Let them fail!

[old medic]

http://www.nytimes.com/2009/04/01/business/01bankruptcy.html?em
U.S. Hopes to Ease G.M. to Bankruptcy
By MICHAEL J. de la MERCED and JONATHAN D. GLATER
Published: March 31, 2009

The government may seek to ease General Motors into what it calls a “controlled” bankruptcy, somewhere between a prepackaged bankruptcy and court chaos, by persuading at least some creditors to agree to a plan that would cleave the company into two pieces, according to people briefed on the matter.

Instead of signing on every creditor as is typically required in prepackaged deals, administration officials are using as leverage the promise of taxpayer financing. Many regard the government as the only lender willing to step up with money — in bankruptcy or out.

“They’re going to have tremendous power,” said Lynn M. LoPucki, a law professor at the University of California, Los Angeles. “They can call off the money and the whole thing fails.”

G.M.’s new chief, Fritz Henderson, also said that the pressure from the government pushed the automaker closer to bankruptcy.

“By no later than June 1, if we’re not able to accomplish this outside bankruptcy, we’ll be in bankruptcy,” he said at a news conference in Detroit on Tuesday. “It’s pretty clear. The government was unequivocal.”

The effort is a new role for the government, which has not pushed companies into bankruptcy in the past as much as it has stepped in when all else fails.

“As lawyers would say, it’s sui generis, at least in my experience,” said Joel B. Zweibel, the retired co-head of restructuring at the law firm O’Melveny & Myers. He worked on big bankruptcy cases like those of Eastern Airlines and LTV Steel.

The administration appears to be drawing in part from a playbook used with troubled banks, with the goal of creating a new, healthier G.M., but leaving behind its liabilities and less valuable assets, perhaps for liquidation. More often referred as the “good bank-bad bank” model, the approach can infuriate those with claims against the bad bank.

Under a plan being worked out by the administration, G.M. would file for prearranged bankruptcy, according to these people. It would then use a sale authorized under Section 363 of the bankruptcy code to quickly sell off the desirable assets to a new company financed by the government. These good pieces might include Cadillac and Chevrolet, as well as assets the company needs to run the business.

Less desirable assets, brands like Hummer and underperforming factories, would be left in the old company. Proceeds from the sales, including stock in the new company, would be given to the old G.M., helping to settle claims.

The plans are still being discussed, and the details are subject to change, people familiar with the talks said.

G.M. joins a long list of companies in industries like airlines, railroads and steelmakers that have faced the prospect of being remade in bankruptcy. Typically, a troubled company usually seeks to line up creditors, employees and other stakeholders for a plan of reorganization before a bankruptcy filing. Failure to achieve this agreement can create a prolonged and messy court process as the company battles its creditors while its business and financing rapidly deteriorate.

Elements of the government’s plans for G.M. are in some ways similar to the demise of Lehman Brothers last fall. A day after filing for Chapter 11 protection, the securities firm agreed to sell the bulk of its North American business to Barclays Capital, the British bank. The sale was completed in a little more than three days.

The administration hopes to win support from some of G.M.’s creditors, notably the United Automobile Workers, which would be forced to pare its health care benefits and whose pension obligations would probably remain in the old company. But the bankruptcy code allows a judge to approve a sale even over creditor objections in an emergency under Section 363, legal experts say. Such was the case with the Lehman sale.

While the automaker would not be the biggest company ever to file for bankruptcy protection — Lehman holds that dubious distinction — it is woven into a complex international web of suppliers and subsidiaries. One goal of any reorganization plan would be to minimize disruption to other businesses.

“This would rank as one of the most, if not the most complex bankruptcy in history,” said Stephen F. Cooper, founder and former chairman of Zolfo Cooper, a turnaround firm. Mr. Cooper, who ran Enron during its bankruptcy, added that politics would influence any plan.

There will be pressure to keep plants open, to keep employment in communities high, he said, “because typically G.M. or Ford or Chrysler are very substantial contributors to the local tax receipt flow.”

History offers almost no precedent for a G.M. bankruptcy filing. Companies like Continental Airlines and the Delphi Corporation, the auto parts maker, have used the courts to transform their businesses and reduce their costs. But none matched the size and interconnectedness of G.M.

Delphi used a bankruptcy judge’s threat to void union contracts to wring concessions out of its workers, said Gary N. Chaison, a professor of industrial relations at Clark University in Worcester, Mass.

“That’s a very potent threat, to withdraw from the collective agreement in bankruptcy,” Mr. Chaison said.

Several airlines also used bankruptcy proceedings to force unions to modify agreements. Continental Airlines took that step before its rivals, to its advantage, Mr. LoPucki said. But much of Continental’s work took place before changes in bankruptcy laws made it more difficult to void worker contracts.

