As the Congressional debates teeter on the topic of a massive financial bailout for the U.S. automotive industry, here is a list of things GM accomplished during their 100-year run.
1. GM pioneered the car payment
In 1919, GM established a financing division which is currently still around today. GMAC was the first company to utilize credit by creating monthly payments for consumers. We now realize this makes it substantially easier for people to buy more cars, even if they don't really have the money.. This might be where the credit crisis of today actually began. Instead of saving money to purchase things we desperately need, they developed a community of impulse buyers with easy access to abuse credit lines.
2. GM killed the steam locomotive
Long before anyone asked who at GM killed the electric car, the company had killed another old innovation: the steam locomotive. They were able to accomplish these feat by introducing a vastly more efficient technology in the two-stroke diesel engine! Although the picture above might seem like a GM locomotive, it's actually a pristine GM Futurliner which could have possibly borrowed design elements from early trains. These were used during the Parade of Progress during 1940-1941 and again from 1953-1953.
3. GM helped pioneer open heart surgery
Detroit surgeon, Dr. Forest Dodrill, wanted to develop something to take the heart's role of pumping blood in the event of a surgery. He teamed up with scientists from the nearby GM Research Labs and the American Heart Association to introduce the first mechanical heart pump, the Dodrill-GMR Mechanical Heart.
4. GM created the first fuel cell vehicle
The first hydrogen fuel cell vehicle was General Motor's 1966 Electrovan. The project ended for many of the same reasons later fuel cell vehicles have struggled: cost-prohibitive, dangerous to operate, no infrastructure to supporty hydrogen, and it was simply inefficient at 7,100 pounds.
5. GM put a man on the moon
GM has been involved with the NASA program since the early 1960's. They were first tapped by NASA to build the guidance and navigation systems for the Apollo space program. Later they contributed in the design of the mobility system for the Lunar Roving Vehicle.
Source: AskMen
Showing posts with label GM. Show all posts
Showing posts with label GM. Show all posts
Wednesday, December 10, 2008
5 Things You Didn't Know About GM
As the Congressional debates teeter on the topic of a massive financial bailout for the U.S. automotive industry, here is a list of things GM accomplished during their 100-year run.
1. GM pioneered the car payment
In 1919, GM established a financing division which is currently still around today. GMAC was the first company to utilize credit by creating monthly payments for consumers. We now realize this makes it substantially easier for people to buy more cars, even if they don't really have the money.. This might be where the credit crisis of today actually began. Instead of saving money to purchase things we desperately need, they developed a community of impulse buyers with easy access to abuse credit lines.
2. GM killed the steam locomotive
Long before anyone asked who at GM killed the electric car, the company had killed another old innovation: the steam locomotive. They were able to accomplish these feat by introducing a vastly more efficient technology in the two-stroke diesel engine! Although the picture above might seem like a GM locomotive, it's actually a pristine GM Futurliner which could have possibly borrowed design elements from early trains. These were used during the Parade of Progress during 1940-1941 and again from 1953-1953.
3. GM helped pioneer open heart surgery
Detroit surgeon, Dr. Forest Dodrill, wanted to develop something to take the heart's role of pumping blood in the event of a surgery. He teamed up with scientists from the nearby GM Research Labs and the American Heart Association to introduce the first mechanical heart pump, the Dodrill-GMR Mechanical Heart.
4. GM created the first fuel cell vehicle
The first hydrogen fuel cell vehicle was General Motor's 1966 Electrovan. The project ended for many of the same reasons later fuel cell vehicles have struggled: cost-prohibitive, dangerous to operate, no infrastructure to supporty hydrogen, and it was simply inefficient at 7,100 pounds.
5. GM put a man on the moon
GM has been involved with the NASA program since the early 1960's. They were first tapped by NASA to build the guidance and navigation systems for the Apollo space program. Later they contributed in the design of the mobility system for the Lunar Roving Vehicle.
Source: AskMen
1. GM pioneered the car payment
In 1919, GM established a financing division which is currently still around today. GMAC was the first company to utilize credit by creating monthly payments for consumers. We now realize this makes it substantially easier for people to buy more cars, even if they don't really have the money.. This might be where the credit crisis of today actually began. Instead of saving money to purchase things we desperately need, they developed a community of impulse buyers with easy access to abuse credit lines.
2. GM killed the steam locomotive
Long before anyone asked who at GM killed the electric car, the company had killed another old innovation: the steam locomotive. They were able to accomplish these feat by introducing a vastly more efficient technology in the two-stroke diesel engine! Although the picture above might seem like a GM locomotive, it's actually a pristine GM Futurliner which could have possibly borrowed design elements from early trains. These were used during the Parade of Progress during 1940-1941 and again from 1953-1953.
3. GM helped pioneer open heart surgery
Detroit surgeon, Dr. Forest Dodrill, wanted to develop something to take the heart's role of pumping blood in the event of a surgery. He teamed up with scientists from the nearby GM Research Labs and the American Heart Association to introduce the first mechanical heart pump, the Dodrill-GMR Mechanical Heart.
4. GM created the first fuel cell vehicle
The first hydrogen fuel cell vehicle was General Motor's 1966 Electrovan. The project ended for many of the same reasons later fuel cell vehicles have struggled: cost-prohibitive, dangerous to operate, no infrastructure to supporty hydrogen, and it was simply inefficient at 7,100 pounds.
5. GM put a man on the moon
GM has been involved with the NASA program since the early 1960's. They were first tapped by NASA to build the guidance and navigation systems for the Apollo space program. Later they contributed in the design of the mobility system for the Lunar Roving Vehicle.
Source: AskMen
Wednesday, December 3, 2008
Bleak future for Pontiac G8 in the U.S.
While previous reports predicting the demise of the Commodore-based G8 sedan were denied by Pontiac, almost, new reports have emerged which paint a rather bleak future for the Australian export.
Since the Pontiac G8 sedan was launch in the U.S., just 13,000 have found a home, while 11,000 more unsold G8’s remain in Pontiac’s inventory - representing a 283 day supply.
Poor demand for the Commodore-derived G8 sedan in the U.S., combined with a 16 percent drop in sales closer to home mean the Adelaide assembly line is expected to lay idle for 25 days in the first quarter of 2009.
This closure is on top of the four week pause already planned over the holiday season at Holden’s manufacturing facility.
In addition to this, GM’s current financial woes could see the auto giant sever its ties altogether with Pontiac in order to secure a $25 billion low interest loan from the U.S. government.
Under a restructuring plan presented to congress, GM has outlined that it will focus on its “core brands” of Chevrolet, Buick, GMC and Cadillac.
Pontiac will be shrunk to a “specialty, niche” brand as part of the current proposal - which is unlikely to include the Pontiac G8 sedan, GM President Fritz Henderson told reporters at a briefing today.
Source: LeftLaneNews and Automotive News
Since the Pontiac G8 sedan was launch in the U.S., just 13,000 have found a home, while 11,000 more unsold G8’s remain in Pontiac’s inventory - representing a 283 day supply.
Poor demand for the Commodore-derived G8 sedan in the U.S., combined with a 16 percent drop in sales closer to home mean the Adelaide assembly line is expected to lay idle for 25 days in the first quarter of 2009.
This closure is on top of the four week pause already planned over the holiday season at Holden’s manufacturing facility.
In addition to this, GM’s current financial woes could see the auto giant sever its ties altogether with Pontiac in order to secure a $25 billion low interest loan from the U.S. government.
Under a restructuring plan presented to congress, GM has outlined that it will focus on its “core brands” of Chevrolet, Buick, GMC and Cadillac.
Pontiac will be shrunk to a “specialty, niche” brand as part of the current proposal - which is unlikely to include the Pontiac G8 sedan, GM President Fritz Henderson told reporters at a briefing today.
Source: LeftLaneNews and Automotive News
Bleak future for Pontiac G8 in the U.S.
While previous reports predicting the demise of the Commodore-based G8 sedan were denied by Pontiac, almost, new reports have emerged which paint a rather bleak future for the Australian export.
Since the Pontiac G8 sedan was launch in the U.S., just 13,000 have found a home, while 11,000 more unsold G8’s remain in Pontiac’s inventory - representing a 283 day supply.
Poor demand for the Commodore-derived G8 sedan in the U.S., combined with a 16 percent drop in sales closer to home mean the Adelaide assembly line is expected to lay idle for 25 days in the first quarter of 2009.
This closure is on top of the four week pause already planned over the holiday season at Holden’s manufacturing facility.
In addition to this, GM’s current financial woes could see the auto giant sever its ties altogether with Pontiac in order to secure a $25 billion low interest loan from the U.S. government.
Under a restructuring plan presented to congress, GM has outlined that it will focus on its “core brands” of Chevrolet, Buick, GMC and Cadillac.
Pontiac will be shrunk to a “specialty, niche” brand as part of the current proposal - which is unlikely to include the Pontiac G8 sedan, GM President Fritz Henderson told reporters at a briefing today.
Source: LeftLaneNews and Automotive News
Since the Pontiac G8 sedan was launch in the U.S., just 13,000 have found a home, while 11,000 more unsold G8’s remain in Pontiac’s inventory - representing a 283 day supply.
Poor demand for the Commodore-derived G8 sedan in the U.S., combined with a 16 percent drop in sales closer to home mean the Adelaide assembly line is expected to lay idle for 25 days in the first quarter of 2009.
This closure is on top of the four week pause already planned over the holiday season at Holden’s manufacturing facility.
In addition to this, GM’s current financial woes could see the auto giant sever its ties altogether with Pontiac in order to secure a $25 billion low interest loan from the U.S. government.
Under a restructuring plan presented to congress, GM has outlined that it will focus on its “core brands” of Chevrolet, Buick, GMC and Cadillac.
Pontiac will be shrunk to a “specialty, niche” brand as part of the current proposal - which is unlikely to include the Pontiac G8 sedan, GM President Fritz Henderson told reporters at a briefing today.
Source: LeftLaneNews and Automotive News
Wednesday, November 26, 2008
For Bailout Blueprint, GM, Ford Might Finally Burn Rubber on Underperforming Brands
The plans the Detroit Three automakers are developing to submit on December 2 to Congress in justification for their entreated $25-billion federal loan probably are being more closely guarded than the manuscript for Sarah Palin's first book, but we can guess one aspect that seems certain to feature in the bailout blueprint of both Ford Motor Co. and General Motors Corp.: ditching some brands that have long dogged their ever-more-fragile bottom lines.
Wooly Mammoth.jpgFor at least a decade, critics have shouted down both GM and Ford for refusing to do what it now appears must be done - stop supporting underperforming divisions.
Rumors howling in Detroit's November winds point to brand-burning as one of the primary ways the companies plan to demonstrate to Congress they will be able to sustain their operations in a U.S. auto market that is expected to be decidedly unkind for all of 2009 and possibly well into 2010.
For GM, that means a serious look is in order for Pontiac, GMC, Buick, Saab and Saturn. The ill-gotten Hummer division is for sale, but with no openly anxious takers and with some sources suggesting a quick fold is the likely outcome.
At Ford, the Mercury unit has been a black hole for decades and simply must go by any rational assessment.
The company has stressed it has faith in the Lincoln luxury division - and it would be hard to suggest Ford forge ahead with no premium-market presence - but in coldly clinical terms (the kind that might be necessary to mollify a Congress running on high-horsepower skepticism of Big Three management acumen), Lincoln doesn't work and hasn't since the 1960s.
Tough Choices That Really Aren't That Tough
Generations of GM management have whined the company's multi-divisional structure is vibrant and productive. But the current financial and operational position of the company suggests current and past rationalizations for maintaining eight U.S. divisions are simply wrong. GM has squandered too much of its resources on maintaining a divisional configuration that cannot be supported by its diminished market share.
First to go should be Pontiac, the division that no longer has a singular brand image. The division once represented "rogue performance," but that's a fading memory even for the 60-something's who understand Pontiac's history. Now, front-wheel-drive economy cars side-by-side with rorting, Australian-made quasi-sport sedans is a formula that summarizes Pontiac's long drop to the end of the hangman's rope, GM's most obvious victim of badge engineering masquerading as marketing.
Equally ambiguous is Saturn's mission. Recent GM management frittered away the viable brand Saturn had developed, one based largely on the "no-hassle" sales experience and a certain cheap-but-unique cache with those who probably really wanted a Honda but couldn't bring themselves to desert the home team.
Saturn's current lineup is tragically composed of several singularly decent vehicles - the Outlook and the Aura being the most notable - all of which are badge-engineered versions of something Chevrolet already sells. Saturn was conceived solely for the reason the division was not to be like the rest of GM - now that's a memory, so there's nothing going on at Saturn that Chevy can't be doing.
GMC: "Upscale" trucks. In this day and age, why?
Buick probably is the stickiest problem (apart from how to legally and affordably disassociate from the dealers invested in these brands). Proponents argue somebody has to have something to sell to the mobile-and-aging-gracefully demographic, which is a growing market. Buick probably should stay to handle it. Global architectures (read: badge-engineering for the iPod age) make Buick at least a passably defensible proposition.
GM has never done much right by Saab, never mind lamentations recently installed brand shepherds now really, really - honestly! - understand Saab. They don't.
If they did, they wouldn't have killed the hatchback body style and they wouldn't have started stuffing in chesty V6s to spin the front wheels when the power-dense turbocharged 4-cylinders - for which Saab has contributed one of any GM brands' few legitimate marketable distinctions - were doing a fine job of it already.
Saab 9-3 convertible 2009.jpgThe Swedish government might be more than passingly interested in bringing Saab home. With Saab sales in freefall and the brand tracking to sell less than 25,000 units in the U.S. this year, GM might tell Congress it's figuring out a plan to do just that.
Ford Minus Mercury = Who Cares?
Like Pontiac, Mercury once meant something. We guess.
But just as John McCain's Vietnam experience had nil resonance with a generation of voters who know Vietnam only as the place where Nike builds sweatship shoes, Mercury sits as a laughable anachronism in 2009 America. Ford might as well be throwing in a 76-rpm Benny Goodman album - okay, cassette tape - with each new Milan.
And as with Saturn, there's nothing in the Mercury store Ford isn't already selling, just at lower price points. The ongoing existence of Mercury in defiance of rational explanation is testimony to the hidebound Detroit-think that has earned the Big Three their reputation as the wooly mammoths of the business world. That anyone is spending time - much less money - marketing Mercury in the Internet age is tantamount to criminal negligence, so it's hard to imagine Ford will step up next month in Washington, DC, with a business plan that includes this relic.
