GM's Bankruptcy is Certain

[jasik]

LINK

Fortune article claims that GM's bankruptcy is a foregone conclusion. The next question is what will Ford do if GM goes into bankruptcy? Will Ford follow suit, as it usually does? If yes, does this mean that the Ford family will lose its control? If no, will the Ford family stay the course and manage to save Ford?

[ZanatWork]

Ford's still profitable globally, and is putting the right pieces into play to fix the North American situation.

 

I don't see them playing "follow-the-leader-into-recievership", regardless what the analysts babble. I'm not real impressed with their ratio of correct predictions.

Edited February 6, 2006 by ZanatWork

[silvrsvt]

This is one thing I dont see Ford following GM into..GM has been mismangaged for well over 15-20 years and it will take nothing short of a miracle for them to turn it around without being a seriously smaller company then they are now.

[68Cougar]

GM has been mismanage for over 20 years. The only way for them to survive is to become a smaller, more nimble company.

 

Ford won't follow GM, because the family will not want to lose control.

[Sizzler]

Apparently even GM thinks bankruptcy is a foregone conclusion if they're making plans to build a new Camaro...from the Wall Street Journal...

 

How is GM expecting to handle the CAW agreement prohibiting production of a Camaro anywhere other than at the St. Therese plant (which GM has thoughtfully torn down). Ask them if they've paid back the $220 million (CDN) of no-interest loans (due in 2017) and $100 million in incentives they got when they promised the Camaro would never be built anywhere else.

 

I know GM's flush with cash right now, so they probably paid Quebec back already....of course bankruptcy could allow them to void those sorts of agreements.

[pcsario]

Apparently even GM thinks bankruptcy is a foregone conclusion if they're making plans to build a new Camaro...from the Wall Street Journal...

 

That's VERY interesting... B)

[wildosvt]

How is GM expecting to handle the CAW agreement prohibiting production of a Camaro anywhere other than at the St. Therese plant (which GM has thoughtfully torn down). Ask them if they've paid back the $220 million (CDN) of no-interest loans (due in 2017) and $100 million in incentives they got when they promised the Camaro would never be built anywhere else.

 

I know GM's flush with cash right now, so they probably paid Quebec back already....of course bankruptcy could allow them to void those sorts of agreements.

 

 

That whole mess is done. The contract to produce it there has ended. They need to get with the times eh? :lol:

[PoorBob]

GM will not file Chapter 11. It's just not an option for a full-line automaker.

 

Chapter 11 bankruptcy is a tool companies use to cancel debts, void contracts and restructure their businesses so they can survive. The law allows this because it's assumed that more people benefit from keeping a company alive than letting it die.

 

Now look at this from a consumer point of view.

 

Would you trust a company that was in bankruptcy? It's not just union contracts that could be voided, it's service contracts and warrantees.

 

Dozens of surveys have shown that people will not buy cars from bankrupt automakers. Hell, people stopped buying Oldsmobile's even when GM was spending millions on marketing to say they would still service the vehicles.

 

If GM were to go into Chapter 11, all but the most loyal buyers would abandon them. Their revenues would dry up immediately, and the company wouldn't be able to make payroll or pay suppliers for parts. Instead of getting time to restructure, GM would speed up the death of the company.

 

GM has only two options, reform its business to the point where it can service its debts and cover future expenses or liquidate.

 

In fact, the company has been slowly liquidating itself for years. It's sold off lots of assets over the years, and that will continue. If things don't turn around, don't be surprised if GM sells Hummer, Saab and some of its other brands outright.

 

If GM fails to restructure, it will die slowly by shedding pieces of itself until it is just Chevrolet and Cadillac. If it's still too bloated to survive by then, it will liquidate -- end production of those brands and cease to be. Bankruptcy restructuring is just not an option.

 

This information comes, indirectly, from GM Chairman Rick Waggoner. About a year ago, David Cole with the Center for Automotive Research in Michigan first mentioned the possibility of a GM Chapter 11. Waggoner called Cole up and had him meet with GM executives who explained the impossibility of a major automaker using the bankruptcy process. Cole now shares that side of the story with anyone who will listen.

 

Bob

[630land]

Another article in Frobes, from Jerry Flint says "Bankruptcy, shcmankruptcy". I.E. ain't gonna happen.

[marc-o]

GM has been mismanage for over 20 years. The only way for them to survive is to become a smaller, more nimble company.

 

Ford won't follow GM, because the family will not want to lose control.

 

I agree... GM's bankrupty is all but certain... I'm positive it will happen in the next 5 years, probably in the next 2 or 3. Ford on the other hand isn't in nearly as much trouble and is in a better position to recover. That and Ford's management isn't intent on plundering the company.

 

GM will not file Chapter 11. It's just not an option for a full-line automaker.

 

Chapter 11 bankruptcy is a tool companies use to cancel debts, void contracts and restructure their businesses so they can survive. The law allows this because it's assumed that more people benefit from keeping a company alive than letting it die.

 

Now look at this from a consumer point of view.

 

Would you trust a company that was in bankruptcy? It's not just union contracts that could be voided, it's service contracts and warrantees.

 

Dozens of surveys have shown that people will not buy cars from bankrupt automakers. Hell, people stopped buying Oldsmobile's even when GM was spending millions on marketing to say they would still service the vehicles.

 

If GM were to go into Chapter 11, all but the most loyal buyers would abandon them. Their revenues would dry up immediately, and the company wouldn't be able to make payroll or pay suppliers for parts. Instead of getting time to restructure, GM would speed up the death of the company.

 

GM has only two options, reform its business to the point where it can service its debts and cover future expenses or liquidate.

 

In fact, the company has been slowly liquidating itself for years. It's sold off lots of assets over the years, and that will continue. If things don't turn around, don't be surprised if GM sells Hummer, Saab and some of its other brands outright.