There are critical differences between the airlines and G.M. There was no question of the demand for air travel in the United States, while critics of American automakers have questioned whether there is demand for their products and whether reducing costs will produce viable businesses.

The government’s plan to dictate terms as the provider of G.M.’s bankruptcy financing — known as a debtor-in-possession loan — is not without risk.

“You’re introducing politics into the process,” said David A. Skeel, a law professor at the University of Pennsylvania.

The administration may still encounter surprises in its efforts, Mr. Skeel said.

“The hope is that if we call it a controlled bankruptcy, that’s what it will be,” he said.

 

[Michael OLeary]

Fiat to Chrysler: Cut costs or we walk

By ERIC REGULY AND GREG KEENAN,  From Wednesday's Globe and Mail

ROME and TORONTO — Fiat SpA will abandon Chrysler LLC, leaving it to fend for itself in bankruptcy court, unless Chrysler's Canadian and American unions agree to substantial labour-cost reductions by the end of the month, Fiat CEO Sergio Marchionne says.

For Chrysler, which is subsisting on cash borrowed from the U.S. and Canadian governments, the deal with Fiat is the last chance to avoid a bankruptcy filing and possible liquidation.

But Fiat is prepared to scrap the deal and look elsewhere for an international partner if the unions do not agree to match the lower labour costs of Japanese and German plants in the United States and Canada, Mr. Marchionne said in an exclusive interview with The Globe and Mail at the Italian auto maker's headquarters in Turin.

“Absolutely we are prepared to walk. There is no doubt in my mind,” he said. “We cannot commit to this organization unless we see light at the end of the tunnel.”

More at link.


Well, I guess we get to see how committed the Unions are to saving those 600,000(?)  jobs they say are dependent on their industry being rescued.

 

[mediocre1]

The only good thing about the Obama administration nationalizing the auto sector is the ultimate failure will clearly belong to the Administration. Their attempts to keep the UAW afloat will run into serious difficulties as the legacy costs increase to $6 billion/year....

http://business.theatlantic.com/2009/03/whither_gm.php

Nationalization is  not the cure, Sir Thucydides. As somebody who studied macroeconomics, my suggestion is for the car manufacturers to lower the prices in a way that it will attract buyers to save costs, buy them and let them deplete a large chunk, then an equilibrium shall be attained, hence, the work to recovery.

Another IMHO of mine, is that if there is recession, prices of houses should be low as 50 thousand dollars. My opinion is that there is no recession. Prices of houes are still in the 300 thousands. My brother took advantage of recession 12 years ago and was able to buy a 5 bedroom house with attic and basement for 50 thousand which should had cost 200 thousand during those times.

 

[George Wallace]

Did the Housing Market in Windsor not just reach an all time low, with houses going for $35K?

 

[mediocre1]

Did the Housing Market in Windsor not just reach an all time low, with houses going for $35K?

If there is recession, the law of supply and demand shall govern the city of Windsor. The lesser the price,  the greater the demand , the greater the supply.The higher the price, the lower the demand, the lesser the supply.

 

[Michael OLeary]

As somebody who studied macroeconomics, my suggestion is for the car manufacturers to lower the prices in a way that it will attract buyers to save costs, buy them and let them deplete a large chunk, then an equilibrium shall be attained, hence, the work to recovery.

That's brilliant Captain Obvious.

Now that we're ready to put the world's economy into your uniquely capable hands, how about you tell us how you're going to convince the auto manufacturers and their workers (present and retired) how they're going to lower prices?

 

[mediocre1]

That's brilliant Captain Obvious.

Now that we're ready to put the world's economy into your uniquely capable hands, how about you tell us how you're going to convince the auto manufacturers and their workers (present and retired) how they're going to lower prices?

As I said, sir O'Leary, to be able to reach an equilibrium, then the road to recovery. They will dispose of their products and price them to the extent that they will have reach between net profit and break-even. Or even break even.They cannot sell their products anyway. So they have to reduce prices to attract buyers. I am sure they will attract buyers. It's only the Soviet Lada which cannot attract buyers. With such low price, they will buy them. The market is not saturated with cars. People everywhere wants to buy them. That is if they can afford. Chrysler and GM are in the losing end anyway with competition from durable Japanese cars. They've got nothing to lose.

But once you nationalize them, there'll be no competitive edge for them because managers will tend to be lax and complacent. They'll run out of creative streak as compared to Japanese car manufacturers which make stress and tension the drive to create durable and efficient cars.

Almost all people in AMerica are capitalistic.  I wonder why Obama cannot accept that reality.

 

[Michael OLeary]

Almost all people in AMerica are capitalistic.  I wonder why Obama cannot accept that reality.

Obviously he and his staff lack your all-seeing eye.

 

[Fishbone Jones]

mediocre1,

Stop with all that 'sir' shit in your posts.