Lincoln is Ford's Buick. It might be argued that insisting Ford drop-kick Lincoln leaves the Dearborners defenseless in the lux market. It also could be argued that with Lincoln, Ford is defenseless in the luxury market. There, we said it.
2009 Lincoln MKS - facing left - 225.JPGTo maintain an upscale presence, Ford could ditch Lincoln and keep Volvo, with which many Ford models are deeply and perhaps now rather inconveniently cross-pollinated. Several Ford cars currently sit on Volvo platforms or modified versions of those platforms. All Volvos at least use Volvo-specific engines, making the potential for disentanglement from Ford somewhat less messy.
The situation comes to this: Lincoln or Volvo. There shouldn't be both; maybe not either. Ford paid almost $6.5 billion for Volvo and is unlikely to get anything approaching that figure now - in the event anybody's buying.
Sweden may be buying if the alternative is watching Volvo sink with Ford. If a deal for Volvo can be made, Ford would be wise to make it. Unless a deal already is in the works, it's unlikely a Volvo sell-off would be part of Ford's "sustainability" proposal to Congress.
But that doesn't change the realities: Volvo sales have been declining since 2004 and will hit a 15-year low this year. Despite Volvo's rich heritage, if Ford is to survive it may have little choice but to say, "Vi ses" to Volvo for whatever price it can get.
Talking about shedding brands is easy. Actually doing so is all but impossible under current legal and financial constraints. If brand-paring is a central cost-saving strategy presented by the Big Three, it is a gambit that will happen only with more extraordinary intervention from the lawmakers who are consistently rewriting the nation's free-market rules.
PHOTOS:
1. Wooly mammoth drawing (Penn State Univ.)
Wooly Mammoth.jpgFor at least a decade, critics have shouted down both GM and Ford for refusing to do what it now appears must be done - stop supporting underperforming divisions.
Rumors howling in Detroit's November winds point to brand-burning as one of the primary ways the companies plan to demonstrate to Congress they will be able to sustain their operations in a U.S. auto market that is expected to be decidedly unkind for all of 2009 and possibly well into 2010.For GM, that means a serious look is in order for Pontiac, GMC, Buick, Saab and Saturn. The ill-gotten Hummer division is for sale, but with no openly anxious takers and with some sources suggesting a quick fold is the likely outcome.
At Ford, the Mercury unit has been a black hole for decades and simply must go by any rational assessment.
The company has stressed it has faith in the Lincoln luxury division - and it would be hard to suggest Ford forge ahead with no premium-market presence - but in coldly clinical terms (the kind that might be necessary to mollify a Congress running on high-horsepower skepticism of Big Three management acumen), Lincoln doesn't work and hasn't since the 1960s.
Tough Choices That Really Aren't That Tough
Generations of GM management have whined the company's multi-divisional structure is vibrant and productive. But the current financial and operational position of the company suggests current and past rationalizations for maintaining eight U.S. divisions are simply wrong. GM has squandered too much of its resources on maintaining a divisional configuration that cannot be supported by its diminished market share.
First to go should be Pontiac, the division that no longer has a singular brand image. The division once represented "rogue performance," but that's a fading memory even for the 60-something's who understand Pontiac's history. Now, front-wheel-drive economy cars side-by-side with rorting, Australian-made quasi-sport sedans is a formula that summarizes Pontiac's long drop to the end of the hangman's rope, GM's most obvious victim of badge engineering masquerading as marketing.
Equally ambiguous is Saturn's mission. Recent GM management frittered away the viable brand Saturn had developed, one based largely on the "no-hassle" sales experience and a certain cheap-but-unique cache with those who probably really wanted a Honda but couldn't bring themselves to desert the home team.
Saturn's current lineup is tragically composed of several singularly decent vehicles - the Outlook and the Aura being the most notable - all of which are badge-engineered versions of something Chevrolet already sells. Saturn was conceived solely for the reason the division was not to be like the rest of GM - now that's a memory, so there's nothing going on at Saturn that Chevy can't be doing.
GMC: "Upscale" trucks. In this day and age, why?
Buick probably is the stickiest problem (apart from how to legally and affordably disassociate from the dealers invested in these brands). Proponents argue somebody has to have something to sell to the mobile-and-aging-gracefully demographic, which is a growing market. Buick probably should stay to handle it. Global architectures (read: badge-engineering for the iPod age) make Buick at least a passably defensible proposition.
GM has never done much right by Saab, never mind lamentations recently installed brand shepherds now really, really - honestly! - understand Saab. They don't.
If they did, they wouldn't have killed the hatchback body style and they wouldn't have started stuffing in chesty V6s to spin the front wheels when the power-dense turbocharged 4-cylinders - for which Saab has contributed one of any GM brands' few legitimate marketable distinctions - were doing a fine job of it already.
Saab 9-3 convertible 2009.jpgThe Swedish government might be more than passingly interested in bringing Saab home. With Saab sales in freefall and the brand tracking to sell less than 25,000 units in the U.S. this year, GM might tell Congress it's figuring out a plan to do just that.
Ford Minus Mercury = Who Cares?
Like Pontiac, Mercury once meant something. We guess.
But just as John McCain's Vietnam experience had nil resonance with a generation of voters who know Vietnam only as the place where Nike builds sweatship shoes, Mercury sits as a laughable anachronism in 2009 America. Ford might as well be throwing in a 76-rpm Benny Goodman album - okay, cassette tape - with each new Milan.
And as with Saturn, there's nothing in the Mercury store Ford isn't already selling, just at lower price points. The ongoing existence of Mercury in defiance of rational explanation is testimony to the hidebound Detroit-think that has earned the Big Three their reputation as the wooly mammoths of the business world. That anyone is spending time - much less money - marketing Mercury in the Internet age is tantamount to criminal negligence, so it's hard to imagine Ford will step up next month in Washington, DC, with a business plan that includes this relic.
Lincoln is Ford's Buick. It might be argued that insisting Ford drop-kick Lincoln leaves the Dearborners defenseless in the lux market. It also could be argued that with Lincoln, Ford is defenseless in the luxury market. There, we said it.
2009 Lincoln MKS - facing left - 225.JPGTo maintain an upscale presence, Ford could ditch Lincoln and keep Volvo, with which many Ford models are deeply and perhaps now rather inconveniently cross-pollinated. Several Ford cars currently sit on Volvo platforms or modified versions of those platforms. All Volvos at least use Volvo-specific engines, making the potential for disentanglement from Ford somewhat less messy.
The situation comes to this: Lincoln or Volvo. There shouldn't be both; maybe not either. Ford paid almost $6.5 billion for Volvo and is unlikely to get anything approaching that figure now - in the event anybody's buying.
Sweden may be buying if the alternative is watching Volvo sink with Ford. If a deal for Volvo can be made, Ford would be wise to make it. Unless a deal already is in the works, it's unlikely a Volvo sell-off would be part of Ford's "sustainability" proposal to Congress.
But that doesn't change the realities: Volvo sales have been declining since 2004 and will hit a 15-year low this year. Despite Volvo's rich heritage, if Ford is to survive it may have little choice but to say, "Vi ses" to Volvo for whatever price it can get.
Talking about shedding brands is easy. Actually doing so is all but impossible under current legal and financial constraints. If brand-paring is a central cost-saving strategy presented by the Big Three, it is a gambit that will happen only with more extraordinary intervention from the lawmakers who are consistently rewriting the nation's free-market rules.
PHOTOS:
1. Wooly mammoth drawing (Penn State Univ.)
For Bailout Blueprint, GM, Ford Might Finally Burn Rubber on Underperforming Brands
The plans the Detroit Three automakers are developing to submit on December 2 to Congress in justification for their entreated $25-billion federal loan probably are being more closely guarded than the manuscript for Sarah Palin's first book, but we can guess one aspect that seems certain to feature in the bailout blueprint of both Ford Motor Co. and General Motors Corp.: ditching some brands that have long dogged their ever-more-fragile bottom lines.
Wooly Mammoth.jpgFor at least a decade, critics have shouted down both GM and Ford for refusing to do what it now appears must be done - stop supporting underperforming divisions.
Rumors howling in Detroit's November winds point to brand-burning as one of the primary ways the companies plan to demonstrate to Congress they will be able to sustain their operations in a U.S. auto market that is expected to be decidedly unkind for all of 2009 and possibly well into 2010.
For GM, that means a serious look is in order for Pontiac, GMC, Buick, Saab and Saturn. The ill-gotten Hummer division is for sale, but with no openly anxious takers and with some sources suggesting a quick fold is the likely outcome.
At Ford, the Mercury unit has been a black hole for decades and simply must go by any rational assessment.
The company has stressed it has faith in the Lincoln luxury division - and it would be hard to suggest Ford forge ahead with no premium-market presence - but in coldly clinical terms (the kind that might be necessary to mollify a Congress running on high-horsepower skepticism of Big Three management acumen), Lincoln doesn't work and hasn't since the 1960s.
Tough Choices That Really Aren't That Tough
Generations of GM management have whined the company's multi-divisional structure is vibrant and productive. But the current financial and operational position of the company suggests current and past rationalizations for maintaining eight U.S. divisions are simply wrong. GM has squandered too much of its resources on maintaining a divisional configuration that cannot be supported by its diminished market share.
First to go should be Pontiac, the division that no longer has a singular brand image. The division once represented "rogue performance," but that's a fading memory even for the 60-something's who understand Pontiac's history. Now, front-wheel-drive economy cars side-by-side with rorting, Australian-made quasi-sport sedans is a formula that summarizes Pontiac's long drop to the end of the hangman's rope, GM's most obvious victim of badge engineering masquerading as marketing.
Equally ambiguous is Saturn's mission. Recent GM management frittered away the viable brand Saturn had developed, one based largely on the "no-hassle" sales experience and a certain cheap-but-unique cache with those who probably really wanted a Honda but couldn't bring themselves to desert the home team.
Saturn's current lineup is tragically composed of several singularly decent vehicles - the Outlook and the Aura being the most notable - all of which are badge-engineered versions of something Chevrolet already sells. Saturn was conceived solely for the reason the division was not to be like the rest of GM - now that's a memory, so there's nothing going on at Saturn that Chevy can't be doing.
GMC: "Upscale" trucks. In this day and age, why?
Buick probably is the stickiest problem (apart from how to legally and affordably disassociate from the dealers invested in these brands). Proponents argue somebody has to have something to sell to the mobile-and-aging-gracefully demographic, which is a growing market. Buick probably should stay to handle it. Global architectures (read: badge-engineering for the iPod age) make Buick at least a passably defensible proposition.
GM has never done much right by Saab, never mind lamentations recently installed brand shepherds now really, really - honestly! - understand Saab. They don't.
If they did, they wouldn't have killed the hatchback body style and they wouldn't have started stuffing in chesty V6s to spin the front wheels when the power-dense turbocharged 4-cylinders - for which Saab has contributed one of any GM brands' few legitimate marketable distinctions - were doing a fine job of it already.
Saab 9-3 convertible 2009.jpgThe Swedish government might be more than passingly interested in bringing Saab home. With Saab sales in freefall and the brand tracking to sell less than 25,000 units in the U.S. this year, GM might tell Congress it's figuring out a plan to do just that.
Ford Minus Mercury = Who Cares?
Like Pontiac, Mercury once meant something. We guess.
But just as John McCain's Vietnam experience had nil resonance with a generation of voters who know Vietnam only as the place where Nike builds sweatship shoes, Mercury sits as a laughable anachronism in 2009 America. Ford might as well be throwing in a 76-rpm Benny Goodman album - okay, cassette tape - with each new Milan.
And as with Saturn, there's nothing in the Mercury store Ford isn't already selling, just at lower price points. The ongoing existence of Mercury in defiance of rational explanation is testimony to the hidebound Detroit-think that has earned the Big Three their reputation as the wooly mammoths of the business world. That anyone is spending time - much less money - marketing Mercury in the Internet age is tantamount to criminal negligence, so it's hard to imagine Ford will step up next month in Washington, DC, with a business plan that includes this relic.
Lincoln is Ford's Buick. It might be argued that insisting Ford drop-kick Lincoln leaves the Dearborners defenseless in the lux market. It also could be argued that with Lincoln, Ford is defenseless in the luxury market. There, we said it.
2009 Lincoln MKS - facing left - 225.JPGTo maintain an upscale presence, Ford could ditch Lincoln and keep Volvo, with which many Ford models are deeply and perhaps now rather inconveniently cross-pollinated. Several Ford cars currently sit on Volvo platforms or modified versions of those platforms. All Volvos at least use Volvo-specific engines, making the potential for disentanglement from Ford somewhat less messy.
The situation comes to this: Lincoln or Volvo. There shouldn't be both; maybe not either. Ford paid almost $6.5 billion for Volvo and is unlikely to get anything approaching that figure now - in the event anybody's buying.
Sweden may be buying if the alternative is watching Volvo sink with Ford. If a deal for Volvo can be made, Ford would be wise to make it. Unless a deal already is in the works, it's unlikely a Volvo sell-off would be part of Ford's "sustainability" proposal to Congress.
But that doesn't change the realities: Volvo sales have been declining since 2004 and will hit a 15-year low this year. Despite Volvo's rich heritage, if Ford is to survive it may have little choice but to say, "Vi ses" to Volvo for whatever price it can get.
Talking about shedding brands is easy. Actually doing so is all but impossible under current legal and financial constraints. If brand-paring is a central cost-saving strategy presented by the Big Three, it is a gambit that will happen only with more extraordinary intervention from the lawmakers who are consistently rewriting the nation's free-market rules.
PHOTOS:
1. Wooly mammoth drawing (Penn State Univ.)
Wooly Mammoth.jpgFor at least a decade, critics have shouted down both GM and Ford for refusing to do what it now appears must be done - stop supporting underperforming divisions.
Rumors howling in Detroit's November winds point to brand-burning as one of the primary ways the companies plan to demonstrate to Congress they will be able to sustain their operations in a U.S. auto market that is expected to be decidedly unkind for all of 2009 and possibly well into 2010.For GM, that means a serious look is in order for Pontiac, GMC, Buick, Saab and Saturn. The ill-gotten Hummer division is for sale, but with no openly anxious takers and with some sources suggesting a quick fold is the likely outcome.
At Ford, the Mercury unit has been a black hole for decades and simply must go by any rational assessment.
The company has stressed it has faith in the Lincoln luxury division - and it would be hard to suggest Ford forge ahead with no premium-market presence - but in coldly clinical terms (the kind that might be necessary to mollify a Congress running on high-horsepower skepticism of Big Three management acumen), Lincoln doesn't work and hasn't since the 1960s.
