Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Markets Cheer GM's Inglorious Conclusion

Companies / US Auto's Jun 02, 2009 - 04:43 AM GMT

By: Mike_Shedlock

Companies

Best Financial Markets Analysis ArticleAt long last GM has gone bankrupt and was booted from the DOW along with Citigroup. The world did not end as former CEO Wagoner suggested would happen. Indeed the markets seemed to be cheering the news. Let's take a look at some headlines.


GM Files Bankruptcy to Spin Off More Competitive Firm

General Motors Corp., the largest manufacturer to go bankrupt, filed for court protection with a government-financed plan intended to create a viable company that can compete in world markets.

The U.S. government will extend $50 billion of loans to the 100-year-old automaker and plans to convert that into a 60 percent stake in the reorganized company, according to a filing in U.S. Bankruptcy Court in New York. GM today missed a deadline to show that it could reorganize outside of court and reported debt of $172.8 billion, more than twice its assets.

“Any suggestion that an American corporate icon like GM could file for bankruptcy would have been laughable a few years ago,” said Lynn Hiestand, a lawyer specializing in restructuring with Skadden, Arps, Slate, Meagher & Flom LLP.

U.S. Gets Majority Stake in New GM

The United States will invest another $30 billion during and after the GM bankruptcy process, bringing the U.S. commitment to $50 billion. Following that infusion, "the U.S. Treasury does not believe or anticipate that any additional assistance to GM will be required," a senior administration official said Sunday night, calling the restructuring a "permanent" solution.

Under the proposed restructuring, about 60 percent of the new GM would be owned by the United States, about 12 percent by the governments of Canada and Ontario, a union health trust would own 17.5 percent, and the company's current bondholders would get 10 percent.

"The proposal seems to favor the rights and claims of the UAW, a political ally of the current administration and a powerful lobbying force in Washington, over the rights and claims of the company's diverse group of bondholders," according to a letter from 20 House members, led by Rep. Jeb Hensarling (R-Tex.), to Treasury Secretary Timothy F. Geithner. "Contractual rights of investors are being trampled by the government under the rationale of 'extraordinary circumstances.' "

A critical legal issue is whether the bondholders might be able to get more for their debt if the company were simply liquidated, the proceeds distributed among those with claims.

The first critical issue is fairness. And by that measure bondholders were robbed. The next critical issue is the taxpayer investment of $50 billion into GM that will never be repaid.

GM to Announce Tentative Hummer Sale

GM has been studying strategic alternatives for the brand for a year, and has settled on a buyer that could take over the brand by the end of the third quarter, these people said. GM will continue producing Hummer H2 and H3 trucks and SUVs at plants in Louisiana and Indiana for the buyer.

GM is withholding the name of the buyer until a later date, and will only say on Tuesday that this investor is committed to continuing to develop the Hummer portfolio and build alternative-fuel models for the brand at some point. The purchase price will also be withheld.

If GM had not found a buyer by early June, Hummer would likely have been killed in bankruptcy court, one person involved in the deal. GM found an investor for its Opel brand over the weekend -- Magna International Inc. -- and is seeking buyers for Saturn and Saab.

Anyone dumb enough to buy the Hummer deserves to follow GM into bankruptcy.

Filings Reveal Depth of Problems

General Motors Corp.'s $82.2 billion in assets and $172 billion in liabilities spell out the extent of its problems and sheer breadth of the 101-year-old giant's bankruptcy.

In a torrent of filings at the U.S. Bankruptcy Court in Manhattan, GM's mind-numbing scale is evident: It has 463 subsidiaries and has built 450 million cars and trucks over the years. It employs 235,000 people world-wide. This includes 91,000 in the U.S., which it pays $476 million each month, and 493,000 retirees with various benefits. It spends $50 billion a year buying parts and services from 11,500 vendors in North America.

A liquidation analysis by the turnaround and advisory firm AlixPartners LLP, which is also providing a chief restructuring officer to GM, estimated that GM would have paid back its banks 23 cents to 77 cents on the dollar on the $6 billion it owed them.

The Treasury, on the hook for $20 billion, would have gotten back 12 cents to 24 cents. Bondholders, the UAW's health-care trust and other unsecured creditors would have received nothing.

A Saga of Decline and Denial

The above is a long, interesting read with enough details to suggest Wagoner was incompetent.

For the New GM, A Final Challenge to Please Drivers

America will soon have a new auto maker, "The New GM" -- or as some will call it, "Government Motors." Politicians, financiers and lawyers created it. American consumers will decide whether it succeeds.