Milnet.ca Staff

 

[a_majoor]

What mediocre1 and most other people don't seem to realize is the clearing house functions of the market are not working precisely because of State interference in the markets.

Banks can't or won't write off bad loans because of TARP, GM and Chrysler can't go into chapter 11 and repudiate unworkable contracts and create new business and pricing models because they are receiving tax dollars that eliminate the incentive to change, and on and on. Even housing prices are being propped up by stupid and counterproductive policies that let people who cannot afford their houses continue to live in them for notional mortgage payments.

In Japan, a similar policy was tried in the 1990's when their real estate bubble popped, and they suffered a decade of 0 economic growth. Some of us remember the Stagflation which closed out the Carter years, the Obama administration seems determined to recreate the conditions that led to stagflation.

Sadly, the one true hope for "us" lies in the fact that US municipal debts (particularly unfunded pensions) are reaching a tipping point and cities might have to go into bankruptcy or call for bailouts of almost a trillion dollars (on top of the other trillions pledged). Taxpayers will see they are being fleeced to pay very generous pensions they cannot even hope to receive, and these pension tax payments will be to cities they don't even live in, which might trigger a "shock and awe" tax revolt and lead to an escalating series of repudiations of municipal and then State debts. IF it escalates to the Federal level, repudiating the $12 trillion debt will wipe out @ 22% of the value of the estimated $54 trillion stock of US wealth (adding in the other repudiations could total 1/2 or more of the value of the stock of wealth, depending on what figures you use).

The short term results will create a global tsunami in the financial markets which no one has ever seen before. Oddly enough, once freed of this burden (and the repudiation will also destroy the US welfare state and those institutions that underpin it), the American people will be in a unique position to recover far faster than any of the other ruined economies that will be pulled down with the repudiation.

 

[Greymatters]

... the one true hope for "us" lies in the fact that US municipal debts (particularly unfunded pensions) are reaching a tipping point and cities might have to go into bankruptcy or call for bailouts of almost a trillion dollars (on top of the other trillions pledged). Taxpayers will see they are being fleeced to pay very generous pensions they cannot even hope to receive, and these pension tax payments will be to cities they don't even live in, which might trigger a "shock and awe" tax revolt and lead to an escalating series of repudiations of municipal and then State debts...

Is this perception valid - It seems that cities are now being treated the same as the major corporations?  Technically they should also apply the concept of letting cities with bad management flounder and sink as a result of their own errors?  Unlikely to happen of course...

 

[Michael OLeary]

GM may drop Pontiac and GMC brands: report
Wed Apr 15, 2009 10:16pm EDT

NEW YORK (Reuters) - General Motors Corp, facing a June 1 deadline to restructure under U.S. government oversight, may drop its Pontiac and GMC brands as part of broader cost-cutting moves, Bloomberg reported, citing people familiar with the matter.

The two brands are being studied as part of talks with an Obama administration task force assessing whether GM can be restructured without bankruptcy, sources told Bloomberg on Wednesday.

GM's Chevrolet, Cadillac and Buick brands are likely to be safe, the news agency reported.

GM had said earlier it would keep Chevrolet, Cadillac, Buick, GMC and Pontiac while selling or closing Hummer, Saab and Saturn.

More at link.

 

[Michael OLeary]

Ottawa willing to let GM, Chrysler collapse

JANET MCFARLAND
Globe and Mail Update

April 16, 2009 at 12:22 PM EDT

TORONTO — Ottawa is prepared to let Canada's two financially troubled car makers collapse rather than provide long-term financing to companies without a viable future, Industry Minister Tony Clement said Thursday as he ratcheted up the pressure on the Canadian Auto Workers union to negotiate new deals to slash wages and benefits.

Mr. Clement told a news conference in Toronto he believes Fiat SpA is taking a “logical position” in demanding wage concessions in Canada before following through with a proposed strategic alliance with Chrysler LLC. He added Ottawa is also unwilling to make major investments in companies that do not have appropriate cost structures to survive in the long term.

When asked whether he would be willing to let Chrysler Canada Inc. or General Motors of Canada Ltd. go bankrupt if the unions do not agree to cut costs, Mr. Clement replied: “We have to examine every possibility.”

“I don't think it is in the interest of the Canadian public to have continued funding to a company if there is no deal with their union and if there is no outside investor, or no outside partner in the case of Fiat,” he said. “Those were our conditions.... So if you're asking me whether I'm willing to funnel Canadian government money, taxpayer money, when we do not have an acceptable plan on a go-forward basis, I cannot do that. I don't think it would be responsible.”

More at link.

 

[R. Jorgensen]

Ottawa willing to let GM, Chrysler collapse

More at link.

I don't know if this is a good choice.