Tough Choices That Really Aren't That Tough
Generations of GM management have whined the company's multi-divisional structure is vibrant and productive. But the current financial and operational position of the company suggests current and past rationalizations for maintaining eight U.S. divisions are simply wrong. GM has squandered too much of its resources on maintaining a divisional configuration that cannot be supported by its diminished market share.
First to go should be Pontiac, the division that no longer has a singular brand image. The division once represented "rogue performance," but that's a fading memory even for the 60-something's who understand Pontiac's history. Now, front-wheel-drive economy cars side-by-side with rorting, Australian-made quasi-sport sedans is a formula that summarizes Pontiac's long drop to the end of the hangman's rope, GM's most obvious victim of badge engineering masquerading as marketing.
Equally ambiguous is Saturn's mission. Recent GM management frittered away the viable brand Saturn had developed, one based largely on the "no-hassle" sales experience and a certain cheap-but-unique cache with those who probably really wanted a Honda but couldn't bring themselves to desert the home team.
Saturn's current lineup is tragically composed of several singularly decent vehicles - the Outlook and the Aura being the most notable - all of which are badge-engineered versions of something Chevrolet already sells. Saturn was conceived solely for the reason the division was not to be like the rest of GM - now that's a memory, so there's nothing going on at Saturn that Chevy can't be doing.
GMC: "Upscale" trucks. In this day and age, why?
Buick probably is the stickiest problem (apart from how to legally and affordably disassociate from the dealers invested in these brands). Proponents argue somebody has to have something to sell to the mobile-and-aging-gracefully demographic, which is a growing market. Buick probably should stay to handle it. Global architectures (read: badge-engineering for the iPod age) make Buick at least a passably defensible proposition.
GM has never done much right by Saab, never mind lamentations recently installed brand shepherds now really, really - honestly! - understand Saab. They don't.
If they did, they wouldn't have killed the hatchback body style and they wouldn't have started stuffing in chesty V6s to spin the front wheels when the power-dense turbocharged 4-cylinders - for which Saab has contributed one of any GM brands' few legitimate marketable distinctions - were doing a fine job of it already.
Saab 9-3 convertible 2009.jpgThe Swedish government might be more than passingly interested in bringing Saab home. With Saab sales in freefall and the brand tracking to sell less than 25,000 units in the U.S. this year, GM might tell Congress it's figuring out a plan to do just that.
Ford Minus Mercury = Who Cares?
Like Pontiac, Mercury once meant something. We guess.
But just as John McCain's Vietnam experience had nil resonance with a generation of voters who know Vietnam only as the place where Nike builds sweatship shoes, Mercury sits as a laughable anachronism in 2009 America. Ford might as well be throwing in a 76-rpm Benny Goodman album - okay, cassette tape - with each new Milan.
And as with Saturn, there's nothing in the Mercury store Ford isn't already selling, just at lower price points. The ongoing existence of Mercury in defiance of rational explanation is testimony to the hidebound Detroit-think that has earned the Big Three their reputation as the wooly mammoths of the business world. That anyone is spending time - much less money - marketing Mercury in the Internet age is tantamount to criminal negligence, so it's hard to imagine Ford will step up next month in Washington, DC, with a business plan that includes this relic.
Lincoln is Ford's Buick. It might be argued that insisting Ford drop-kick Lincoln leaves the Dearborners defenseless in the lux market. It also could be argued that with Lincoln, Ford is defenseless in the luxury market. There, we said it.
2009 Lincoln MKS - facing left - 225.JPGTo maintain an upscale presence, Ford could ditch Lincoln and keep Volvo, with which many Ford models are deeply and perhaps now rather inconveniently cross-pollinated. Several Ford cars currently sit on Volvo platforms or modified versions of those platforms. All Volvos at least use Volvo-specific engines, making the potential for disentanglement from Ford somewhat less messy.
The situation comes to this: Lincoln or Volvo. There shouldn't be both; maybe not either. Ford paid almost $6.5 billion for Volvo and is unlikely to get anything approaching that figure now - in the event anybody's buying.
Sweden may be buying if the alternative is watching Volvo sink with Ford. If a deal for Volvo can be made, Ford would be wise to make it. Unless a deal already is in the works, it's unlikely a Volvo sell-off would be part of Ford's "sustainability" proposal to Congress.
But that doesn't change the realities: Volvo sales have been declining since 2004 and will hit a 15-year low this year. Despite Volvo's rich heritage, if Ford is to survive it may have little choice but to say, "Vi ses" to Volvo for whatever price it can get.
Talking about shedding brands is easy. Actually doing so is all but impossible under current legal and financial constraints. If brand-paring is a central cost-saving strategy presented by the Big Three, it is a gambit that will happen only with more extraordinary intervention from the lawmakers who are consistently rewriting the nation's free-market rules.
PHOTOS:
1. Wooly mammoth drawing (Penn State Univ.)
Tuesday, November 25, 2008
Editorial: GM Death Watch 219: GM Prepackaged Reorganization
In recent congressional testimony GM admits that its’ experts are exploring the chapter 11 reorganization option, but GM argues that chapter 11 causes too many problems, including projected damage to the overall economy and to jobs dependent on auto manufacturing. Others argue that reorganization is needed, but should somehow take place outside of the time-tested legal process known as chapter 11. Sentiment is growing that a “prepackaged” chapter 11 case financed by taxpayers is the best way to solve both the business and financial problems of GM, and perhaps of other automakers.
What is a prepackaged chapter 11?
In a true“pre-packaged” reorganization the debtor proposes its reorganization plan and solicits votes before the chapter 11 case is filed. For companies with publicly traded debt and other securities, the advantage of a chapter 11 is that the debtor can restructure its debts without the holdout problem posed by exchange offers, while at the same time reducing delay and expense. A partial “prepack” involves a pre-petition solicitation only of certain classes of creditors (e.g., bondholders in the case of GM) and a post-filing solicitation of other classes of creditors, say unsecured suppliers to GM. Pre-filing voting on the reorganization plan is not essential if the parties have agreed in writing on how their claims will be treated under the plan, sometimes called a “pre-negotiated” prepack. A prepack does not have to immediately address every issue of every creditor group, and frequently smaller claims are resolved after a chapter 11 plan is approved. A chapter 11 filing also avoids the problem and delay caused by soliciting shareholder votes, since under a GM reorganization plan the common shareholders should receive nothing and therefore do not get to vote.
A prepackaged reorganization is not ideal for companies that must still undergo substantial changes to their operations or if the debtor seeks to terminate large numbers of unprofitable or burdensome contracts. However, GM’s restructuring/downsizing has been underway for a few years, plant closings are being implemented, employee layoffs have been accelerated, and GM is already making the necessary changes to address market realities.
A big advantage of chapter 11 is that the debtor can quickly and easily sell assets and operating divisions (e.g. Hummer, AC Delco) to create cash for ongoing operations, since the claims of persons affected by the sale are all funneled into the bankruptcy court for expedited resolution and the existence of disputes need not delay the sales. Pre-negotiated asset sales can be completed in a few weeks after a case is commenced, creating immediate cash for operations.
Why is a non-bankruptcy loan to GM a poor use of taxpayer money?
A lender to an insolvent company on the verge of bankruptcy wants its loan to be repaid and would not let loan proceeds be used to pay off existing liabilities. GM owes unsecured bondholders about $40 billion, and there is no indication that bondholders have agreed to standstill, waive interest payments, or to restructure the debt. GM’s Series D debt of $800 million comes due in June 2009, when GM must pay the debt, default or get bondholders to extend the maturity date. GM owes trade creditors about $28 billion and owes another $$34 billion in accrued expenses.
The legal obligations of GM to bondholders and trade creditors cannot be changed or modified without a bankruptcy case, or the written consent of each individual creditor, a near impossible task. Attempting to reorganize GM outside of a legal proceeding would encourage creditors to holdouts for special treatment, and delay any chance at restructuring
A commercial lender asked to support GM (which is insolvent on the basis of its balance sheet) would ask how paying the existing claims of bondholders and suppliers will help GM with its current cash flow problems, and would not consent to its loan proceeds being diverted to unsecured creditors. Without a chapter 11 case, taxpayer loans to GM could be used to pay interest on $40 billion of GM unsecured debt, and to pay the $800 million Series D debt coming due in June 2009. GM also must pay $7.5 billion to the retiree trust in January 2010, another liability it does not have funds to pay. Taxpayer money should not be used to bailout existing debt or to pay non-essential existing liabilities. The restructuring of GM’s payment obligations can be most quickly and effectively accomplished in a pre-packaged chapter 11 case.
What is involved in preparing a business plan and application for a chapter 11 “debtor-in-possession” loan?
In a prepackaged chapter 11 reorganization, the financing for the chapter 11 debtor is arranged and in place before the chapter 11 case is filed. The financing often includes a commitment to provide the “exit” financing which is used to fund the debtor’s obligations when its chapter 11 reorganization plan is approved by creditors and by the bankruptcy court. Given the current state of commercial credit markets, in GM’s situation the US Treasury probably will have to make the commitment for the reorganization plan exit financing. The reorganization plan will set forth the repayment terms for the existing secured debt, the new US Treasury loan and the Department of Energy (DOE) loan.
As with any loan application, the starting point for GM will be its current assets and liabilities, its cash flow and its realistic projections, all of which go into a measured calculation as to the borrower’s credit worthiness and ability to repay the loan, with interest. In chapter 11 cases the debtor prepares extremely detailed projections and budgets, taking into account the reduction in its current liabilities that result when the case is filed. For example, after the chapter 11 case is filed GM will no longer pay interest or principal on its unsecured debt. Chapter 11 lets GM stop paying liabilities incurred before the chapter 11 case is filed, thereby increasing cash available for operations. All these deferrals and changes to current liabilities are then reflected in the debtor’s cash flow projections.
How will retiree claims be treated in a pre-packaged chapter 11 case?
GM retiree claims primarily are unsecured claims, having the same priority as bondholders and other unsecured creditors. In January 2010 the UAW and its related retiree trust will assume most of GM’s retiree liabilities for current retirees. In January 2010 GM has to pay the retiree trust $7.5 billion in cash and other transfers of assets. The trust also receives a $4.4 billion GM convertible debt issue which is an unsecured claim against GM. Over ensuing years GM must pay the trust additional amounts estimated to be between $10 billion to $17 billion. A basic rule of bankruptcy is that claims having the same priority in payment get the same treatment under a chapter 11 reorganization plan. Thus, all unsecured claims, including claims of the retiree trust, should get the same treatment. In a pre-packaged chapter 11 case it is possible for creditors to agree on different treatment of claims having the same priority, but this invariably leads to more delay and expense.. . In a GM chapter 11 case these future payments to retirees are frozen, and are treated as unsecured claims, which means they will get a distribution under the GM reorganization plan.
What happens at the beginning of a pre-packaged chapter 11 case?
Despite assertions that reorganization in chapter 11 is not a realistic option, a company with pre-arranged financing is quite able to operate in chapter 11. In nearly every mega case where a restructuring of an operating business is contemplated, the bankruptcy court enters “first day orders” which are basically all the court approvals that the business in chapter 11 needs to continue to operate its business in the ordinary course. First day orders deal with everything from financing, to advance payments, approval of bank accounts, authority to honor customer warranty claims, and reimburse dealers—all the details needed to prevent disruption of the operating business. While it is definitely a lot of paperwork, legal and turnaround professionals do this type of work every day, and the courts routinely approve first day orders designed to save operating businesses.
GM’s assertion that millions of jobs will be “lost” ignores the simple fact that companies continue to operate their businesses while in chapter 11, albeit under a great deal of scrutiny. GM already finances its largest suppliers (Delphi and American Axle) and has a receivable financing program for other suppliers so that the suppliers have access to cash. These programs can continue in chapter 11, or even be improved. For example, GM could ask the reorganization court to approve cash pre-payments to essential suppliers. The past due claims of suppliers are unsecured claims and in bankruptcy have the same priority in payment as GM’s unsecured debt. In planning a prepack it is not unusual for the debtor, with the consent of its major creditors, to prepay critical suppliers before the prepack is filed.
What will creditors get in a pre-packaged GM reorganization plan?
A GM reorganization plan must be based on a realistic projection of future profitability, because these future cash flows will be used to determine the enterprise value of the reorganized company, and hence the value of new common shares which will be distributed under the plan. Fortunately for taxpayers, in a chapter 11 case the debtors’ financial projects are open to public scrutiny and to the comments and objections of creditors affected by the chapter 11 plan.
GM will not have resources to make a cash distribution to creditors, so the reorganization plan will involve a distribution of newly issued debt and new common stock, with the old debt and old common shares being extinguished. The new common stock will be listed on a national exchange and will have an immediately ascertainable value based on the financial projections that GM will have to produce to get creditor approval of its chapter 11 plan. Under the reorganization plan the trust for retirees should not receive payment on the $4.0 billion short term note, the $4.4 billion long term note, or its other claims against GM, but will get its pro rata share of the newly issued debt and common stock of reorganized GM. Since the new common stock will be publicly traded, it can be sold to fund retiree obligations assumed by the retiree trust. In a chapter 11 case creditors can also agree that retirees will get better treatment than is customary, but this requires a vote of creditors and special treatment is likely to be contentious and delay any chapter 11 case.
Government financing for a GM pre-packaged reorganization
A US Treasury non-bankruptcy equity investment in GM (i.e., purchase of GM preferred stock), is surely a bad investment for a company already balance sheet insolvent by more than $60 billion. A primary beneficiary of an equity type investment would be the existing unsecured bondholders and unsecured creditors, who would have a claim on the proceeds. Others suggest that taxpayers make an unsecured loan, but such a loan would have the same priority as the other $105 billion of existing GM liabilities, making loan repayment unlikely. Taxpayers should demand that any loan made to GM be made only in connection with GM’s chapter 11 filing, that it be fully secured, and only disbursed pursuant to detailed written budgets. Naturally, lenders to chapter 11 debtors insist on competent management, but also hire their own accountants and reorganization professionals so that the lender has an independent analysis and opinion of the debtor’s viability, business plans and the achievability of the debtor’s goals and financial projections.
In a pre-arranged chapter 11 case, the US Treasury could extend to GM a secured debtor-in-possession line of credit for say $40 billion, a line of credit secured by a first security interest on all GM assets, being junior only to GM’s existing secured line of credit of $4.4 billion. A portion of the US Treasury line of credit should be available to support essential suppliers through loans, letters of credit and pre-payments. On the first day of a pre-packaged chapter 11case the bankruptcy court is likely to give interim approval to a portion of the total credit line and have a hearing ten days later to approve the balance of the loan facility.
