U.S. Following the GM Model of Failure
Obama's Plan to Save GM: Bankruptcy, $30 Billion
June 1, 2009AP - President Barack Obama pushed a humbled General Motors Corp. into bankruptcy on Monday and said the federal government will act as "reluctant shareholder" when it assumes a 60 percent ownership of the smaller carmaker that emerges.
The president said he hopes GM — once a proud symbol of American capitalism — would emerge quickly from bankruptcy court, and pledged up to $30 billion in additional federal assistance to help it get on its feet.
The government's partial stake in GM comes on top of a far smaller ownership of Chrysler LLC, as well as significant federal equity in banks, the AIG insurance giant, and two mortgage industry titans — all victims of an economic crisis unrivaled since the Great Depression...
For GM, Bankruptcy will be a Two-edged Sword
May 27, 2009Fortune - ...GM continues to shrink like an iceberg in Lake Michigan. Its U.S. market share has already plunged from 21.9% to 19.2% this year. Taking out Hummer, Saab, Saturn, and Pontiac will bring it down to 16.4% at current rates. Since GM is in the process of axing 1,124 dealers, you can figure on it losing another point or so there as well.
For those keeping score at home, Toyota's (TM) U.S. market share was 16.1% for the first four months of the year; Ford's (F, Fortune 500) was 15.1%. GM could be a third-place company before long.
New government fuel economy regulations also face GM as it emerges from bankruptcy--39 miles per gallon for cars and 30 mpg for trucks by 2016. GM likes to brag about all the cars it makes that get 30 miles per gallon but it is still a long way from 39 mpg. It has already announced it is discontinuing its five high-performance models. Expect other high-horsepower models like Camaro to vanish as well.
The government is likely to loom larger in other GM actions post-bankruptcy, since it will own 70% of the company. Although it disclaims any interest in micromanaging the automaker, it wouldn't be human if it didn't try to make some helpful suggestions. Such as asking GM, why are you spending $1 billion on the Volt extended-range electric vehicle when you're not going to make a profit on it? Or, why do you need the GMC brand when it essentially duplicates the Chevrolet truck lineup?
And don't forget the United Auto Workers, who could wind up owning up to 20% of a reorganized GM. GM has already agreed to spare two plants that had been targeted for closure at the behest of the UAW. And it is taking back five UAW plants that had been mired in the bankruptcy of GM's old parts making unit, Delphi (DPHIQ, Fortune 500). What else is on the union's wish list?
So a restructured, post-bankruptcy GM may look a whole lot fitter than the old model. But it sure will be different, and it may not find life a whole lot easier.
GM Appears Headed for a Long, Complex Bankruptcy
May 26, 2009McClatchy Newspapers - With a June 1 deadline fast approaching, General Motors reached tentative agreement with a key stakeholder, but by late Tuesday a bankruptcy filing looked all but inevitable. Such a bankruptcy proceeding is likely to be longer and messier for GM than Chrysler's recent bankruptcy was, industry experts said, and it's likely to trigger a chain reaction of bankruptcies among GM suppliers.
A GM bankruptcy filing is likely to be much more complex than Chrysler's recent Chapter 11 bankruptcy filing. Chrysler is a privately held company with fewer aggrieved stakeholders; GM is a publicly traded global corporation.
Nevertheless, the Obama administration has decided on the bankruptcy route for GM, and is now discovering what a long and winding road that's likely to be.
"It's seems like almost every day we come upon some issue or question that didn't exist with Chrysler," said one person familiar with ongoing talks, who spoke only on the condition of anonymity as a matter of policy. "We do expect it to be a more complicated process and a longer process (in bankruptcy) . . . . It's not something we're afraid of, not something we have chosen, but it is what it is."
GM's global reach will complicate restructuring efforts.
"It is a completely different ballgame when you are looking at a company as geographically diverse as GM is . . . we've never had a company this large declare bankruptcy," said Rebecca Lindland, an auto industry analyst for forecaster IHS Global Insight.
Because GM is publicly traded, it must make a number of regulatory filings in coming days, and while the Obama administration may drive the process, it won't have control over the message as GM makes disclosures to its shareholders and investors.
The person familiar with the talks said this is "not necessarily be the timing we would choose" and warned of a "slightly confusing period for all of us" over the next week.
The United Auto Workers union, a major GM stakeholder, let word out Tuesday that it had reached tentative agreement with the automaker. Reports said that labor would get a 17.5 percent stake in a newly restructured GM and a seat on the board of directors.
The UAW also would receive $6.5 billion in preferred shares of the new GM, several news reports said, and these ownership stakes for the union come in exchange for health and welfare concessions agreed to by the UAW.
Lindland said the union might soon find itself in a place where it hasn't been before.