Collapse = Massive amounts of workers laid off, no longer can provide for family (and there's A LOT of autoworkers)

Help out = Government debt, taxpayers angry, blah-blah-blah-blah


Actually, on second thought, when I remember my point of view on these kinds of situations:

"Multi-Billion dollar and/or Transnational corporations bitching and complaining that they've lost $5 dollars and asking the Gov't to bail them out only for them to possibly give themselves HUGE bonuses and have taxes go up again which in turn, would make a city like Calgary nothing but a colossal complain-fest."

It does seem like a good idea. Some may disagree with my opinion but all I have to say is the Gov't is doing what it thinks will preserve the interests of the majority of the Canadian population (I don't know if that's the right phrase to use).

 

[Michael OLeary]

The common media statement is that if the domestic auto industry fails 600,000 will lose their jobs.

The CAW website says they have 225,000 workers.

So, who are the other 375,000 Canadians that the CAW will screw when it refuses to accept wage and retirement benefit cuts?

How many of the 375K are in the 2nd and 3rd tier parts manufacturers that the bIg 3 cut away years ago - to make themselves leaner and more efficient. (How many of them have wage and benefit packages even close to the average CAW union member?)  For the most part, I suspect that many of the 375K already work for leaner and more efficient companies, the ones that have learned how to meet demands from multiple assemblers of cars. That they have probably also diversified and are ready to support new Toyota and Honda lines without missing a beat.

If there's going to be government subsidization, support those smaller companies through the shift to supporting new product lines.  Offer tax benefits to the expansion of successful car manufacturers.

Don't reinforce failure.

The failing domestic auto industry, long supported by the greed of the CAW, has dug its own grave and they have no-one to blame but themselves.

 

[Michael OLeary]

On average, Canadian auto-sector workers make about $35 an hour—$72,000 a year—plus benefits. The average wage of a Canadian manufacturing-sector employee, by comparison, is $20.75 an hour, or $41,500 a year. (LINK)

To put that $72K per year into a CF perspective:

Warrant Officer - IPC4 - $5770 monthly = $69,240
Captain - IPC1 - $5933 monthly = $71,196

 

[a_majoor]

And as so many of us point out, a large fraction of the 600K workers affected would probably be picked up in other industries, although they would be making a lot less than their CAW wage and benefit package. For that matter, Alberta and Saskatchewan have been crying for workers during the boom, and will need lots even now, so another large fraction of the 600K can go west, and I'm sure more can go east to follow the oil boom happening there.

Who would be left? Probably the people who bought into the entitlement mentality of the CAW and their political hangers on, and they probably would not be usefuly employed in any really competative job or industry anyway. Wal-Mart is always looking for staff.....

 

[Michael OLeary]

Let the feeding frenzy over the rotting carcasses begin.

Group interested in buying Saturn brand
Members include some of brand’s dealers and private equity group

http://www.msnbc.msn.com/id/30229593/

updated 5:19 p.m. ET, Wed., April 15, 2009

DETROIT - An Oklahoma City private equity firm has teamed with a group of Saturn dealers in an effort to buy the money-losing brand from General Motors Corp.

The proposal from a group led by Black Oak Partners LLC is among several that GM has received for the brand, said GM spokesman Mike Morrissey.

More at link.

 

[Michael OLeary]

Has the message begun to sink in?

CAW softens stance on Chrysler cuts
http://www.thestar.com/Business/article/621557

Auto union says it may mull deeper concessions than were accepted in recent GM Canada contract
Apr 21, 2009 04:30 AM
Tony Van Alphen, Business Reporter
Richard J. Brennan, Ottawa Bureau

The Canadian Auto Workers union has signalled for the first time that it would consider more concessions at Chrysler to keep the company competitive.

Softening a hardline stance against any extra concessions at Chrysler Canada Inc., CAW president Ken Lewenza said yesterday the union would look at more pay and benefit cuts than were contained in the recent General Motors of Canada Ltd. contract because of growing pressures for additional reductions at the same teetering automakers in the U.S.

That would break its own pattern contract for labour cost cuts negotiated with GM.

"The (GM) pattern is on the table unless we lose our competitive advantage for investment in Canada," Lewenza said in an interview.

The union, which represents about 8,000 production workers and skilled trades people at Chrysler, had said for weeks it would match but not exceed concessions that members accepted at GM.

Federal Industry Minister Tony Clement said Chrysler workers can either accept more concessions or lose their jobs. "People are not interested in a union protecting its entitlements that have been garnered over a period of time," Clement said. "I feel badly for workers who are put in these situations, of course. But ... the alternative is no job at all and taxpayers expect everybody to be at the table if taxpayer dollars are going to be at risk."

More at link.

 

[Greymatters]

Thats just PR spin - this is a fluff piece to try and make them look like they are being cooperative.  They still need to come down to -$19 in cost/hr to be considered competitive with other Canadian manufacturers...