Since the government lacks experience in administering secured loans to insolvent companies in chapter 11 reorganization, it might be preferable to have the loan guaranteed by the US Treasury, but funds would be advanced periodically by a consortium of financial institutions experienced in lending to chapter 11 debtors, and able to monitor day to day compliance, with the terms and covenants of the loan. This would not eliminate oversight by the US Treasury and Congress, but the details of loan administration would be delegated to experts.
GM’s Chapter 11 reorganization plan can be expedited
Given the importance of US automakers to the economy and the need for a successful reorganization to preserve jobs, a GM chapter 11 reorganization case will be expedited. The chief judge can assign multiple judges to handle different aspects of the case, recognizing that speed is essential to a successful reorganization. Bondholders and other creditors should support expedited handling of their claims because a successful reorganization is the best way for creditors to realize value.
A pre-packaged plan can be approved quickly because the plan has been negotiated and accepted by creditors entitled to vote before the chapter 11 case is begun. In a partial “pre-pack”, the largest creditor groups informally approve the general principles of the plan before the case is filed, but formal solicitation and voting take place under the supervision of the bankruptcy court. By using accelerated schedules a prepack can be accomplished in months, not years. Pre-filing negotiations over the terms of the reorganization plan often result in agreement on difficult issues—payments to suppliers, support for the dealer network, honoring customer warranty claims, and even changes to employee work rules and benefits, and all of these agreements can be rapidly documented.
Treatment of claims and shareholders under a GM reorganization plan
Given GM’s own statements about its shortage of cash for the foreseeable future, it is unlikely that GM would make any cash distributions to existing creditors. Cash will be needed to retool plants, complete ongoing restructuring efforts, and to reassure trade creditors that enough cash is available so that trade creditors will extend new trade credit to GM.
Under a reorganization plan, creditors and shareholders are put in classes, with creditors having the same priority in payment often grouped in the same class. A simple GM reorganization plan would have the following elements:
-Taxpayers have a $40 billion first lien on all GM assets for monies lent by the US Treasury and the DOE. If GM’s debtor in possession financing cannot be refinanced by commercial banks, then taxpayers will finance GM’s exit from chapter 11. Taxpayers should get warrants for 10 % of GM’s new common shares to reward them for the risk of financing GM in Chapter 11.
-GM’s existing $4.4 billion secured line of credit will retain its lien on GM’s assets and be extended.
-Consumer warranty claims are expressly assumed under the chapter 11 plan.
-$40 billion of unsecured bondholder debt will receive its pro rata share of any new unsecured debt issued by GM and a pro rata share of GM’s new common shares. The common shares will trade on the public market and will have an immediately realizable value. No interest will be paid on any new debt until all taxpayer loans to GM are paid in full, with interest
-Trade payables of about $39 billion, the $17 to $27 billion owed to the retiree trust, and any other unsecured claims, also get their pro rata share of any new debt and new common shares.
-The retiree trust may merit special treatment, although potential future liabilities to the trust of $27 billion not only would weigh heavily on GM’s post reorganization success, but also would depress the market value of any new common shares issued by GM. With creditor consent, the retiree trust could receive subordinated debt, with future maturity dates timed to GM’s future profitability. Without access to GM’s cash flow projections, it is hard to suggest what treatment would be fair to retirees while still protecting GM’s other creditors.
-Old common shares do not vote on the plan, get no distribution, and are canceled. Existing stock options are eliminated
-A new board of directors selected by creditors is in charge of reorganized GM, with board representation for the major creditor constituencies.
GM’s Hypothetical Post-Reorganization Balance sheet
Projected Assets: $90 billion
Estimated Liabilities
$4.4 billion: existing secured line of credit
$10 billion: secured term note to US Treasury
$12 billion: secured term note to the Department of Energy (GM’s share of the DOE funds for alternative vehicles)
$1 billion: trust or secured letter of credit established to guarantee payment of consumer warranty claims
$2 billion: current tax liabilities
Subtotal: $29.4 billion of secured and priority claims
$9 billion: accrual for consumer product warranty liability
$10 billion: for current claims arising in during the chapter 11 case which will be paid by GM in the ordinary course of business
$5 billion: new unsecured debt (payment in kind) set aside for miscellaneous claims, with maturities deferred and no cash interest payment
$5 billion: subordinated debt, issued with laddered maturity dates timed to fund the retiree trust only if it runs out of money in the future
$15 billion: accrual for pension and retirement obligations for current employees
$5 billion: leases and other obligations, including liabilities to foreign subsidiaries
Subtotal: $39 billion of unsecured debt and unsecured liabilities
Total estimated liabilities: $78.4 billion
Equity distribution
90% of newly issued GM common shares distributed to bondholders, the retiree trust, and other unsecured creditors
10% of new equity reserved for the US Treasury
Final thoughts on labor, management and Detroit
The UAW represents labor in negotiations with GM management. GM’s management, not labor, has been behind the GM steering wheel as GM went over the Cliff of Insolvency. UAW negotiators are tough, well-informed professionals. The UAW is not inflexible; witness its recent agreement to defer $1.7 billion of payments to the retiree trust, a deferral which has helped GM stay alive. The UAW has its own staff of accountants and restructuring professionals who are prepared to sit down and negotiate and help GM propose a viable reorganization plan
GM’s board of directors, its management and the UAW have made mistakes, but their serious efforts to restructure GM should not be doubted. Rick Wagoner has spent 30 years at GM, but his efforts have been overtaken by circumstances. In reorganization the board will be replaced, as will some of the operations managers and senior executives. Undue criticism of GM’s management and the UAW distracts from the need to urgently develop and implement a viable pre-packaged reorganization plan. GM’s management needs to get down to business and develop a reorganization plan that will protect taxpayers and earn the support of Congress.
GM’s chapter 11 case should be filed in Detroit. The birthplace of the American auto industry should be the place of GM’s rebirth.
What is a prepackaged chapter 11?
In a true“pre-packaged” reorganization the debtor proposes its reorganization plan and solicits votes before the chapter 11 case is filed. For companies with publicly traded debt and other securities, the advantage of a chapter 11 is that the debtor can restructure its debts without the holdout problem posed by exchange offers, while at the same time reducing delay and expense. A partial “prepack” involves a pre-petition solicitation only of certain classes of creditors (e.g., bondholders in the case of GM) and a post-filing solicitation of other classes of creditors, say unsecured suppliers to GM. Pre-filing voting on the reorganization plan is not essential if the parties have agreed in writing on how their claims will be treated under the plan, sometimes called a “pre-negotiated” prepack. A prepack does not have to immediately address every issue of every creditor group, and frequently smaller claims are resolved after a chapter 11 plan is approved. A chapter 11 filing also avoids the problem and delay caused by soliciting shareholder votes, since under a GM reorganization plan the common shareholders should receive nothing and therefore do not get to vote.
A prepackaged reorganization is not ideal for companies that must still undergo substantial changes to their operations or if the debtor seeks to terminate large numbers of unprofitable or burdensome contracts. However, GM’s restructuring/downsizing has been underway for a few years, plant closings are being implemented, employee layoffs have been accelerated, and GM is already making the necessary changes to address market realities.
A big advantage of chapter 11 is that the debtor can quickly and easily sell assets and operating divisions (e.g. Hummer, AC Delco) to create cash for ongoing operations, since the claims of persons affected by the sale are all funneled into the bankruptcy court for expedited resolution and the existence of disputes need not delay the sales. Pre-negotiated asset sales can be completed in a few weeks after a case is commenced, creating immediate cash for operations.
Why is a non-bankruptcy loan to GM a poor use of taxpayer money?
A lender to an insolvent company on the verge of bankruptcy wants its loan to be repaid and would not let loan proceeds be used to pay off existing liabilities. GM owes unsecured bondholders about $40 billion, and there is no indication that bondholders have agreed to standstill, waive interest payments, or to restructure the debt. GM’s Series D debt of $800 million comes due in June 2009, when GM must pay the debt, default or get bondholders to extend the maturity date. GM owes trade creditors about $28 billion and owes another $$34 billion in accrued expenses.
The legal obligations of GM to bondholders and trade creditors cannot be changed or modified without a bankruptcy case, or the written consent of each individual creditor, a near impossible task. Attempting to reorganize GM outside of a legal proceeding would encourage creditors to holdouts for special treatment, and delay any chance at restructuring
A commercial lender asked to support GM (which is insolvent on the basis of its balance sheet) would ask how paying the existing claims of bondholders and suppliers will help GM with its current cash flow problems, and would not consent to its loan proceeds being diverted to unsecured creditors. Without a chapter 11 case, taxpayer loans to GM could be used to pay interest on $40 billion of GM unsecured debt, and to pay the $800 million Series D debt coming due in June 2009. GM also must pay $7.5 billion to the retiree trust in January 2010, another liability it does not have funds to pay. Taxpayer money should not be used to bailout existing debt or to pay non-essential existing liabilities. The restructuring of GM’s payment obligations can be most quickly and effectively accomplished in a pre-packaged chapter 11 case.
What is involved in preparing a business plan and application for a chapter 11 “debtor-in-possession” loan?
In a prepackaged chapter 11 reorganization, the financing for the chapter 11 debtor is arranged and in place before the chapter 11 case is filed. The financing often includes a commitment to provide the “exit” financing which is used to fund the debtor’s obligations when its chapter 11 reorganization plan is approved by creditors and by the bankruptcy court. Given the current state of commercial credit markets, in GM’s situation the US Treasury probably will have to make the commitment for the reorganization plan exit financing. The reorganization plan will set forth the repayment terms for the existing secured debt, the new US Treasury loan and the Department of Energy (DOE) loan.
As with any loan application, the starting point for GM will be its current assets and liabilities, its cash flow and its realistic projections, all of which go into a measured calculation as to the borrower’s credit worthiness and ability to repay the loan, with interest. In chapter 11 cases the debtor prepares extremely detailed projections and budgets, taking into account the reduction in its current liabilities that result when the case is filed. For example, after the chapter 11 case is filed GM will no longer pay interest or principal on its unsecured debt. Chapter 11 lets GM stop paying liabilities incurred before the chapter 11 case is filed, thereby increasing cash available for operations. All these deferrals and changes to current liabilities are then reflected in the debtor’s cash flow projections.
How will retiree claims be treated in a pre-packaged chapter 11 case?
GM retiree claims primarily are unsecured claims, having the same priority as bondholders and other unsecured creditors. In January 2010 the UAW and its related retiree trust will assume most of GM’s retiree liabilities for current retirees. In January 2010 GM has to pay the retiree trust $7.5 billion in cash and other transfers of assets. The trust also receives a $4.4 billion GM convertible debt issue which is an unsecured claim against GM. Over ensuing years GM must pay the trust additional amounts estimated to be between $10 billion to $17 billion. A basic rule of bankruptcy is that claims having the same priority in payment get the same treatment under a chapter 11 reorganization plan. Thus, all unsecured claims, including claims of the retiree trust, should get the same treatment. In a pre-packaged chapter 11 case it is possible for creditors to agree on different treatment of claims having the same priority, but this invariably leads to more delay and expense.. . In a GM chapter 11 case these future payments to retirees are frozen, and are treated as unsecured claims, which means they will get a distribution under the GM reorganization plan.
What happens at the beginning of a pre-packaged chapter 11 case?
Despite assertions that reorganization in chapter 11 is not a realistic option, a company with pre-arranged financing is quite able to operate in chapter 11. In nearly every mega case where a restructuring of an operating business is contemplated, the bankruptcy court enters “first day orders” which are basically all the court approvals that the business in chapter 11 needs to continue to operate its business in the ordinary course. First day orders deal with everything from financing, to advance payments, approval of bank accounts, authority to honor customer warranty claims, and reimburse dealers—all the details needed to prevent disruption of the operating business. While it is definitely a lot of paperwork, legal and turnaround professionals do this type of work every day, and the courts routinely approve first day orders designed to save operating businesses.
GM’s assertion that millions of jobs will be “lost” ignores the simple fact that companies continue to operate their businesses while in chapter 11, albeit under a great deal of scrutiny. GM already finances its largest suppliers (Delphi and American Axle) and has a receivable financing program for other suppliers so that the suppliers have access to cash. These programs can continue in chapter 11, or even be improved. For example, GM could ask the reorganization court to approve cash pre-payments to essential suppliers. The past due claims of suppliers are unsecured claims and in bankruptcy have the same priority in payment as GM’s unsecured debt. In planning a prepack it is not unusual for the debtor, with the consent of its major creditors, to prepay critical suppliers before the prepack is filed.
What will creditors get in a pre-packaged GM reorganization plan?
A GM reorganization plan must be based on a realistic projection of future profitability, because these future cash flows will be used to determine the enterprise value of the reorganized company, and hence the value of new common shares which will be distributed under the plan. Fortunately for taxpayers, in a chapter 11 case the debtors’ financial projects are open to public scrutiny and to the comments and objections of creditors affected by the chapter 11 plan.
GM will not have resources to make a cash distribution to creditors, so the reorganization plan will involve a distribution of newly issued debt and new common stock, with the old debt and old common shares being extinguished. The new common stock will be listed on a national exchange and will have an immediately ascertainable value based on the financial projections that GM will have to produce to get creditor approval of its chapter 11 plan. Under the reorganization plan the trust for retirees should not receive payment on the $4.0 billion short term note, the $4.4 billion long term note, or its other claims against GM, but will get its pro rata share of the newly issued debt and common stock of reorganized GM. Since the new common stock will be publicly traded, it can be sold to fund retiree obligations assumed by the retiree trust. In a chapter 11 case creditors can also agree that retirees will get better treatment than is customary, but this requires a vote of creditors and special treatment is likely to be contentious and delay any chapter 11 case.
Government financing for a GM pre-packaged reorganization
A US Treasury non-bankruptcy equity investment in GM (i.e., purchase of GM preferred stock), is surely a bad investment for a company already balance sheet insolvent by more than $60 billion. A primary beneficiary of an equity type investment would be the existing unsecured bondholders and unsecured creditors, who would have a claim on the proceeds. Others suggest that taxpayers make an unsecured loan, but such a loan would have the same priority as the other $105 billion of existing GM liabilities, making loan repayment unlikely. Taxpayers should demand that any loan made to GM be made only in connection with GM’s chapter 11 filing, that it be fully secured, and only disbursed pursuant to detailed written budgets. Naturally, lenders to chapter 11 debtors insist on competent management, but also hire their own accountants and reorganization professionals so that the lender has an independent analysis and opinion of the debtor’s viability, business plans and the achievability of the debtor’s goals and financial projections.
