GM Bankruptcy Will Cost Taxpayers Up to $70 Billion

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  1. TriShield

    TriShield Super Moderator® Super Moderator

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    'Surgical’ Bankruptcy Possible for G.M.

    BY MICHELINE MAYNARD and MICHAEL J. de la MERCED
    Published: April 12, 2009

    DETROIT — The Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by a June 1 deadline, despite G.M.’s public contention that it could still reorganize outside court, people with knowledge of the plans said during the weekend.

    Members of President Obama’s automotive task force spent last week in meetings and on conference calls with G.M. officials and its advisers in Detroit and Washington. Those talks are expected to continue this week.

    The goal is to prepare for a fast “surgical” bankruptcy, the people who had been briefed on the plans said. G.M., which has been granted $13.4 billion in federal aid, insists that a quick restructuring is necessary so its image and sales are not damaged permanently.

    The preparations are aimed at assuring a G.M. bankruptcy filing is ready should the company be unable to reach agreement with bondholders to exchange roughly $28 billion in debt into equity in G.M. and with the United Automobile Workers union, which has balked at granting concessions without sacrifices from bondholders.

    President Obama, who was elected with strong backing from labor, remained concerned about potential risk to G.M.’s pension plan and wants to avoid harming workers, these people said.

    None of these people agreed to be identified because they were not authorized to discuss the process. G.M. declined to comment and the Treasury Department did not comment.

    One plan under consideration would create a new company that would buy the “good” assets of G.M. almost immediately after the carmaker files for bankruptcy.

    Less desirable assets, including unwanted brands, factories and health care obligations, would be left in the old company, which could be liquidated over several years.

    Treasury officials are examining one potential outcome in which the “good G.M.” enters and exits bankruptcy protection in as little as two weeks, using $5 billion to $7 billion in federal financing, a person who had been briefed on the prospect said last week.

    The rest of G.M. may require as much as $70 billion in government financing, and possibly more to resolve the health care obligations and the liquidation of the factories, according to legal experts and federal officials.

    Since replacing Rick Wagoner on March 31, G.M.’s chief executive, Fritz Henderson, has sent increasingly clear signals that bankruptcy is probable unless agreements are reached with labor and the bondholders by the administration’s June 1 deadline.

    Unlike Mr. Wagoner, who refused until his final days at G.M. to consider a Chapter 11 filing, Mr. Henderson has deployed staff to work with legal and government advisers, although he does not agree a bankruptcy is inevitable.

    Last week, he said G.M. was proceeding on a dual track, hoping to restructure out of court, but also preparing for a filing.

    “If we need to resort to bankruptcy, we have to do it quickly,” Mr. Henderson said in an interview with the Canadian Broadcasting Corporation.

    John Paul MacDuffie, an associate professor at the Wharton School at the University of Pennsylvania, said he saw little chance of an out-of-court restructuring, given that the Obama administration had rejected G.M.’s proposed revitalization plan in March. It was submitted without the concessions that were required from bondholders and the union, and which have still not been reached.

    “The simplest way to frame it is that they took the loans, there were conditions on the loans, they didn’t prove their case for financial viability, and they didn’t meet the deadline, either,” Professor MacDuffie said.

    Lawyers for G.M. and the government have much work to do before any bankruptcy case can begin, executives with bankruptcy experience said last week.

    First and foremost, G.M. would have to formulate a business plan that addresses virtually every aspect of the company that it hopes to transform while under bankruptcy protection.

    It would have to show how it would save billions of dollars through agreements with its bondholders and unions, how many dealers it plans to keep, and the plants and offices it plans to either close or preserve.

    The plan also needs to give a candid forecast of the car market, a tricky prospect given the sharp falloff in sales over the last few months, these executives said.

    Treasury has hired the Boston Consulting Group to help with the business plan, according to a notice posted April 8 on FedBizOpps.gov, a government procurement Web site.

    Participation from banks also may be needed, and because of the weak economic climate, lenders are likely to insist that G.M. wring as much out of its operations as possible.

    “It’s a complex system and you’ve got to be thinking big,” Professor MacDuffie said.

    Finally, legal experts said, G.M. would have to try to prevent panic among consumers in the event of a bankruptcy filing. The government has said it will guarantee G.M.’s vehicle warranties.

    Since then, G.M. has started an aggressive advertising campaign stressing that car buyers should have confidence in the company, and offering to make nine months of payments, up to $500 each, for owners who lose their jobs.

    One delicate issue for federal officials is the fate of G.M.’s employee pension plans, which could become the responsibility of the federal pension agency if G.M. seeks their termination.

    G.M. faces an unfunded liability of about $13.5 billion for its plans, which had $84.5 billion in assets and $98 billion in liabilities as of Dec. 31. That amount could sink the pension agency, requiring its own bailout before a G.M. case could be resolved.


    The White House has at least one option to protect the plan.

    The Supreme Court, in a landmark 1990 case, ordered the LTV Corporation, a steel maker, to take back responsibility for its pension plans after it emerged from bankruptcy protection.

    The pension agency had allowed the steel company to terminate its plans, only to see LTV negotiate a new plan with the United Steelworkers of America in which it agreed to make up a large portion of benefits that workers had lost.