 

If GM fails to restructure, it will die slowly by shedding pieces of itself until it is just Chevrolet and Cadillac. If it's still too bloated to survive by then, it will liquidate -- end production of those brands and cease to be. Bankruptcy restructuring is just not an option.

 

This information comes, indirectly, from GM Chairman Rick Waggoner. About a year ago, David Cole with the Center for Automotive Research in Michigan first mentioned the possibility of a GM Chapter 11. Waggoner called Cole up and had him meet with GM executives who explained the impossibility of a major automaker using the bankruptcy process. Cole now shares that side of the story with anyone who will listen.

 

Bob

 

Right, but I think this is an oversimplification...GM needs to restructure but won't be able to get the restructuring it needs done without going into bankrupty (Ch. 11 or other). UAW won't let it happen that easily, neither will the body of dealers, nor consumers who will sue for warranty coverage. The only way GM has a chance at doing the kind of restructuring it needs is if those obstacles are gone... and it hasn't been able to get those monkeys off its back for the last 20 years... they're not going away until something drastic is done.

 

Chapter 11 is often a choice to negotiate a way out of debts/obligations... even if in this context it could kill GM's customer base, that's based on the idea that they have a choice... they may not.

[RichardJensen]

Ideally, government guaranteed loans from private banks would allow GM to recapitalize, provided that GM undergoes a massive top-level restructuring. As was mentioned in the article: The guys that got GM into this mess are not going to get them out.

 

...

[fllcobra]

GM will not go bankrupt. Not now and not any time soon. However, it will file for bankruptcy protection and reorganize its operations. This move is the only way GM can renegociate the legacy costs. If GM spins off Hummer and Saab... it will mean that filing will happen shortly thereafter.

[Missouri Mule]

I've thought for some time that GM has no real choice but to go Chapter 11. It will do so to shed its legacy costs. But that brings with it a bigger risk to Ford in that in so doing it will give the GM coming out of Chapter 11 a competitive advantage to Ford which will still have the legacy costs.

 

The government will not bail out GM. There's no money in the kitty.

 

GM doesn't have the product line. They can't sell them. They put all their eggs in the SUV/Truck market. $3.50 a gallon and they are DOA.

 

GM is probably worth more dead than alive. The best plan for Ford would be for GM to simply liquidate the company sell off its assets, real estate and everything and distribute the money to the shareholders and employees. At that point Ford would be in the driver's seat because by default Ford would inherit all of the loyal American domestic buyers such as myself with two new Fords in my garage. Ford has the product, the goodwill, and will have the market to itself (for the domestic market) and could remake itself into the premier American company in future years. But GM has to liquidate first. A Chapter 11 and reorganization and a smaller GM coming out with legacy costs gone puts Ford into the worst possible situation. Then it is Ford against GM with lower costs of $1500 per vehicle and Toyota. That's a "lose-lose" situation. Better hope for liquidation of GM.

Edited February 8, 2006 by Missouri Mule

[RichardJensen]

The government will not bail out GM. There's no money in the kitty.

Doesn't have to front the money, just guarantee payment on loans.

 

Kind of like your student loans, only in the billions of dollars. In return the gov't would get first claim on assets in the event of a bankruptcy, kind of like how you can't get rid of student loan debt during a bankruptcy filing.

 

...

[PolarBear]

GM will not go bankrupt. Not now and not any time soon. However, it will file for bankruptcy protection and reorganize its operations. This move is the only way GM can renegociate the legacy costs. If GM spins off Hummer and Saab... it will mean that filing will happen shortly thereafter.

 

Don't watch Hummer and Saab, watch the 600-lb gorilla. GMAC. GM's under some pressure (at lot of it from the Fed) to sell GMAC. The reasons are pretty obvious- the third-largest mortgage originator in the country is joined at the hip to the manufacturing disaster. It remains to be seen how badly GM actually wants to sell, though.

[pffan1990]

Nah, I don't think GM will sell off Hummer. Why, the Governator (Ahnold) won't allow that to happen.

[NickF1011]

Don't watch Hummer and Saab, watch the 600-lb gorilla. GMAC. GM's under some pressure (at lot of it from the Fed) to sell GMAC. The reasons are pretty obvious- the third-largest mortgage originator in the country is joined at the hip to the manufacturing disaster. It remains to be seen how badly GM actually wants to sell, though.

 

 

Didn't GM just FINISH selling the mortgage arm of GMAC? Coulda sworn I heard that on the news. Or maybe it was a Monday morning and I wasn't awake yet. :boring:

[PolarBear]

Didn't GM just FINISH selling the mortgage arm of GMAC? Coulda sworn I heard that on the news. Or maybe it was a Monday morning and I wasn't awake yet. :boring:

 

No- they sold part of the commercial division, but there hasn't been a firm offer on GMAC itself. To tell you the honest truth, i don't think GM really wants to sell it- there's pressure from other sources.

[grbeck]

No- they sold part of the commercial division, but there hasn't been a firm offer on GMAC itself. To tell you the honest truth, i don't think GM really wants to sell it- there's pressure from other sources.

 

From what I've read, the downgrading of GM's credit rating is affecting GMAC, and hindering its access to credit markets. By giving up complete control of GMAC, the parent company alleviates this problem.

[PolarBear]

From what I've read, the downgrading of GM's credit rating is affecting GMAC, and hindering its access to credit markets. By giving up complete control of GMAC, the parent company alleviates this problem.

 

Correct- that's the line the Fed is giving GM. Gm, of course, has their own thoughts on the matter.

[pcsario]

Even if they sold it, there's a clause that says the new owners have to sell back their shares to them once they have the cash to buy them back.