In a pre-arranged chapter 11 case, the US Treasury could extend to GM a secured debtor-in-possession line of credit for say $40 billion, a line of credit secured by a first security interest on all GM assets, being junior only to GM’s existing secured line of credit of $4.4 billion. A portion of the US Treasury line of credit should be available to support essential suppliers through loans, letters of credit and pre-payments. On the first day of a pre-packaged chapter 11case the bankruptcy court is likely to give interim approval to a portion of the total credit line and have a hearing ten days later to approve the balance of the loan facility.
Since the government lacks experience in administering secured loans to insolvent companies in chapter 11 reorganization, it might be preferable to have the loan guaranteed by the US Treasury, but funds would be advanced periodically by a consortium of financial institutions experienced in lending to chapter 11 debtors, and able to monitor day to day compliance, with the terms and covenants of the loan. This would not eliminate oversight by the US Treasury and Congress, but the details of loan administration would be delegated to experts.
GM’s Chapter 11 reorganization plan can be expedited
Given the importance of US automakers to the economy and the need for a successful reorganization to preserve jobs, a GM chapter 11 reorganization case will be expedited. The chief judge can assign multiple judges to handle different aspects of the case, recognizing that speed is essential to a successful reorganization. Bondholders and other creditors should support expedited handling of their claims because a successful reorganization is the best way for creditors to realize value.
A pre-packaged plan can be approved quickly because the plan has been negotiated and accepted by creditors entitled to vote before the chapter 11 case is begun. In a partial “pre-pack”, the largest creditor groups informally approve the general principles of the plan before the case is filed, but formal solicitation and voting take place under the supervision of the bankruptcy court. By using accelerated schedules a prepack can be accomplished in months, not years. Pre-filing negotiations over the terms of the reorganization plan often result in agreement on difficult issues—payments to suppliers, support for the dealer network, honoring customer warranty claims, and even changes to employee work rules and benefits, and all of these agreements can be rapidly documented.
Treatment of claims and shareholders under a GM reorganization plan
Given GM’s own statements about its shortage of cash for the foreseeable future, it is unlikely that GM would make any cash distributions to existing creditors. Cash will be needed to retool plants, complete ongoing restructuring efforts, and to reassure trade creditors that enough cash is available so that trade creditors will extend new trade credit to GM.
Under a reorganization plan, creditors and shareholders are put in classes, with creditors having the same priority in payment often grouped in the same class. A simple GM reorganization plan would have the following elements:
-Taxpayers have a $40 billion first lien on all GM assets for monies lent by the US Treasury and the DOE. If GM’s debtor in possession financing cannot be refinanced by commercial banks, then taxpayers will finance GM’s exit from chapter 11. Taxpayers should get warrants for 10 % of GM’s new common shares to reward them for the risk of financing GM in Chapter 11.
-GM’s existing $4.4 billion secured line of credit will retain its lien on GM’s assets and be extended.
-Consumer warranty claims are expressly assumed under the chapter 11 plan.
-$40 billion of unsecured bondholder debt will receive its pro rata share of any new unsecured debt issued by GM and a pro rata share of GM’s new common shares. The common shares will trade on the public market and will have an immediately realizable value. No interest will be paid on any new debt until all taxpayer loans to GM are paid in full, with interest
-Trade payables of about $39 billion, the $17 to $27 billion owed to the retiree trust, and any other unsecured claims, also get their pro rata share of any new debt and new common shares.
-The retiree trust may merit special treatment, although potential future liabilities to the trust of $27 billion not only would weigh heavily on GM’s post reorganization success, but also would depress the market value of any new common shares issued by GM. With creditor consent, the retiree trust could receive subordinated debt, with future maturity dates timed to GM’s future profitability. Without access to GM’s cash flow projections, it is hard to suggest what treatment would be fair to retirees while still protecting GM’s other creditors.
-Old common shares do not vote on the plan, get no distribution, and are canceled. Existing stock options are eliminated
-A new board of directors selected by creditors is in charge of reorganized GM, with board representation for the major creditor constituencies.
GM’s Hypothetical Post-Reorganization Balance sheet
Projected Assets: $90 billion
Estimated Liabilities
$4.4 billion: existing secured line of credit
$10 billion: secured term note to US Treasury
$12 billion: secured term note to the Department of Energy (GM’s share of the DOE funds for alternative vehicles)
$1 billion: trust or secured letter of credit established to guarantee payment of consumer warranty claims
$2 billion: current tax liabilities
Subtotal: $29.4 billion of secured and priority claims
$9 billion: accrual for consumer product warranty liability
$10 billion: for current claims arising in during the chapter 11 case which will be paid by GM in the ordinary course of business
$5 billion: new unsecured debt (payment in kind) set aside for miscellaneous claims, with maturities deferred and no cash interest payment
$5 billion: subordinated debt, issued with laddered maturity dates timed to fund the retiree trust only if it runs out of money in the future
$15 billion: accrual for pension and retirement obligations for current employees
$5 billion: leases and other obligations, including liabilities to foreign subsidiaries
Subtotal: $39 billion of unsecured debt and unsecured liabilities
Total estimated liabilities: $78.4 billion
Equity distribution
90% of newly issued GM common shares distributed to bondholders, the retiree trust, and other unsecured creditors
10% of new equity reserved for the US Treasury
Final thoughts on labor, management and Detroit
The UAW represents labor in negotiations with GM management. GM’s management, not labor, has been behind the GM steering wheel as GM went over the Cliff of Insolvency. UAW negotiators are tough, well-informed professionals. The UAW is not inflexible; witness its recent agreement to defer $1.7 billion of payments to the retiree trust, a deferral which has helped GM stay alive. The UAW has its own staff of accountants and restructuring professionals who are prepared to sit down and negotiate and help GM propose a viable reorganization plan
GM’s board of directors, its management and the UAW have made mistakes, but their serious efforts to restructure GM should not be doubted. Rick Wagoner has spent 30 years at GM, but his efforts have been overtaken by circumstances. In reorganization the board will be replaced, as will some of the operations managers and senior executives. Undue criticism of GM’s management and the UAW distracts from the need to urgently develop and implement a viable pre-packaged reorganization plan. GM’s management needs to get down to business and develop a reorganization plan that will protect taxpayers and earn the support of Congress.
GM’s chapter 11 case should be filed in Detroit. The birthplace of the American auto industry should be the place of GM’s rebirth.
Editorial: GM Death Watch 219: GM Prepackaged Reorganization
In recent congressional testimony GM admits that its’ experts are exploring the chapter 11 reorganization option, but GM argues that chapter 11 causes too many problems, including projected damage to the overall economy and to jobs dependent on auto manufacturing. Others argue that reorganization is needed, but should somehow take place outside of the time-tested legal process known as chapter 11. Sentiment is growing that a “prepackaged” chapter 11 case financed by taxpayers is the best way to solve both the business and financial problems of GM, and perhaps of other automakers.
What is a prepackaged chapter 11?
In a true“pre-packaged” reorganization the debtor proposes its reorganization plan and solicits votes before the chapter 11 case is filed. For companies with publicly traded debt and other securities, the advantage of a chapter 11 is that the debtor can restructure its debts without the holdout problem posed by exchange offers, while at the same time reducing delay and expense. A partial “prepack” involves a pre-petition solicitation only of certain classes of creditors (e.g., bondholders in the case of GM) and a post-filing solicitation of other classes of creditors, say unsecured suppliers to GM. Pre-filing voting on the reorganization plan is not essential if the parties have agreed in writing on how their claims will be treated under the plan, sometimes called a “pre-negotiated” prepack. A prepack does not have to immediately address every issue of every creditor group, and frequently smaller claims are resolved after a chapter 11 plan is approved. A chapter 11 filing also avoids the problem and delay caused by soliciting shareholder votes, since under a GM reorganization plan the common shareholders should receive nothing and therefore do not get to vote.
A prepackaged reorganization is not ideal for companies that must still undergo substantial changes to their operations or if the debtor seeks to terminate large numbers of unprofitable or burdensome contracts. However, GM’s restructuring/downsizing has been underway for a few years, plant closings are being implemented, employee layoffs have been accelerated, and GM is already making the necessary changes to address market realities.
A big advantage of chapter 11 is that the debtor can quickly and easily sell assets and operating divisions (e.g. Hummer, AC Delco) to create cash for ongoing operations, since the claims of persons affected by the sale are all funneled into the bankruptcy court for expedited resolution and the existence of disputes need not delay the sales. Pre-negotiated asset sales can be completed in a few weeks after a case is commenced, creating immediate cash for operations.
Why is a non-bankruptcy loan to GM a poor use of taxpayer money?
A lender to an insolvent company on the verge of bankruptcy wants its loan to be repaid and would not let loan proceeds be used to pay off existing liabilities. GM owes unsecured bondholders about $40 billion, and there is no indication that bondholders have agreed to standstill, waive interest payments, or to restructure the debt. GM’s Series D debt of $800 million comes due in June 2009, when GM must pay the debt, default or get bondholders to extend the maturity date. GM owes trade creditors about $28 billion and owes another $$34 billion in accrued expenses.
The legal obligations of GM to bondholders and trade creditors cannot be changed or modified without a bankruptcy case, or the written consent of each individual creditor, a near impossible task. Attempting to reorganize GM outside of a legal proceeding would encourage creditors to holdouts for special treatment, and delay any chance at restructuring
A commercial lender asked to support GM (which is insolvent on the basis of its balance sheet) would ask how paying the existing claims of bondholders and suppliers will help GM with its current cash flow problems, and would not consent to its loan proceeds being diverted to unsecured creditors. Without a chapter 11 case, taxpayer loans to GM could be used to pay interest on $40 billion of GM unsecured debt, and to pay the $800 million Series D debt coming due in June 2009. GM also must pay $7.5 billion to the retiree trust in January 2010, another liability it does not have funds to pay. Taxpayer money should not be used to bailout existing debt or to pay non-essential existing liabilities. The restructuring of GM’s payment obligations can be most quickly and effectively accomplished in a pre-packaged chapter 11 case.
What is involved in preparing a business plan and application for a chapter 11 “debtor-in-possession” loan?
In a prepackaged chapter 11 reorganization, the financing for the chapter 11 debtor is arranged and in place before the chapter 11 case is filed. The financing often includes a commitment to provide the “exit” financing which is used to fund the debtor’s obligations when its chapter 11 reorganization plan is approved by creditors and by the bankruptcy court. Given the current state of commercial credit markets, in GM’s situation the US Treasury probably will have to make the commitment for the reorganization plan exit financing. The reorganization plan will set forth the repayment terms for the existing secured debt, the new US Treasury loan and the Department of Energy (DOE) loan.
As with any loan application, the starting point for GM will be its current assets and liabilities, its cash flow and its realistic projections, all of which go into a measured calculation as to the borrower’s credit worthiness and ability to repay the loan, with interest. In chapter 11 cases the debtor prepares extremely detailed projections and budgets, taking into account the reduction in its current liabilities that result when the case is filed. For example, after the chapter 11 case is filed GM will no longer pay interest or principal on its unsecured debt. Chapter 11 lets GM stop paying liabilities incurred before the chapter 11 case is filed, thereby increasing cash available for operations. All these deferrals and changes to current liabilities are then reflected in the debtor’s cash flow projections.
How will retiree claims be treated in a pre-packaged chapter 11 case?
GM retiree claims primarily are unsecured claims, having the same priority as bondholders and other unsecured creditors. In January 2010 the UAW and its related retiree trust will assume most of GM’s retiree liabilities for current retirees. In January 2010 GM has to pay the retiree trust $7.5 billion in cash and other transfers of assets. The trust also receives a $4.4 billion GM convertible debt issue which is an unsecured claim against GM. Over ensuing years GM must pay the trust additional amounts estimated to be between $10 billion to $17 billion. A basic rule of bankruptcy is that claims having the same priority in payment get the same treatment under a chapter 11 reorganization plan. Thus, all unsecured claims, including claims of the retiree trust, should get the same treatment. In a pre-packaged chapter 11 case it is possible for creditors to agree on different treatment of claims having the same priority, but this invariably leads to more delay and expense.. . In a GM chapter 11 case these future payments to retirees are frozen, and are treated as unsecured claims, which means they will get a distribution under the GM reorganization plan.
What happens at the beginning of a pre-packaged chapter 11 case?
Despite assertions that reorganization in chapter 11 is not a realistic option, a company with pre-arranged financing is quite able to operate in chapter 11. In nearly every mega case where a restructuring of an operating business is contemplated, the bankruptcy court enters “first day orders” which are basically all the court approvals that the business in chapter 11 needs to continue to operate its business in the ordinary course. First day orders deal with everything from financing, to advance payments, approval of bank accounts, authority to honor customer warranty claims, and reimburse dealers—all the details needed to prevent disruption of the operating business. While it is definitely a lot of paperwork, legal and turnaround professionals do this type of work every day, and the courts routinely approve first day orders designed to save operating businesses.
GM’s assertion that millions of jobs will be “lost” ignores the simple fact that companies continue to operate their businesses while in chapter 11, albeit under a great deal of scrutiny. GM already finances its largest suppliers (Delphi and American Axle) and has a receivable financing program for other suppliers so that the suppliers have access to cash. These programs can continue in chapter 11, or even be improved. For example, GM could ask the reorganization court to approve cash pre-payments to essential suppliers. The past due claims of suppliers are unsecured claims and in bankruptcy have the same priority in payment as GM’s unsecured debt. In planning a prepack it is not unusual for the debtor, with the consent of its major creditors, to prepay critical suppliers before the prepack is filed.
What will creditors get in a pre-packaged GM reorganization plan?
A GM reorganization plan must be based on a realistic projection of future profitability, because these future cash flows will be used to determine the enterprise value of the reorganized company, and hence the value of new common shares which will be distributed under the plan. Fortunately for taxpayers, in a chapter 11 case the debtors’ financial projects are open to public scrutiny and to the comments and objections of creditors affected by the chapter 11 plan.
GM will not have resources to make a cash distribution to creditors, so the reorganization plan will involve a distribution of newly issued debt and new common stock, with the old debt and old common shares being extinguished. The new common stock will be listed on a national exchange and will have an immediately ascertainable value based on the financial projections that GM will have to produce to get creditor approval of its chapter 11 plan. Under the reorganization plan the trust for retirees should not receive payment on the $4.0 billion short term note, the $4.4 billion long term note, or its other claims against GM, but will get its pro rata share of the newly issued debt and common stock of reorganized GM. Since the new common stock will be publicly traded, it can be sold to fund retiree obligations assumed by the retiree trust. In a chapter 11 case creditors can also agree that retirees will get better treatment than is customary, but this requires a vote of creditors and special treatment is likely to be contentious and delay any chapter 11 case.