    LTV eventually sought bankruptcy protection again and liquidated in 2002, when the federal pension agency assumed the company’s pension liabilities.

    While Mr. Obama’s auto task force has held only one meeting with G.M.’s bondholders — who had rejected the company’s previous reorganization plan as too onerous — it is still seeking to win union support for a swift bankruptcy, one person involved in the discussions said.

    But the task force is reasonably confident that its restructuring plan could still pass muster with a federal bankruptcy judge even if the union does not accede to the proposal, this person said.

    A creditors committee for the “new G.M.” would be formed in advance, to start working as soon as the case begins, while those with claims against G.M. would be asked by Treasury to quickly agree on terms to settle the claims.

    Still, if the government and G.M. cannot bring all creditors on board, they are likely to argue that creating the new G.M. is an emergency move needed to preserve the value of the carmaker’s good assets. Bankruptcy judges are given a lot of leeway to decide what is in the best interest of all parties in a bankruptcy case.

    Another question hanging over G.M. is the fate of Delphi, the giant supplier of auto parts that has been in bankruptcy for more than three years.

    Delphi, which was once owned by G.M., has been in talks with G.M., the auto task force and its lenders over its own restructuring. The administration has set an April 17 deadline for Delphi to reach an accord over G.M.’s continued support for the parts supplier, which could be pushed back as late as April 24, according to a person briefed on the matter.

    Should Delphi fail to reach an agreement with G.M. and the administration, it could be forced to liquidate, this person said. In that event — a prospect that the task force is preparing for — the government and G.M. may acquire some parts of Delphi’s business out of liquidation.

    [​IMG]
     
  2. TriShield

    TriShield Super Moderator® Super Moderator

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    Just 100 billion and Government Motors is born.

    Obama/Pelosi PUMAS for everyone!
     
  3. Slowta

    Slowta OT Supporter

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    awesome...
     
  4. cASe SenSiTive

    cASe SenSiTive Tires spitting gravel, I commit my weekly crime

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  5. moss

    moss New Member

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    lol owned
     
  6. GregFarz78

    GregFarz78 New Member

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    IBtheystillkeeptheunions
     
  7. Hartman

    Hartman New Member

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    This country is so fucked.
     
  8. Yail Bloor

    Yail Bloor OT Supporter

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    considering the size and scope of the banker bailout, $70 billion is not even a big number anymore
     
  9. V!

    V! New Member

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    And this is what Unions do to companies....
     
  10. just_another_on

    just_another_on New Member

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  11. TriShield

    TriShield Super Moderator® Super Moderator

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    Hey, what's a few billion here and there right?

    Gotta protect that lifetime union healthcare afterall.
     
  12. Ivy Mike

    Ivy Mike New Member

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    fucking christ, when I said GM should go for bankruptcy I didn't think that meant covering all their fucking costs.
     
  13. TriShield

    TriShield Super Moderator® Super Moderator

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    Bankruptcy which would have nuked the Union is going to perverted to protect it by the looks of it. So much for having competitive labor and being able to turn a profit on assembling vehicles in this country.
     
  14. BoogieKnight

    BoogieKnight Active Member

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    We're fucked for money if they file for bankruptcy and we're fucked for money if they don't.
     
  15. Yail Bloor

    Yail Bloor OT Supporter

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    bankers have already stolen most of the pension funds via the toxic derivatives black hole
     
  16. BoogieKnight

    BoogieKnight Active Member

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    A Democratic president and a Democratic Congress telling the UAW to go fuck themselves? Yeah, right. :mamoru:
     
  17. Grape_Ape

    Grape_Ape OT Supporter

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    Haha, bail out big business let the people suffer:bowdown:
     
  18. Ivy Mike

    Ivy Mike New Member

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    GM is the one who agreed to the contracts and built crap that nobody wanted to buy.
     
  19. TriShield

    TriShield Super Moderator® Super Moderator

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    HOPE AND CHANGE :mamoru::mamoru:
     
  20. gaara46

    gaara46 OT Supporter

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    so after all this, is there gonna be a ridiculous tariff on imports so ppl are forced to buy american? that would suck

    i remember something like this almost happened under Clinton and that would have made a lexus ls400 in the range of 150+ grand lol
     
  21. keroberos

    keroberos OT Supporter

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    not really
     
  22. BoogieKnight

    BoogieKnight Active Member

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    What would have happened if GM didn't agree to the contracts? Strikes/Work stoppages. Not only from the line assemblers, but from unions from their suppliers and vendors as well. It's hard to sell cars and trucks when you don't have any coming out of your factories. The UAW had them by the balls, and the state and Federal government (both Democratic and Republican controlled ones) let them get away with this.
     
  23. jonik

    jonik Active Member

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    and HORRIBLE management.
     
  24. jonik

    jonik Active Member

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    blaming unions for everything is quite stupid if you ask me man, the management really never put their foot down to begin.
     
  25. TriShield

    TriShield Super Moderator® Super Moderator

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    Exactly, and the company still sells a massive amount of vehicles. If labor costs and legacy costs were in line with the rest of the industry the company would be profitable.
     

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