Auto Sector Troubles

[Michael]

GM to Offer Two Choices: Bankruptcy or More Aid

General Motors Corp., nearing a federally imposed deadline to present a restructuring plan, will offer the government two costly alternatives: commit billions more in bailout money to fund the company's operations, or provide financial backing as part of a bankruptcy filing, said people familiar with GM's thinking.

The competing choices, which highlight GM's rapidly deteriorating operations, present a dilemma for Congress and the Obama administration. If they refuse to provide additional aid to GM on top of the $13.4 billion already committed they risk seeing an industrial icon fall into bankruptcy.
Source (http://online.wsj.com/article/SB123458663412987489.html)

So, the time is drawing near. What do you think the Obama Administration ought to do about this pressing issue?

I think it is significant that GM is drawing attention to the Chapter 7 vs Chapter 11 issue (indirectly) that is the core financial choice for the government to make. Up until now, it has only been private analysts discussing that issue - now GM is admitting it. :eek:

Just to make that point perfectly clear - Chapter 11 bankruptcy allows a company to be fully restructured. However, chapter 11 bankruptcy requires some form of (private market) 'bridge' financing. In the present financial markets, private market 'bridge' financing is just NOT available for GM at this time. Ergo, bankruptcy for GM - at this time - forces GM into Chapter 7 bankruptcy which is just a big asset fire-sale liquidation game.

Lets just say that Chapter 11 for GM would be ugly and painful, but necessary. Chapter 7 for GM would be absolutely devastating to the US economy.

[Americano]

Source (http://online.wsj.com/article/SB123458663412987489.html)

So, the time is drawing near. What do you think the Obama Administration ought to do about this pressing issue?

I think it is significant that GM is drawing attention to the Chapter 7 vs Chapter 11 issue (indirectly) that is the core financial choice for the government to make. Up until now, it has only been private analysts discussing that issue - now GM is admitting it. :eek:

Just to make that point perfectly clear - Chapter 11 bankruptcy allows a company to be fully restructured. However, chapter 11 bankruptcy requires some form of (private market) 'bridge' financing. In the present financial markets, private market 'bridge' financing is just NOT available for GM at this time. Ergo, bankruptcy for GM - at this time - forces GM into Chapter 7 bankruptcy which is just a big asset fire-sale liquidation game.

Lets just say that Chapter 11 for GM would be ugly and painful, but necessary. Chapter 7 for GM would be absolutely devastating to the US economy.

I feel it's an issue that requires evaluation of what the economic loss would be by liquidating GM and/or Chrysler versus how much public money it requires to maintain their operating overhead for an undetermined period of years.

The pension guarantee fund, the taxpayer, will pay for their retirement/benefits one way or another. Far less than they received under the UAW contracts, it'll revert to SS and Medicare. That's a big chunk of overhead.

Toyota is planning for a 30% drop in production with no formal announcement as to when they forecast improved markets. The last I read GM was forecasting on production levels high above worst case market scenarios. That's going to be a big additional loss for who knows how many tears.

I can go on but you know the lingo and all that really counts right now is if Obama has or can afford the political capital to pull the plug. He's not stupid but he is at the mercy of a system with a lot of jobs in a lot of states with powerful congressional members. He's already stated he'll go the extra mile for unions.

I say feed them a little at a time, which will encourage tighter management since they're beyond private sector recapitalization. That allows for the necessary micromanaging as GM is still acting arrogant, blaming the union, depending on popular approval to support their stance. If the cost doesn't pass muster in whatever point of desperation we're facing, drop the hammer. Judging by the rate of unemployment, I think public sympathy for those who have jobs maintained by the government will quickly wan. Hopefully one of Obama's priorities is establishing the social safety net that looks like a real threat.