Government financing for a GM pre-packaged reorganization
A US Treasury non-bankruptcy equity investment in GM (i.e., purchase of GM preferred stock), is surely a bad investment for a company already balance sheet insolvent by more than $60 billion. A primary beneficiary of an equity type investment would be the existing unsecured bondholders and unsecured creditors, who would have a claim on the proceeds. Others suggest that taxpayers make an unsecured loan, but such a loan would have the same priority as the other $105 billion of existing GM liabilities, making loan repayment unlikely. Taxpayers should demand that any loan made to GM be made only in connection with GM’s chapter 11 filing, that it be fully secured, and only disbursed pursuant to detailed written budgets. Naturally, lenders to chapter 11 debtors insist on competent management, but also hire their own accountants and reorganization professionals so that the lender has an independent analysis and opinion of the debtor’s viability, business plans and the achievability of the debtor’s goals and financial projections.
In a pre-arranged chapter 11 case, the US Treasury could extend to GM a secured debtor-in-possession line of credit for say $40 billion, a line of credit secured by a first security interest on all GM assets, being junior only to GM’s existing secured line of credit of $4.4 billion. A portion of the US Treasury line of credit should be available to support essential suppliers through loans, letters of credit and pre-payments. On the first day of a pre-packaged chapter 11case the bankruptcy court is likely to give interim approval to a portion of the total credit line and have a hearing ten days later to approve the balance of the loan facility.
Since the government lacks experience in administering secured loans to insolvent companies in chapter 11 reorganization, it might be preferable to have the loan guaranteed by the US Treasury, but funds would be advanced periodically by a consortium of financial institutions experienced in lending to chapter 11 debtors, and able to monitor day to day compliance, with the terms and covenants of the loan. This would not eliminate oversight by the US Treasury and Congress, but the details of loan administration would be delegated to experts.
GM’s Chapter 11 reorganization plan can be expedited
Given the importance of US automakers to the economy and the need for a successful reorganization to preserve jobs, a GM chapter 11 reorganization case will be expedited. The chief judge can assign multiple judges to handle different aspects of the case, recognizing that speed is essential to a successful reorganization. Bondholders and other creditors should support expedited handling of their claims because a successful reorganization is the best way for creditors to realize value.
A pre-packaged plan can be approved quickly because the plan has been negotiated and accepted by creditors entitled to vote before the chapter 11 case is begun. In a partial “pre-pack”, the largest creditor groups informally approve the general principles of the plan before the case is filed, but formal solicitation and voting take place under the supervision of the bankruptcy court. By using accelerated schedules a prepack can be accomplished in months, not years. Pre-filing negotiations over the terms of the reorganization plan often result in agreement on difficult issues—payments to suppliers, support for the dealer network, honoring customer warranty claims, and even changes to employee work rules and benefits, and all of these agreements can be rapidly documented.
Treatment of claims and shareholders under a GM reorganization plan
Given GM’s own statements about its shortage of cash for the foreseeable future, it is unlikely that GM would make any cash distributions to existing creditors. Cash will be needed to retool plants, complete ongoing restructuring efforts, and to reassure trade creditors that enough cash is available so that trade creditors will extend new trade credit to GM.
Under a reorganization plan, creditors and shareholders are put in classes, with creditors having the same priority in payment often grouped in the same class. A simple GM reorganization plan would have the following elements:
-Taxpayers have a $40 billion first lien on all GM assets for monies lent by the US Treasury and the DOE. If GM’s debtor in possession financing cannot be refinanced by commercial banks, then taxpayers will finance GM’s exit from chapter 11. Taxpayers should get warrants for 10 % of GM’s new common shares to reward them for the risk of financing GM in Chapter 11.
-GM’s existing $4.4 billion secured line of credit will retain its lien on GM’s assets and be extended.
-Consumer warranty claims are expressly assumed under the chapter 11 plan.
-$40 billion of unsecured bondholder debt will receive its pro rata share of any new unsecured debt issued by GM and a pro rata share of GM’s new common shares. The common shares will trade on the public market and will have an immediately realizable value. No interest will be paid on any new debt until all taxpayer loans to GM are paid in full, with interest
-Trade payables of about $39 billion, the $17 to $27 billion owed to the retiree trust, and any other unsecured claims, also get their pro rata share of any new debt and new common shares.
-The retiree trust may merit special treatment, although potential future liabilities to the trust of $27 billion not only would weigh heavily on GM’s post reorganization success, but also would depress the market value of any new common shares issued by GM. With creditor consent, the retiree trust could receive subordinated debt, with future maturity dates timed to GM’s future profitability. Without access to GM’s cash flow projections, it is hard to suggest what treatment would be fair to retirees while still protecting GM’s other creditors.
-Old common shares do not vote on the plan, get no distribution, and are canceled. Existing stock options are eliminated
-A new board of directors selected by creditors is in charge of reorganized GM, with board representation for the major creditor constituencies.
GM’s Hypothetical Post-Reorganization Balance sheet
Projected Assets: $90 billion
Estimated Liabilities
$4.4 billion: existing secured line of credit
$10 billion: secured term note to US Treasury
$12 billion: secured term note to the Department of Energy (GM’s share of the DOE funds for alternative vehicles)
$1 billion: trust or secured letter of credit established to guarantee payment of consumer warranty claims
$2 billion: current tax liabilities
Subtotal: $29.4 billion of secured and priority claims
$9 billion: accrual for consumer product warranty liability
$10 billion: for current claims arising in during the chapter 11 case which will be paid by GM in the ordinary course of business
$5 billion: new unsecured debt (payment in kind) set aside for miscellaneous claims, with maturities deferred and no cash interest payment
$5 billion: subordinated debt, issued with laddered maturity dates timed to fund the retiree trust only if it runs out of money in the future
$15 billion: accrual for pension and retirement obligations for current employees
$5 billion: leases and other obligations, including liabilities to foreign subsidiaries
Subtotal: $39 billion of unsecured debt and unsecured liabilities
Total estimated liabilities: $78.4 billion
Equity distribution
90% of newly issued GM common shares distributed to bondholders, the retiree trust, and other unsecured creditors
10% of new equity reserved for the US Treasury
Final thoughts on labor, management and Detroit
The UAW represents labor in negotiations with GM management. GM’s management, not labor, has been behind the GM steering wheel as GM went over the Cliff of Insolvency. UAW negotiators are tough, well-informed professionals. The UAW is not inflexible; witness its recent agreement to defer $1.7 billion of payments to the retiree trust, a deferral which has helped GM stay alive. The UAW has its own staff of accountants and restructuring professionals who are prepared to sit down and negotiate and help GM propose a viable reorganization plan
GM’s board of directors, its management and the UAW have made mistakes, but their serious efforts to restructure GM should not be doubted. Rick Wagoner has spent 30 years at GM, but his efforts have been overtaken by circumstances. In reorganization the board will be replaced, as will some of the operations managers and senior executives. Undue criticism of GM’s management and the UAW distracts from the need to urgently develop and implement a viable pre-packaged reorganization plan. GM’s management needs to get down to business and develop a reorganization plan that will protect taxpayers and earn the support of Congress.
GM’s chapter 11 case should be filed in Detroit. The birthplace of the American auto industry should be the place of GM’s rebirth.
What is a prepackaged chapter 11?
In a true“pre-packaged” reorganization the debtor proposes its reorganization plan and solicits votes before the chapter 11 case is filed. For companies with publicly traded debt and other securities, the advantage of a chapter 11 is that the debtor can restructure its debts without the holdout problem posed by exchange offers, while at the same time reducing delay and expense. A partial “prepack” involves a pre-petition solicitation only of certain classes of creditors (e.g., bondholders in the case of GM) and a post-filing solicitation of other classes of creditors, say unsecured suppliers to GM. Pre-filing voting on the reorganization plan is not essential if the parties have agreed in writing on how their claims will be treated under the plan, sometimes called a “pre-negotiated” prepack. A prepack does not have to immediately address every issue of every creditor group, and frequently smaller claims are resolved after a chapter 11 plan is approved. A chapter 11 filing also avoids the problem and delay caused by soliciting shareholder votes, since under a GM reorganization plan the common shareholders should receive nothing and therefore do not get to vote.
A prepackaged reorganization is not ideal for companies that must still undergo substantial changes to their operations or if the debtor seeks to terminate large numbers of unprofitable or burdensome contracts. However, GM’s restructuring/downsizing has been underway for a few years, plant closings are being implemented, employee layoffs have been accelerated, and GM is already making the necessary changes to address market realities.
A big advantage of chapter 11 is that the debtor can quickly and easily sell assets and operating divisions (e.g. Hummer, AC Delco) to create cash for ongoing operations, since the claims of persons affected by the sale are all funneled into the bankruptcy court for expedited resolution and the existence of disputes need not delay the sales. Pre-negotiated asset sales can be completed in a few weeks after a case is commenced, creating immediate cash for operations.
Why is a non-bankruptcy loan to GM a poor use of taxpayer money?
A lender to an insolvent company on the verge of bankruptcy wants its loan to be repaid and would not let loan proceeds be used to pay off existing liabilities. GM owes unsecured bondholders about $40 billion, and there is no indication that bondholders have agreed to standstill, waive interest payments, or to restructure the debt. GM’s Series D debt of $800 million comes due in June 2009, when GM must pay the debt, default or get bondholders to extend the maturity date. GM owes trade creditors about $28 billion and owes another $$34 billion in accrued expenses.
The legal obligations of GM to bondholders and trade creditors cannot be changed or modified without a bankruptcy case, or the written consent of each individual creditor, a near impossible task. Attempting to reorganize GM outside of a legal proceeding would encourage creditors to holdouts for special treatment, and delay any chance at restructuring
A commercial lender asked to support GM (which is insolvent on the basis of its balance sheet) would ask how paying the existing claims of bondholders and suppliers will help GM with its current cash flow problems, and would not consent to its loan proceeds being diverted to unsecured creditors. Without a chapter 11 case, taxpayer loans to GM could be used to pay interest on $40 billion of GM unsecured debt, and to pay the $800 million Series D debt coming due in June 2009. GM also must pay $7.5 billion to the retiree trust in January 2010, another liability it does not have funds to pay. Taxpayer money should not be used to bailout existing debt or to pay non-essential existing liabilities. The restructuring of GM’s payment obligations can be most quickly and effectively accomplished in a pre-packaged chapter 11 case.
What is involved in preparing a business plan and application for a chapter 11 “debtor-in-possession” loan?
In a prepackaged chapter 11 reorganization, the financing for the chapter 11 debtor is arranged and in place before the chapter 11 case is filed. The financing often includes a commitment to provide the “exit” financing which is used to fund the debtor’s obligations when its chapter 11 reorganization plan is approved by creditors and by the bankruptcy court. Given the current state of commercial credit markets, in GM’s situation the US Treasury probably will have to make the commitment for the reorganization plan exit financing. The reorganization plan will set forth the repayment terms for the existing secured debt, the new US Treasury loan and the Department of Energy (DOE) loan.
As with any loan application, the starting point for GM will be its current assets and liabilities, its cash flow and its realistic projections, all of which go into a measured calculation as to the borrower’s credit worthiness and ability to repay the loan, with interest. In chapter 11 cases the debtor prepares extremely detailed projections and budgets, taking into account the reduction in its current liabilities that result when the case is filed. For example, after the chapter 11 case is filed GM will no longer pay interest or principal on its unsecured debt. Chapter 11 lets GM stop paying liabilities incurred before the chapter 11 case is filed, thereby increasing cash available for operations. All these deferrals and changes to current liabilities are then reflected in the debtor’s cash flow projections.
How will retiree claims be treated in a pre-packaged chapter 11 case?
GM retiree claims primarily are unsecured claims, having the same priority as bondholders and other unsecured creditors. In January 2010 the UAW and its related retiree trust will assume most of GM’s retiree liabilities for current retirees. In January 2010 GM has to pay the retiree trust $7.5 billion in cash and other transfers of assets. The trust also receives a $4.4 billion GM convertible debt issue which is an unsecured claim against GM. Over ensuing years GM must pay the trust additional amounts estimated to be between $10 billion to $17 billion. A basic rule of bankruptcy is that claims having the same priority in payment get the same treatment under a chapter 11 reorganization plan. Thus, all unsecured claims, including claims of the retiree trust, should get the same treatment. In a pre-packaged chapter 11 case it is possible for creditors to agree on different treatment of claims having the same priority, but this invariably leads to more delay and expense.. . In a GM chapter 11 case these future payments to retirees are frozen, and are treated as unsecured claims, which means they will get a distribution under the GM reorganization plan.
What happens at the beginning of a pre-packaged chapter 11 case?
Despite assertions that reorganization in chapter 11 is not a realistic option, a company with pre-arranged financing is quite able to operate in chapter 11. In nearly every mega case where a restructuring of an operating business is contemplated, the bankruptcy court enters “first day orders” which are basically all the court approvals that the business in chapter 11 needs to continue to operate its business in the ordinary course. First day orders deal with everything from financing, to advance payments, approval of bank accounts, authority to honor customer warranty claims, and reimburse dealers—all the details needed to prevent disruption of the operating business. While it is definitely a lot of paperwork, legal and turnaround professionals do this type of work every day, and the courts routinely approve first day orders designed to save operating businesses.
GM’s assertion that millions of jobs will be “lost” ignores the simple fact that companies continue to operate their businesses while in chapter 11, albeit under a great deal of scrutiny. GM already finances its largest suppliers (Delphi and American Axle) and has a receivable financing program for other suppliers so that the suppliers have access to cash. These programs can continue in chapter 11, or even be improved. For example, GM could ask the reorganization court to approve cash pre-payments to essential suppliers. The past due claims of suppliers are unsecured claims and in bankruptcy have the same priority in payment as GM’s unsecured debt. In planning a prepack it is not unusual for the debtor, with the consent of its major creditors, to prepay critical suppliers before the prepack is filed.
What will creditors get in a pre-packaged GM reorganization plan?
A GM reorganization plan must be based on a realistic projection of future profitability, because these future cash flows will be used to determine the enterprise value of the reorganized company, and hence the value of new common shares which will be distributed under the plan. Fortunately for taxpayers, in a chapter 11 case the debtors’ financial projects are open to public scrutiny and to the comments and objections of creditors affected by the chapter 11 plan.