"They've always been insulated from the performance of GM," Lindland said. "That is about to change. With an equity state in General Motors, the fortunes of the union now go with the company."
Despite the UAW deal, the lack of agreement with the creditors who own more than $27 billion in GM corporate bonds makes a bankruptcy filing virtually certain. GM must get agreement from nine out of every 10 bondholders, who in turn would own 10 percent of the new GM. They're owed $1 billion in interest payments on June 1, money that the automaker says it doesn't have.
U.S. to Steer GM Toward Bankruptcy
May 22, 2009The Washington Post - The Obama administration is preparing to send General Motors into bankruptcy as early as the end of next week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and reemerge as a global competitor, sources familiar with the discussions said.
The move comes as the administration prepares to lift the nation’s other faltering car company, Chrysler, from bankruptcy protection as soon as next week, industry sources said.
The shifts into and out of bankruptcy are landmarks in the Obama administration’s attempt to broker a historic restructuring of the American auto industry in the space of months.
The legal tactic is viewed by some as the best means of reviving the companies. But the speed of the government-led transformation has triggered complaints that the rights of investors and dealers are being trampled. Meanwhile, fears that a bankruptcy could lead to cascading business failures are spreading throughout GM’s vast chain of suppliers.
GM Closing 1,100 Dealerships
May 15, 2009AP - General Motors Corp. on Friday told about 1,100 dealers, or nearly 20 percent of its U.S. network, that they will be fired by the automaker late next year because their sales are weak...
The cuts are part of a larger GM plan to drop 2,600, or nearly 42 percent of its 6,200 dealerships, as the automaker tries to restructure outside of bankruptcy court and become profitable again. Thousands of jobs will likely be lost, and governments will lose untold dollars in tax revenue as dealerships are forced to close.
Besides the 1,100 dealership cuts, the company will provide updates to about 470 Saturn, Hummer and Saab dealerships on the status of those brands, which it plans to sell.
Friday's cuts will not be the last. GM said it expects to lose more dealers through attrition. Ultimately, about 90 percent of the remaining dealerships will stay with GM, the company said...
GM Plans to Export Cars Built in China to U.S., Reports Say
May 13, 2009General Motors Corp. plans to begin exports of vehicles made in China to the United States within two years, ramping up sales to more than 50,000 by 2014, reports said Wednesday. A spokeswoman for GM in China did not immediately respond to a request for comment on the reports, which were said to be based on a company recovery plan given to U.S. lawmakers.
GM intends to sell 17,335 made-in-China passenger cars in the U.S. market by 2011, the Shanghai Securities News and other reports said. By 2014 exports would triple to more than 51,000, it said. The main focus would be on exporting small cars similar to the Chevrolet Spark, the reports said.
If true, GM could end up becoming the first automaker to begin exporting to the U.S. from China: previously announced plans by Chinese manufacturers to crack the U.S. market have so far fizzled...
Experts Say GM Bankruptcy Almost Inevitable
May 10, 2009AP - For General Motors Corp., the task at hand is so difficult that experts say a Chapter 11 bankruptcy filing is all but inevitable.
To remake itself outside of court, GM must persuade bondholders to swap $27 billion in debt for 10 percent of its risky stock. On top of that, the automaker must work out deals with its union, announce factory closures, cut or sell brands and force hundreds of dealers out of business — all in three weeks.
"I just don't see how it's possible, given all of the pieces," said Stephen J. Lubben, a professor at Seton Hall University School of Law who specializes in bankruptcy.
GM, which has received $15.4 billion in federal aid, faces a June 1 government deadline to complete its restructuring plan. If it can't finish in time, the company will follow Detroit competitor Chrysler LLC into bankruptcy protection...
Restructured GM to Build More Cars in Mexico, China and South Korea
May 8, 2009Washington Post - The U.S. government is pouring billions into General Motors in hopes of reviving the domestic economy, but when the automaker completes its restructuring plan, many of the company's new jobs will be filled by workers overseas.
According to an outline the company has been sharing privately with Washington legislators, the number of cars that GM sells in the United States and builds in Mexico, China and South Korea will roughly double.
The proportion of GM cars sold domestically and manufactured in those low-wage countries will rise from 15 percent to 23 percent over the next five years, according to the figures contained in a 12-page presentation offered to lawmakers in response to their questions about overseas production...
GM Details Plans to Wipe Out Current Shareholders
May 6, 2009Reuters - General Motors Corp on Tuesday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the United Auto Workers union.
The unusual plan, which was detailed in a filing with U.S. securities regulators, would only need the approval of the U.S. Treasury to proceed since the U.S. government would be the majority shareholder of a new GM, the company said.
The flood of new stock issuance that could be unleashed has been widely expected by analysts who have long warned that GM's shares could be worthless whether the company restructures out of court or in bankruptcy...
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