This is just a disaster in the making:
In better times, many employees of General Motors called their company “Generous Motors” because of its rich benefits.
Now G.M. may stand for something else: Government Motors.
The latest plan for the troubled automaker, which is expected to file for bankruptcy by Monday, calls for the Treasury Department to receive about 70 percent of a restructured G.M.
Including the more than $20 billion that has already been spent to prop up G.M., the government will provide G.M. at least $50 billion to get the company through Chapter 11, people with direct knowledge of the situation said Tuesday. By some estimates in Detroit, tens of billions beyond that amount may be required.
The United Automobile Workers, meanwhile, will hold up to 20 percent through its retiree health care fund, and bondholders and other parties will get the remaining share. Shareholders would be virtually wiped out.
Weren’t shareholders already wiped out?
Can anyone find anything to be enthusiastic about in this plan? Anything at all? Would it be cheaper just to make a flat payment to their pension plans rather have the PBGC on the hook?
This whole story just made me want to throw up when I read it.
DougJ
How wiped out were the shareholders already? I mean, how much was the stock down already. And how much of its value was actually a result of the fact that there was some chance of a real government rescue?
b-psycho
Funny. The workers really should’ve got more of the company, now it looks like they’ll get less.
This’ll still be called soshulism though.
random asshole
@DougJ:
The 5-year chart for GM.
It was trading at $50/share in May 04, $20 in May 06, $10 in May 08 and $1.22 as of right now.
Kirk Spencer
Actually, I think it’s potentially one of the better plans I’ve seen. In general, when the government takes over a major business it’s turned out well for both the company and the taxpayer.
Lockheed in the 1970s.
Chrysler in the 1980s. (Yeah, the industry experts killed it after that, but it was very viable when it came out of government hands).
Penn Central (and a couple of others which failed in the process) which became ConRail.
That’s a short list. Bottom line, it’s potentially good news, depending on how much control/oversight the government gets as majority owners.
DanSmoot'sGhost
How many times do we have to go over this? It’s the dependencies, the suppliers and dealers, with their many thousands of jobs, and the fact that the suppliers are necessary to the rest of the car industry, and the ripple effects of losing that supply chain … in the middle of an already perilous economic scenario ….
Hello? Have we been reading the paper for the last 8 months?
GM cannot just be allowed to collapse. The air has to be let out slowly.
I can’t believe that after all this time we are still required to point this shit out.
ChrisS
I’ve been pretty amazed at the pushback in the press from the creditors who are peeved that they aren’t getting even money and the awful UAW are getting all the support from the Chicago partisan hack in the Whitehouse [/Limbaugh version].
I heard a story on even-the-liberal-NPR about how the police and teachers unions (who have retirement monies tied up in GM) are getting the shaft from the UAW in the former deal.
Now it appears there is no deal and the primary creditors are going to fall on their swords, wreck the system and fuck over everybody in order to prove a point.
What a country.
Zifnab
GM stock is sitting at $1.20 right now (although with news like this, I’m surprised its not a full blown penny stock). By comparison, last year it was sitting at $15 / share. Five years ago, it was hovering between $40 and $50.
http://www.google.com/finance?q=GM
DanSmoot'sGhost
@ChrisS:
Nobody said it was going to be easy or pretty.
Gramm was right. We are a nation of fucking whiners.
Zifnab
The unions – always ready to cut a deal for the greater good – are getting a larger share of the collapsing company than the bondholders who are stomping their feet, shaking their fists, and demanding all their money back on a shitty investment?
Le Gaspe! Truly, if nothing else is socialism, this is socialism. I wonder how a McCain Administration would have handled things?
The Other Steve
Hmm, maybe if GM goes bankrupt they can fire all their current enginerds and start hiring people who can design decent cars.
Punchy
Democratic stupidity, eh? Cuz all this shit went downhill in January, natch.
GM sales thru teh r0oph in December ’08! Obama is the AntiChryst…ler!
John Cole
@DanSmoot’sGhost: Of course we all understand that.
Dennis-SGMM
Here’s the Center for Automotive Research’s Best Case/Worst Case outcomes for the BK’s of Chrysler and GM. It’s in pdf format.
I don’t know if they have a particular axe to grind but they do seem to pretty well lay out their assumptions and the basis for their modeling techniques.
To summarize, their Best Case outcome of quick and orderly BK’s for both Chrysler and GM would result in the loss of 242,000 jobs with a loss of income of 13.4bn dollars through 2010. Worst case outcome of messy and protracted BK’s is a loss of 1,790,700 jobs and 95.1bn dollars in income through 2010.
My only question is how the fuck did it come to this?
SpotWeld
Large companies with huge amounts of goverment influnce artifically moving market conditons to support an outdated business model to spare the cost of investing in new technology and the preceived risk of shifting to meet new consumer trends by being so large that they can enforce a corporate monocultre?
ChrisS
@ 14
No, it’s the poor people.
Luc
Hey, there was always a great demand for the Trabant – the waiting time was 10 years or longer.
Martin
Yep.
Big companies generally don’t innovate. There are exceptions, but all large companies have to strongly fight the instinct to protect what they have, losing sight that in evolving markets, like autos, they’ve always lost the customer until the next model comes out and they have to win them back again. The days of your dad buying a new Buick every year just because are gone.
Remember, the whole concept of free market capitalism being good centered around a large and diverse market, where survival demanded innovation (price innovation is still innovation) and companies would regularly fail and be replaced by new competitors. A real capitalist economy would be full of Tesla Motors, not General Motors.
Once you get into Big-3 territory, true capitalism has long since died.
SpotWeld
Well, I would say it would be more like the current computer software/hardware market. Sure you have Microsoft and Apple, but they can still get “threatened” (sort of) from small upstarts. .. sort of.
baldheadeddork
In four letters, GMAC.
Rick Wagoner’s plan was to follow the model Jack Welch created at GE. Wagoner wanted to turn GM into a multi-faceted conglomerate that was best known for making cars, the same way GE was still identified with lightbulbs and appliances even though that was a small part of their business.
Like Welch, Wagoner saw financial services as the way to get there. GMAC bought Ditech in 1999 and took it national after Wagoner became CEO in 2000. When the mortgage meltdown kicked in to high gear starting in early 2007, the losses from GMAC drained GM of its cash. That in turned caused a downgrade on their credit ratings which made it impossible to borrow more. (There were also billions in losses from the everything-that-could-go-wrong spinoff of Delphi.) These non-automotive losses bled GM of its cash.
Chrysler failed for a similar reason. They didn’t get into the mortgage business (though Cerberus did buy 51% of GMAC at the very peak of the bubble in 2006) but Chrysler was heavily leveraged thanks to two mergers in a decade. Cerberus bought Chrysler expecting to flip the company in a year. When the market for that collapsed they were stuck with a cash-strapped company that had billions going out the door every month no matter how many cars they sold.
It beats Chapter 7.
TenguPhule
A year ago, almost half of this country voted for Palin.
Joey Maloney
Hey, no harshing on Trabant! I rode in one once from one end of Bulgaria to the other, and it was the most exciting three days of my life!
slappy mcdougal
What’s the problem? This is how bankruptcy works. The equity owners get wiped out, the bondholders take a haircut, creditors fight for scraps. The government’s Debtor in Possession (DIP) financing is first in line, so it’s most likely to get paid off relatively quickly. This should be the model for dismembering the tits-up banks.