GM will not have resources to make a cash distribution to creditors, so the reorganization plan will involve a distribution of newly issued debt and new common stock, with the old debt and old common shares being extinguished. The new common stock will be listed on a national exchange and will have an immediately ascertainable value based on the financial projections that GM will have to produce to get creditor approval of its chapter 11 plan. Under the reorganization plan the trust for retirees should not receive payment on the $4.0 billion short term note, the $4.4 billion long term note, or its other claims against GM, but will get its pro rata share of the newly issued debt and common stock of reorganized GM. Since the new common stock will be publicly traded, it can be sold to fund retiree obligations assumed by the retiree trust. In a chapter 11 case creditors can also agree that retirees will get better treatment than is customary, but this requires a vote of creditors and special treatment is likely to be contentious and delay any chapter 11 case.
Government financing for a GM pre-packaged reorganization
A US Treasury non-bankruptcy equity investment in GM (i.e., purchase of GM preferred stock), is surely a bad investment for a company already balance sheet insolvent by more than $60 billion. A primary beneficiary of an equity type investment would be the existing unsecured bondholders and unsecured creditors, who would have a claim on the proceeds. Others suggest that taxpayers make an unsecured loan, but such a loan would have the same priority as the other $105 billion of existing GM liabilities, making loan repayment unlikely. Taxpayers should demand that any loan made to GM be made only in connection with GM’s chapter 11 filing, that it be fully secured, and only disbursed pursuant to detailed written budgets. Naturally, lenders to chapter 11 debtors insist on competent management, but also hire their own accountants and reorganization professionals so that the lender has an independent analysis and opinion of the debtor’s viability, business plans and the achievability of the debtor’s goals and financial projections.
In a pre-arranged chapter 11 case, the US Treasury could extend to GM a secured debtor-in-possession line of credit for say $40 billion, a line of credit secured by a first security interest on all GM assets, being junior only to GM’s existing secured line of credit of $4.4 billion. A portion of the US Treasury line of credit should be available to support essential suppliers through loans, letters of credit and pre-payments. On the first day of a pre-packaged chapter 11case the bankruptcy court is likely to give interim approval to a portion of the total credit line and have a hearing ten days later to approve the balance of the loan facility.
Since the government lacks experience in administering secured loans to insolvent companies in chapter 11 reorganization, it might be preferable to have the loan guaranteed by the US Treasury, but funds would be advanced periodically by a consortium of financial institutions experienced in lending to chapter 11 debtors, and able to monitor day to day compliance, with the terms and covenants of the loan. This would not eliminate oversight by the US Treasury and Congress, but the details of loan administration would be delegated to experts.
GM’s Chapter 11 reorganization plan can be expedited
Given the importance of US automakers to the economy and the need for a successful reorganization to preserve jobs, a GM chapter 11 reorganization case will be expedited. The chief judge can assign multiple judges to handle different aspects of the case, recognizing that speed is essential to a successful reorganization. Bondholders and other creditors should support expedited handling of their claims because a successful reorganization is the best way for creditors to realize value.
A pre-packaged plan can be approved quickly because the plan has been negotiated and accepted by creditors entitled to vote before the chapter 11 case is begun. In a partial “pre-pack”, the largest creditor groups informally approve the general principles of the plan before the case is filed, but formal solicitation and voting take place under the supervision of the bankruptcy court. By using accelerated schedules a prepack can be accomplished in months, not years. Pre-filing negotiations over the terms of the reorganization plan often result in agreement on difficult issues—payments to suppliers, support for the dealer network, honoring customer warranty claims, and even changes to employee work rules and benefits, and all of these agreements can be rapidly documented.
Treatment of claims and shareholders under a GM reorganization plan
Given GM’s own statements about its shortage of cash for the foreseeable future, it is unlikely that GM would make any cash distributions to existing creditors. Cash will be needed to retool plants, complete ongoing restructuring efforts, and to reassure trade creditors that enough cash is available so that trade creditors will extend new trade credit to GM.
Under a reorganization plan, creditors and shareholders are put in classes, with creditors having the same priority in payment often grouped in the same class. A simple GM reorganization plan would have the following elements:
-Taxpayers have a $40 billion first lien on all GM assets for monies lent by the US Treasury and the DOE. If GM’s debtor in possession financing cannot be refinanced by commercial banks, then taxpayers will finance GM’s exit from chapter 11. Taxpayers should get warrants for 10 % of GM’s new common shares to reward them for the risk of financing GM in Chapter 11.
-GM’s existing $4.4 billion secured line of credit will retain its lien on GM’s assets and be extended.
-Consumer warranty claims are expressly assumed under the chapter 11 plan.
-$40 billion of unsecured bondholder debt will receive its pro rata share of any new unsecured debt issued by GM and a pro rata share of GM’s new common shares. The common shares will trade on the public market and will have an immediately realizable value. No interest will be paid on any new debt until all taxpayer loans to GM are paid in full, with interest
-Trade payables of about $39 billion, the $17 to $27 billion owed to the retiree trust, and any other unsecured claims, also get their pro rata share of any new debt and new common shares.
-The retiree trust may merit special treatment, although potential future liabilities to the trust of $27 billion not only would weigh heavily on GM’s post reorganization success, but also would depress the market value of any new common shares issued by GM. With creditor consent, the retiree trust could receive subordinated debt, with future maturity dates timed to GM’s future profitability. Without access to GM’s cash flow projections, it is hard to suggest what treatment would be fair to retirees while still protecting GM’s other creditors.
-Old common shares do not vote on the plan, get no distribution, and are canceled. Existing stock options are eliminated
-A new board of directors selected by creditors is in charge of reorganized GM, with board representation for the major creditor constituencies.
GM’s Hypothetical Post-Reorganization Balance sheet
Projected Assets: $90 billion
Estimated Liabilities
$4.4 billion: existing secured line of credit
$10 billion: secured term note to US Treasury
$12 billion: secured term note to the Department of Energy (GM’s share of the DOE funds for alternative vehicles)
$1 billion: trust or secured letter of credit established to guarantee payment of consumer warranty claims
$2 billion: current tax liabilities
Subtotal: $29.4 billion of secured and priority claims
$9 billion: accrual for consumer product warranty liability
$10 billion: for current claims arising in during the chapter 11 case which will be paid by GM in the ordinary course of business
$5 billion: new unsecured debt (payment in kind) set aside for miscellaneous claims, with maturities deferred and no cash interest payment
$5 billion: subordinated debt, issued with laddered maturity dates timed to fund the retiree trust only if it runs out of money in the future
$15 billion: accrual for pension and retirement obligations for current employees
$5 billion: leases and other obligations, including liabilities to foreign subsidiaries
Subtotal: $39 billion of unsecured debt and unsecured liabilities
Total estimated liabilities: $78.4 billion
Equity distribution
90% of newly issued GM common shares distributed to bondholders, the retiree trust, and other unsecured creditors
10% of new equity reserved for the US Treasury
Final thoughts on labor, management and Detroit
The UAW represents labor in negotiations with GM management. GM’s management, not labor, has been behind the GM steering wheel as GM went over the Cliff of Insolvency. UAW negotiators are tough, well-informed professionals. The UAW is not inflexible; witness its recent agreement to defer $1.7 billion of payments to the retiree trust, a deferral which has helped GM stay alive. The UAW has its own staff of accountants and restructuring professionals who are prepared to sit down and negotiate and help GM propose a viable reorganization plan
GM’s board of directors, its management and the UAW have made mistakes, but their serious efforts to restructure GM should not be doubted. Rick Wagoner has spent 30 years at GM, but his efforts have been overtaken by circumstances. In reorganization the board will be replaced, as will some of the operations managers and senior executives. Undue criticism of GM’s management and the UAW distracts from the need to urgently develop and implement a viable pre-packaged reorganization plan. GM’s management needs to get down to business and develop a reorganization plan that will protect taxpayers and earn the support of Congress.
GM’s chapter 11 case should be filed in Detroit. The birthplace of the American auto industry should be the place of GM’s rebirth.
Okay, Who Can Resist a Good Bailout Joke?
Detroit's Big Three Automakers are jousting with the U.S. Congress for their continued existence, and nobody denies that's serious business.But as usual, what got the auto companies to this place has opened Detroit Inc. to plenty of ridicule - and not all of it is mean-spirited.
conan o'brien.jpgLaughter may or may not be the best medicine for this predicament. Either way, here are a few examples of our favorite "bailout humor" that hit the national stage:
NBC's Conan O'Brien:
"The auto executives for the Big Three are being criticized now, because, before they asked Congress for billions of dollars, they all flew to Washington in private jets. Yeah, separately, in private jets. In their defense, the executives said, 'We would have driven, but our cars only get three miles to the gallon.'"
And,
"Earlier today, the heads of the GM, Ford, and Chrysler appeared together in front of Congress to ask for a $25 billion bailout. When asked what they would do with the money, all three said, 'Buy a new BMW.'"
NBC comedy legend Jay Leno:
"The three big domestic automakers are now saying they are working jointly on a new hybrid car. It runs on a combination of state and federal bailout money."
Maybe you've heard a bailout funny. You can share via AutoObserver's comment function below.
PHOTO:
Late-night comedy host Conan O'Brien (courtesy NBC).
Okay, Who Can Resist a Good Bailout Joke?
Detroit's Big Three Automakers are jousting with the U.S. Congress for their continued existence, and nobody denies that's serious business.But as usual, what got the auto companies to this place has opened Detroit Inc. to plenty of ridicule - and not all of it is mean-spirited.
conan o'brien.jpgLaughter may or may not be the best medicine for this predicament. Either way, here are a few examples of our favorite "bailout humor" that hit the national stage:
NBC's Conan O'Brien:
"The auto executives for the Big Three are being criticized now, because, before they asked Congress for billions of dollars, they all flew to Washington in private jets. Yeah, separately, in private jets. In their defense, the executives said, 'We would have driven, but our cars only get three miles to the gallon.'"
And,
"Earlier today, the heads of the GM, Ford, and Chrysler appeared together in front of Congress to ask for a $25 billion bailout. When asked what they would do with the money, all three said, 'Buy a new BMW.'"
NBC comedy legend Jay Leno:
"The three big domestic automakers are now saying they are working jointly on a new hybrid car. It runs on a combination of state and federal bailout money."
Maybe you've heard a bailout funny. You can share via AutoObserver's comment function below.
PHOTO:
Late-night comedy host Conan O'Brien (courtesy NBC).
Friday, November 21, 2008
Pelosi to Big Three: Show Us A Plan, We’ll Show You The Money
If you hadn't heard already, the Big Three's pleas
to Congress fell on deaf ears today. Pelosi, Reid, and seven other Democratic Congressional leaders upstaged a meeting between the Big Three and a bipartisan group of senators to discuss a compromise surrounding the already-approved $25 billion in Federal aid. The Democrats' message, as voiced by Nancy Pelosi: "Until they show us a plan, we can't show them the money."
Specifically, Pelosi and other Democratic leaders want to see viability plans from the Big Three that ensure good stewardship of taxpayer money, and clear, concise plans towards corporate health and intelligent re-structuring. The bipartisan group of senators and the Big Three had hoped to redirect the $25 billion in low-interest loans towards simply bridging their current cash crises and remaining solvent for the time being.
In blocking immediate emergency Federal loans to the Big Three, Democrats have forced the domestics to show just how they would use the aid. Hearings on their plans are scheduled for December 2, and a vote by Congress is scheduled on or around December 8 when Congress returns to consider aid to the struggling Big Three.--Colin Mathews
---
to Congress fell on deaf ears today. Pelosi, Reid, and seven other Democratic Congressional leaders upstaged a meeting between the Big Three and a bipartisan group of senators to discuss a compromise surrounding the already-approved $25 billion in Federal aid. The Democrats' message, as voiced by Nancy Pelosi: "Until they show us a plan, we can't show them the money."Specifically, Pelosi and other Democratic leaders want to see viability plans from the Big Three that ensure good stewardship of taxpayer money, and clear, concise plans towards corporate health and intelligent re-structuring. The bipartisan group of senators and the Big Three had hoped to redirect the $25 billion in low-interest loans towards simply bridging their current cash crises and remaining solvent for the time being.
In blocking immediate emergency Federal loans to the Big Three, Democrats have forced the domestics to show just how they would use the aid. Hearings on their plans are scheduled for December 2, and a vote by Congress is scheduled on or around December 8 when Congress returns to consider aid to the struggling Big Three.--Colin Mathews
---
Pelosi to Big Three: Show Us A Plan, We’ll Show You The Money
If you hadn't heard already, the Big Three's pleas
to Congress fell on deaf ears today. Pelosi, Reid, and seven other Democratic Congressional leaders upstaged a meeting between the Big Three and a bipartisan group of senators to discuss a compromise surrounding the already-approved $25 billion in Federal aid. The Democrats' message, as voiced by Nancy Pelosi: "Until they show us a plan, we can't show them the money."
Specifically, Pelosi and other Democratic leaders want to see viability plans from the Big Three that ensure good stewardship of taxpayer money, and clear, concise plans towards corporate health and intelligent re-structuring. The bipartisan group of senators and the Big Three had hoped to redirect the $25 billion in low-interest loans towards simply bridging their current cash crises and remaining solvent for the time being.
In blocking immediate emergency Federal loans to the Big Three, Democrats have forced the domestics to show just how they would use the aid. Hearings on their plans are scheduled for December 2, and a vote by Congress is scheduled on or around December 8 when Congress returns to consider aid to the struggling Big Three.--Colin Mathews
---
to Congress fell on deaf ears today. Pelosi, Reid, and seven other Democratic Congressional leaders upstaged a meeting between the Big Three and a bipartisan group of senators to discuss a compromise surrounding the already-approved $25 billion in Federal aid. The Democrats' message, as voiced by Nancy Pelosi: "Until they show us a plan, we can't show them the money."Specifically, Pelosi and other Democratic leaders want to see viability plans from the Big Three that ensure good stewardship of taxpayer money, and clear, concise plans towards corporate health and intelligent re-structuring. The bipartisan group of senators and the Big Three had hoped to redirect the $25 billion in low-interest loans towards simply bridging their current cash crises and remaining solvent for the time being.
In blocking immediate emergency Federal loans to the Big Three, Democrats have forced the domestics to show just how they would use the aid. Hearings on their plans are scheduled for December 2, and a vote by Congress is scheduled on or around December 8 when Congress returns to consider aid to the struggling Big Three.--Colin Mathews
---
Thursday, November 20, 2008
GM to Shut Down?