The New GM will be a shadow of what the once-mighty old General Motors Corp. used to be. But it will be a really big shadow -- with more brands, more models, more dealers and possibly more market share than any other player in the U.S. industry. It will have a diverse ownership: the U.S. Treasury, the governments of Canada and the province of Ontario, a collection of bond investors and the United Auto Workers.

Mr. Henderson vowed that the New GM, freed of many of the health-care and debt-service obligations that sucked up its capital, will now "increase our investment in new technology" and no longer waste effort on cars that aren't "best in class."

GM has said this before. Now it will have to deliver.

Pray tell, why should GM have to deliver now? Obama has already thrown $50 billion at GM, what's another $50 billion more to win union votes?

Obama: Nationalization of GM to be short-term

In a defining moment for American capitalism, President Barack Obama ushered General Motors Corp. into bankruptcy protection Monday and put the government behind the wheel of the company that once symbolized the nation's economic muscle.

The fallen giant, the largest U.S. industrial company ever to enter bankruptcy, is shedding some 21,000 jobs and 2,600 dealers. Sparing few communities, the retrenchment amounts to one-third of its U.S. work force and 40 percent of its dealerships.

"We are acting as reluctant shareholders because that is the only way to help GM succeed," Obama said of the temporary nationalization of the 100-year-old company.

"What I have no interest in doing is running GM," Obama said. His only goal, he said, was to get GM back on its feet and then "to get out quickly."

Take a look at the lead sentence of this article. The writer of this story clearly does not know the difference between capitalism and toenail fungus.

The Ad Campaign for a ‘New’ G.M.

Can General Motors make up for decades of mistakes and misfires in a minute?

That is the ambitious goal of a 60-second commercial to begin running on television on Wednesday. The spot is already available on a Web site (gmreinvention.com) and on YouTube.

The commercial was created by Deutsch, an advertising agency owned by the Interpublic Group of Companies that handles assignments for G.M. like producing campaigns for the (soon to be divested) Saturn division.

Booted From The DOW

At long last GM is booted from the DOW.

GM, Citigroup Replaced in Dow by Cisco, Travelers

By replacing GM with Cisco, Dow Jones & Co. has removed automakers from the best-known benchmark for U.S. stocks, saying in an e-mailed statement that computers are as central to the economy as cars were in the previous century.

Cisco, the world’s largest maker of computer-networking equipment, joins Microsoft Corp., International Business Machines Corp., Intel Corp. and Hewlett-Packard Co. in the Dow, boosting its technology weighting from about 17 percent.

Travelers, the second-biggest U.S. commercial insurer, joins JPMorgan Chase & Co., American Express Co. and Bank of America Corp. among financial companies in the Dow. Its higher price than Citigroup’s will boost the benchmark’s financial weighting to about 10 percent from about 7 percent. Financials make up about 14 percent of the S&P 500, a broader benchmark.

The choice of New York-based Travelers restored an insurer to the Dow average, which had lacked one since the removal of AIG.

No One Could Have Predicted This

Let's return one more time to the opening snip:

“Any suggestion that an American corporate icon like GM could file for bankruptcy would have been laughable a few years ago,” said Lynn Hiestand, a lawyer specializing in restructuring with Skadden, Arps, Slate, Meagher & Flom LLP.

Really?

Flashback Wednesday, November 16, 2005

Inquiring minds are reading Can GM Be Saved?

...the real debate is not whether GM will go bankrupt, but whether said bankruptcy occurs sooner rather than later.

The real question then should be how to handle the upcoming bankruptcy in the most equitable manner possible rather than wasting money trying to prevent it.

...

GM is currently on collision course with bankruptcy anyway so it may as well happen in a manner that protects the most people. The 5 step program above would protect both GM pensioners and US taxpayers. No doubt union members will object to step number 4, but a reduction in the power of the UAW would appear to be a foregone conclusion anyway.

...

Finally, the union may as well lock in a good deal for its pensioners right now as opposed to a poor one later that might also affect taxpayers to the tune of $30-100 billion or so.

...

the Mish plan to save GM in a "fair and equitable manner" was a purely theoretical exercise that favored pensioners while ignoring huge implications to GM stockholders and bondholders. In that regard it can not be viewed as a serious proposal.

...

Here is the bottom line: No matter what CEO Wagner believes about bankruptcy, it seems likely the market or the PBGC or perhaps even a new law protecting pension benefits over bondholders will force him to change his mind. If history is any guide, not only will GM go bankrupt, but pensioners will get the shaft and taxpayers will end up footing some of the bill.

How did I do?

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in