here we go again. Which car do you think our TTAC vet should lease? Feel free to grill him for more info.

OK, GMAC won’t play ball on extending the lease on my Saab or offer me a price closer to wholesale. In fact, they’ll only extend one month or up to 90 days IF I have a new GM car on order. So I’m looking at a BMW 328i Coupe w/ manual or an Infiniti G37 Journey w/ Sport Pkg. The Infiniti is likely to a bit cheaper to lease by ~$100/month, but it’s an automatic and drinks more gas. I think Bimmer owners are [adjective redacted], but it’s a pretty good ride. Both cars are fun to drive, but I want to give up anything for the pleasure. Advice?

The mainstream media is beginning to wake up to GMAC’s seemingly endless call on the public purse. Thanks to chronic mismanagement—and an 11th hour, last-minute back room deal with The Fed and the US Treasury that turned the virtually bankrupt lender into a bank that couldn’t pass a stress test if it was doped-up to the eyeballs with Thorazine—GM’s former cash cow has become a cow-sized vampire bat, feasting on US taxpayers’ blood, sweat and tears. It’s sucked-up $6 billion in federal funding so far, heading for another . . . wait for it . . . $15.5 billion. The Wall Street Journal is shedding a little heat (not light) on this “hidden” auto bailout, which is heading for another one of those dumb-ass “your money for government equity in a born loser” jobs. Without the slightest hint of accountability.

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“Today’s equity offering is another example of the fast, decisive action we are taking as we build momentum on our plan, including further progress on improving our balance sheet.” Well, he would say that, wouldn’t he? And now’s as good a time as any for Ford CEO Alan Mulally to cash-in some of his employer’s chips by selling 300 million shares of common stock. Ford’s stock price has tripled—from not very much to three times not a whole lot—since Chrysler filed for Chapter 11 and GM heads for same. And Ford needs a mountain of cash to honor their contract with the United Auto Workers. While the MSM is busy repeating Ford’s “we’re the only one not suckling on the federal teat” mantra, keep in mind that the sale should raise $1.8 billion or so, and we’re talking a $15 billion total obligation the union’s VEBA health care fund. The market knows: Ford’s stock sank nine percent today on the news of the offer. Still, as we’ve said all along, there’s something to be said for being the last man standing. The question is, what? Let’s hope it’s not “our turn.”

Back in the day, I recommended Chapter 11 for GM and Chrysler. With court protection, the American automakers could ditch non-competitive union contracts, pare bloated dealer networks, terminate extraneous products and sell-off non-core brands. In ’05, consumer confidence was strong. All three automakers had plenty of cash and assets. If they had filed then, they could have reinvented themselves and. . . Forget it. I was wrong. These automakers are so poorly run that an earlier bankruptcy would only have prolonged the misery. How could I think otherwise when Chrysler and GM’s idea of a “surgical” bankruptcy is to swing an axe at the patient’s diseased limbs, laugh at their next of kin, storm out of the operating theater, hand the case over to another doctor and repair to Aruba?

TheDetroitBureau.com (TDB) reports that GM’s lame duck Car Czar is a Chrysler creditor. The size and nature of Bob Lutz’ claim against the other zombie automaker is not yet known. But I reckon the ex-ChryCo exec’s pensions and bennies got sucked into the black hole. (Hey, I did warn him.) In fact, Lutz is going for a C11 triple: Exide, Chrysler and GM. While we await the official Chrysler court docs, the list of Auburn Hills’ other creditors is long and revealing. Number one: you, the taxypayer, dwarfing the second largest creditor by some $9.42 billion. So large, in fact, it’s not even on the list. Which leaves chassis maker Ohio Module Mfg. Co. as the largest non-governmental creditor. Ad agency BBDO Detroit Incorporated clocks in at number two most owed, at $58,055,133.44. As TDB observes, “Who would have thunk it! Well maybe it’s like American beer, the advertising and promotion cost more that the production of the stuff inside the can. Still, this is more money owed for advertising than steel, since U.S. Steel Corporation is owed only $16,182,772, as of April 30.” Looks like the spinmeisters got spun.

Chrysler’s stiffed a member of our Best and Brightest:

When I purchased my ’09 300C I traded in an ’05 that had a Chrysler extended service contract with time and mileage remaining. I called Chrysler and they gave me all of the information for obtaining a pro-rata refund as per the contract. I faxed it over and got very quick service. I had a check from Chrysler in the amount of $363.62 in under two weeks. I cashed it at my bank and today my bank mailed it back to me: Insufficient Funds! The check was drawn on a JP Morgan Chase account. I guess the bankruptcy is going to strike close to home.

In an interview with Autoweek, GM CEO Fritz Henderson finally stepped out from under Rick Wagoner’s shadow and stated his firmly held belief that the new Cruze and Spark will spark Chevy’s renaissance. Or, if you prefer, they’ll “fortify Chevrolet as a competitive, top-quality brand in the next two years.” True story?

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The Detroit News has obtained a confidential memo from GM to federal legislators. The smoking gun reveals that the soon-to-be-taxpayer-owned (officially) automaker plans to boost US sales of vehicles built in China, Mexico, South Korea and Japan by 98 percent (to 365k units). In the face of union criticism of the plans, GM claims that the percentage of its imports will remain at 33 percent. By 2014. When its sales recover to 3.1 million vehicles per year. Providing it maintains its current market share. All things being equal. With the wind in the right direction.

At the same time, The General aims to shrink production in Canada, Australia and European countries by about 130k. For a sneak peak at the less tortuous justification for this outsourcing on Uncle Sam’s dime, we turn to veteran Detroit apologist and Washington Post car critic, Warren Brown . . .

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