You probably heard of the financial crisis that affected the whole world.
Of course, the whole crunch got the auto-market, too, and unless the US Congress won’t agree to hand some $25billion in soft loans to the big three (GM, Ford and Chrysler), rumors say that in early January, General Motors may become insolvent and as a consequence … shut down.
The Big Three account for more than 10-percent of the American jobs so can you even imagine what will happen if they go down?
The Big Three account for more than 10-percent of the American jobs so can you even imagine what will happen if they go down?
Voices in the market still think that even a bail out for GM may lead to shutting doors within months or weeks. Meanwhile the US Treasury thinks that it’s cheaper to save Detroit (or at least try to) instead of letting it die.
What do you think it will happen, and would you miss GM ?
- via TopGear
Of course, the whole crunch got the auto-market, too, and unless the US Congress won’t agree to hand some $25billion in soft loans to the big three (GM, Ford and Chrysler), rumors say that in early January, General Motors may become insolvent and as a consequence … shut down.
The Big Three account for more than 10-percent of the American jobs so can you even imagine what will happen if they go down?
Voices in the market still think that even a bail out for GM may lead to shutting doors within months or weeks. Meanwhile the US Treasury thinks that it’s cheaper to save Detroit (or at least try to) instead of letting it die.
What do you think it will happen, and would you miss GM ?
- via TopGear
GM to Shut Down?
You probably heard of the financial crisis that affected the whole world.
Of course, the whole crunch got the auto-market, too, and unless the US Congress won’t agree to hand some $25billion in soft loans to the big three (GM, Ford and Chrysler), rumors say that in early January, General Motors may become insolvent and as a consequence … shut down.
The Big Three account for more than 10-percent of the American jobs so can you even imagine what will happen if they go down?
The Big Three account for more than 10-percent of the American jobs so can you even imagine what will happen if they go down?
Voices in the market still think that even a bail out for GM may lead to shutting doors within months or weeks. Meanwhile the US Treasury thinks that it’s cheaper to save Detroit (or at least try to) instead of letting it die.
What do you think it will happen, and would you miss GM ?
- via TopGear
Of course, the whole crunch got the auto-market, too, and unless the US Congress won’t agree to hand some $25billion in soft loans to the big three (GM, Ford and Chrysler), rumors say that in early January, General Motors may become insolvent and as a consequence … shut down.
The Big Three account for more than 10-percent of the American jobs so can you even imagine what will happen if they go down?
Voices in the market still think that even a bail out for GM may lead to shutting doors within months or weeks. Meanwhile the US Treasury thinks that it’s cheaper to save Detroit (or at least try to) instead of letting it die.
What do you think it will happen, and would you miss GM ?
- via TopGear
Monday, November 17, 2008
Pontiac enhances G6 lineup with mid-year updates
The L.A. Auto Show is just days away, and as it draws near more models, updates and reveals are coming to light. Pontiac will be bringing a revised family of G6 coupes, convertibles and sedans to the L.A. Auto Show despite General Motors' widely publicized pull-out of its featured show vehicles.
Updates to the G6 range focus on efficiency, alternative fuels and improved value through added features. The mid-sized G6 will get updated exterior styling and reworked powertrains to achieve those goals, though the high-performance GXP models will only get the interior upgrade common to the entire range.
The G6 Coupe, for instance, will finally be offered with the 164hp (122kW) four-cylinder 2.4L Ecotec engine that's rated at 33mpg highway (7.1L/100km). The same engine is already on offer in the G6 Sedan, where it achieves the same fuel efficiency rating. The coupe also gets the company's new TAPshift manual-shift automatic transmission with steering-wheel mounted paddle shifters.
Markets that have high availability of E85 will also get a FlexFuel version of the 3.5L V6 engine, rated at 219hp (163kW), and the coupe will still have the option of the 222hp (165kW) 3.9L V6. The 252hp (188kW) 3.5L V6 found in the GXP models is the same as last year's model as well.
Exterior appearance features updated with the facelift include the front fascia, which gets a chrome surround for the grille. The rear fascias are also updated, accommodating both single and dual exhausts and larger exhaust tips depending on trim level. Seventeen inch chrome wheel covers are standard on four-cylinder sedans and coupes equipped with six-speed automatic transmissions. The Sun-and-Sound package will also get an updated 17" alloy wheel package.
Inside, the new interiors across the range feature new heating and air conditioning controls, an updated stereo with AM/FM/CD/MP3 capability and an auxiliary input jack. GM's MY LINK communications system gives the car Bluetooth capability, plus USB input for music player access. Dark satin nickel trim accents on the steering wheel, door panels and shifter plate plus two-tone seats in ebony/light taupe are available in both cloth and leather, which is a new option above the standard ebony seats. GT and GXP models als oget a new ebony-titanium leather seating package.
Pricing starts at $22,890 for the G6 coupe with the new four-cylinder option, while the E85 models start out at $24,125 for the sedan and the GT Coupe at $25,280. The 2009.5 G6 retractable hardtop convertible starts at $32,970.
Pontiac enhances G6 lineup with mid-year updates
The L.A. Auto Show is just days away, and as it draws near more models, updates and reveals are coming to light. Pontiac will be bringing a revised family of G6 coupes, convertibles and sedans to the L.A. Auto Show despite General Motors' widely publicized pull-out of its featured show vehicles.
Updates to the G6 range focus on efficiency, alternative fuels and improved value through added features. The mid-sized G6 will get updated exterior styling and reworked powertrains to achieve those goals, though the high-performance GXP models will only get the interior upgrade common to the entire range.
The G6 Coupe, for instance, will finally be offered with the 164hp (122kW) four-cylinder 2.4L Ecotec engine that's rated at 33mpg highway (7.1L/100km). The same engine is already on offer in the G6 Sedan, where it achieves the same fuel efficiency rating. The coupe also gets the company's new TAPshift manual-shift automatic transmission with steering-wheel mounted paddle shifters.
Markets that have high availability of E85 will also get a FlexFuel version of the 3.5L V6 engine, rated at 219hp (163kW), and the coupe will still have the option of the 222hp (165kW) 3.9L V6. The 252hp (188kW) 3.5L V6 found in the GXP models is the same as last year's model as well.
Exterior appearance features updated with the facelift include the front fascia, which gets a chrome surround for the grille. The rear fascias are also updated, accommodating both single and dual exhausts and larger exhaust tips depending on trim level. Seventeen inch chrome wheel covers are standard on four-cylinder sedans and coupes equipped with six-speed automatic transmissions. The Sun-and-Sound package will also get an updated 17" alloy wheel package.
Inside, the new interiors across the range feature new heating and air conditioning controls, an updated stereo with AM/FM/CD/MP3 capability and an auxiliary input jack. GM's MY LINK communications system gives the car Bluetooth capability, plus USB input for music player access. Dark satin nickel trim accents on the steering wheel, door panels and shifter plate plus two-tone seats in ebony/light taupe are available in both cloth and leather, which is a new option above the standard ebony seats. GT and GXP models als oget a new ebony-titanium leather seating package.
Pricing starts at $22,890 for the G6 coupe with the new four-cylinder option, while the E85 models start out at $24,125 for the sedan and the GT Coupe at $25,280. The 2009.5 G6 retractable hardtop convertible starts at $32,970.
Cash-stripped GM to sell its stake in Suzuki
Via: BBC/ WSJ
Cash-stripped GM to sell its stake in Suzuki
Via: BBC/ WSJ
Sunday, November 16, 2008
GM: Loan $25 billion now or lose $156 billion later
General Motors on Sunday released a YouTube video extolling the lesser evil of a government bailout for the Detroit Three automakers. The four-minute piece reiterates many of the arguments being made by proponents of a government loan package, namely the fact that the American auto industry is one of the largest economic multipliers of any sector of the U.S. economy. A key argument is a potential loss of tax revenue would dwarf the cost of a bailout, not to mention a massive drop in GDP.
The video indicates the industry is faced with an “imminent collapse” that could lead to the loss of 3 million jobs in 2009. The thinking is the failure of either GM, Ford, or Chrysler would would lead to the immediate collapse of the other two, due to the impact on the numerous shared suppliers and other related industries.
GM says the Detroit Three employ 239,000 people directly, but the potential for job losses doesn’t stop there. The automakers also provide work for 610,000 employees of parts suppliers and 740,000 people working at GM, Ford, and Chrysler dealerships. 1.7 million so-called spin-off jobs are also said to be at risk.
On top of all this, U.S. car companies provide pension support to 775,000 retirees and health benefits to 2 million people.
A collapse of the U.S. auto industry would reduce personal incomes by $150.7 billion, the automaker warns. Over three years, that number could grow to $398.2 billion, as people struggle to find new work.
GM says the loss to the government in terms of tax revenue would be $60.1 billion in 2009, $54.3 billion in 2010, and $42.0 billion in 2011. That’s a total of $156.4 billion in lost tax revenue. Even if the three-year impact is exaggerated, the $60 billion loss projected for 2009 is hard to dispute.
Perhaps GM’s strongest argument for a bailout speaks to the potential for far-reaching damage beyond the auto industry. The video says the current economic downturn was spurred by a 0.3% decline in GDP. The U.S. automakers purportedly contribute to 4% of the nation’s GDP — a sudden drop of that magnitude could easily cause a widespread panic.
Lastly, GM points out a collapse of the American carmakers would leave the United States without the manufacturing capacity needed in the event of a “broad military conflict.”
Does GM make the case? See the video below:
The video indicates the industry is faced with an “imminent collapse” that could lead to the loss of 3 million jobs in 2009. The thinking is the failure of either GM, Ford, or Chrysler would would lead to the immediate collapse of the other two, due to the impact on the numerous shared suppliers and other related industries.
GM says the Detroit Three employ 239,000 people directly, but the potential for job losses doesn’t stop there. The automakers also provide work for 610,000 employees of parts suppliers and 740,000 people working at GM, Ford, and Chrysler dealerships. 1.7 million so-called spin-off jobs are also said to be at risk.
On top of all this, U.S. car companies provide pension support to 775,000 retirees and health benefits to 2 million people.
A collapse of the U.S. auto industry would reduce personal incomes by $150.7 billion, the automaker warns. Over three years, that number could grow to $398.2 billion, as people struggle to find new work.
GM says the loss to the government in terms of tax revenue would be $60.1 billion in 2009, $54.3 billion in 2010, and $42.0 billion in 2011. That’s a total of $156.4 billion in lost tax revenue. Even if the three-year impact is exaggerated, the $60 billion loss projected for 2009 is hard to dispute.
Perhaps GM’s strongest argument for a bailout speaks to the potential for far-reaching damage beyond the auto industry. The video says the current economic downturn was spurred by a 0.3% decline in GDP. The U.S. automakers purportedly contribute to 4% of the nation’s GDP — a sudden drop of that magnitude could easily cause a widespread panic.
Lastly, GM points out a collapse of the American carmakers would leave the United States without the manufacturing capacity needed in the event of a “broad military conflict.”
Does GM make the case? See the video below:
GM: Loan $25 billion now or lose $156 billion later
General Motors on Sunday released a YouTube video extolling the lesser evil of a government bailout for the Detroit Three automakers. The four-minute piece reiterates many of the arguments being made by proponents of a government loan package, namely the fact that the American auto industry is one of the largest economic multipliers of any sector of the U.S. economy. A key argument is a potential loss of tax revenue would dwarf the cost of a bailout, not to mention a massive drop in GDP.
The video indicates the industry is faced with an “imminent collapse” that could lead to the loss of 3 million jobs in 2009. The thinking is the failure of either GM, Ford, or Chrysler would would lead to the immediate collapse of the other two, due to the impact on the numerous shared suppliers and other related industries.
GM says the Detroit Three employ 239,000 people directly, but the potential for job losses doesn’t stop there. The automakers also provide work for 610,000 employees of parts suppliers and 740,000 people working at GM, Ford, and Chrysler dealerships. 1.7 million so-called spin-off jobs are also said to be at risk.
On top of all this, U.S. car companies provide pension support to 775,000 retirees and health benefits to 2 million people.
A collapse of the U.S. auto industry would reduce personal incomes by $150.7 billion, the automaker warns. Over three years, that number could grow to $398.2 billion, as people struggle to find new work.
GM says the loss to the government in terms of tax revenue would be $60.1 billion in 2009, $54.3 billion in 2010, and $42.0 billion in 2011. That’s a total of $156.4 billion in lost tax revenue. Even if the three-year impact is exaggerated, the $60 billion loss projected for 2009 is hard to dispute.
Perhaps GM’s strongest argument for a bailout speaks to the potential for far-reaching damage beyond the auto industry. The video says the current economic downturn was spurred by a 0.3% decline in GDP. The U.S. automakers purportedly contribute to 4% of the nation’s GDP — a sudden drop of that magnitude could easily cause a widespread panic.
Lastly, GM points out a collapse of the American carmakers would leave the United States without the manufacturing capacity needed in the event of a “broad military conflict.”
Does GM make the case? See the video below:
The video indicates the industry is faced with an “imminent collapse” that could lead to the loss of 3 million jobs in 2009. The thinking is the failure of either GM, Ford, or Chrysler would would lead to the immediate collapse of the other two, due to the impact on the numerous shared suppliers and other related industries.
GM says the Detroit Three employ 239,000 people directly, but the potential for job losses doesn’t stop there. The automakers also provide work for 610,000 employees of parts suppliers and 740,000 people working at GM, Ford, and Chrysler dealerships. 1.7 million so-called spin-off jobs are also said to be at risk.
On top of all this, U.S. car companies provide pension support to 775,000 retirees and health benefits to 2 million people.
A collapse of the U.S. auto industry would reduce personal incomes by $150.7 billion, the automaker warns. Over three years, that number could grow to $398.2 billion, as people struggle to find new work.
GM says the loss to the government in terms of tax revenue would be $60.1 billion in 2009, $54.3 billion in 2010, and $42.0 billion in 2011. That’s a total of $156.4 billion in lost tax revenue. Even if the three-year impact is exaggerated, the $60 billion loss projected for 2009 is hard to dispute.
Perhaps GM’s strongest argument for a bailout speaks to the potential for far-reaching damage beyond the auto industry. The video says the current economic downturn was spurred by a 0.3% decline in GDP. The U.S. automakers purportedly contribute to 4% of the nation’s GDP — a sudden drop of that magnitude could easily cause a widespread panic.
Lastly, GM points out a collapse of the American carmakers would leave the United States without the manufacturing capacity needed in the event of a “broad military conflict.”
Does GM make the case? See the video below:
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