4TehNguyen

iTrader: (1)

the bailout bailed out the unions, they are still there at GM running the company into the ground. It never solved the core issue of the company. Expect deja vu

mmarshall

According to the terms of the buyout, the UAW is actually a part-owner. They put up part of the buyout sum.....something very rare in the auto industry, which, at least to my knowledge, has not happened before in the U.S. That may be perhaps (?) one reason why the UAW agreed to the large cuts in pay benefits that it did.....they themselves were now stockholders.

If anybody got screwed on this deal, though, it was probably the (former) GM bondholders. By government and court action, they were placed at the bottom of the totem pole when it came to debt-liablities on their bond-settlements, and most of them lost a substantial part of their initial investment, even after the official bond settlement was announced. Almost no one got the full value of their initial bonds back, and many of them lost quite a bit. By being at the bottom of the pecking-order on the debt-payments, GM, even with the buyout, simply didn't have enough cash left to fully-reimburse them.

nipponbird

One would think that they should know that the illness must be addressed and not the symptoms, but then GM has a record for not seeing the obvious.

LeX2K

Who is "they" the federal government? If so then we can't honestly try and attribute anything resembling financial prudence to them.

gengar

Debt-for-equity swaps are very common during Chapter 11 reorganization and even in non-bankruptcy restructuring... Chrysler and Ford also had debt-for-equity swaps to reduce liabilities, so GM is not even alone in the US auto industry on this - all of the Big Three have union/employee ownership either directly or indirectly.


You are correct, but only in the sense that the UAW was paid off far better than the creditors were.

Based on the credit rating of GM bonds and projected recovery rates, GM's unsecured creditors actually did very well relative to what would have been expected during a Chapter 11 - receiving equity worth about 30 cents on the dollar. That is very good considering GM was junk bond status through most of the 2000s (and was either junk bond or borderline junk bond status through most of the 1990s, too). Don't get me wrong, it's not anything absurdly exceptional- but for unsecured junk bonds, it's pretty good. To put it in perspective, there are last-in-line creditors of many companies with similar ratings to what GM had, that got absolutely nothing after bankruptcy. (And note that this is in contrast to Chrysler, whose secured and unsecured creditors took a huge bath at the hands of the government.)

The mere fact that UAW's unsecured obligations can be looked at as doing so much better than how even the pretty good unsecured creditors made out, just shows how much the UAW was paid off in the bailout. And if people want to figure out where the $11.2 billion vanished, this is where - to creditors and to the UAW.

mmarshall

I agree on debt for equity swaps, but what I was referring to was union money actually being involved in a buyout as part owner....especially the UAW. Despite the previous Chrysler rescue-money to Iacocca 1980-81, and the 2008-2009 buyout, I can't remember the last time that happened in the auto industry...at least in this way.

rxonmymind

"the damage our economy might have suffered if General Motors and Chrysler were allowed to collapse."

From a national security point of view this had to be done. It was ugly, left a bad taste in my mouth but left to collapse it would have ground this country to almost a stand still. This didn't just effect the auto companies but their suppliers. The domino effect would have been horrifying.

LeX2K

Baling out GM was a matter of national security. Now I've heard it all.

Sulu

"Where goes the General (Motors), there goes the USA"?

Another take on "Too big to fail", which was a cry heard around the world during the financial crisis of 2008. It usually referred to banks and national governments bailing out banks.

spwolf

i dont have anything against bailout.... but why are they allowing them to create $20 billion in bad debt so soon? If this starts happening across industry (and probably did), as well as housing, we are heading to another economic meltdown in few years.

Sulu

Americans are loath to regulate the banking sector, except, perhaps, after the fact. They will not even prosecute the individual bankers who quite obviously (illegally) contributed to the crash of 2007/2008.

This is despite the fact that Canada was not as hard hit during the last recession, due to our more regulated banking sector.

rxonmymind

It's not about just them. Think about the entire supply chain from GM to your local auto supply store. Think. Allowing the auto makers to fail would have put a stop payment on every sector of aftermarket supplier from starters to spark plugs and they would have demanded cash as any merchant would before giving any inventory. Good will only goes so long but once you see a big company going down credit is withdrawn. Eventually you'll lay off employees as orders start to fall off.
Sure the government would be able to secure enough inventory to keep supplies stocked for military. But what about the millions of small businesses that need to keep their fleets going? FedEx, UPS, DHL to the humble florist or baker who delivers goods. All these come from a supply chain that caters to the big three. Let me ask you. If you had a business that supplied a starters would you continue to do so knowing they were going down?. No. Every debt they owed you would be effectively wiped out in BK. Then how are you to pay back creditors? Banks wouldn't give a rip and want their money you owed them. See the viscous cycle? You'd have an outstanding balance on your sheet in the millions that you couldn't pay back thus having to shut your company down for a bit(cause your a fighter) unti you could secure another line a credit. But till then tour local auto store won't have the starter you need for your fleet because he sold the last one. All this is do to a strategy that Americans have adopted from the Japanese called "just on time supply chain management". Every warehouse only stocks maybe three days or so of product and only order when it gets low. Due to computer very little is now being stored in vast warehouses. It's make it as you need it now.
Want an example? Look at the rice that was beginning to be rationed at Costco & Sam's club in the midst of the financial crises. Vietnam closed their trade to the U.S. because a certain bank was going under which didn't have the cash to pay them. Collateral was not being accepted because the stock market was tanking. What good is a worthless stock? Cash only please is what Vietnam and other countries were asking for.

So yes it is a security issue from an economic stand point. Not military.

rxonmymind

Harley Davidson is a mini example. They were about to go under but the employees bought the company. Something like that.
Anyway, as much as I LOATH the banks I'm going to give credit to them a bit. Unless your in financials it was a remarkable & unprecedented time in modern history what they had to do. It was a military style campaign in every sense at the feds with all hands on deck and every financial brain working 90 hr weeks to keep this country from collapse. Keeping supplier paid while still keeping production going during BK was amazing. But only a sliver if the larger problems.
Sigh. It was a huge mess and WAY to complicated to get into. But amazing is the word I'd use. Having a brother on the inside gave me a tiny respect for what was happening and how they achieved stability in such a short time. Has it been six years? How long did the 1929 crash take to recover?

4TehNguyen

iTrader: (1)

wheres my taxpayer discount for a GM vehicle?

4TehNguyen

iTrader: (1)

auto delinquencies the highest since 2008. So during this "recovery" we have the delinquency rate of the great recession? Awesome

http://www.wsj.com/articles/car-loan...nts-1420768083