The New York Times reports that the Treasury Department wants G.M. to start making plans for a June 1 bankruptcy filing
:
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.
As previously noted, since those bondholders are led by the Reigning Non-Concession Champions at J.P. Morgan Chase, sounds like June 1 will see new CEO Fritz Henderson -- or his duly appointed legal team -- filing for Chapter 11. This raises two big questions:
1). Where will they file? Time's Barbara Kivat had an interesting piece about this Thursday, showing that G.M. seems most likely to file in New York or Delaware, far from the many small creditors it may end up owing money. Venue shopping in bankruptcy is apparently pretty popular:
Lawyers — particularly those based in New York City and Wilmington — say the process helps shepherd complicated cases into the hands of experienced judges. Yet some legal experts argue that venue-shopping is a way for companies to run from local suppliers, creditors and employees, making it tougher for those groups to file claims and otherwise participate in the case. "The autoworkers live around Detroit," says Lynn LoPucki, a law professor at UCLA. "You go to New York, and suddenly all of those workers can't sit in the courtroom."
Kivat also notes that John Cornyn argued for changing the bankruptcy code in 2005 to make venue shopping harder, and was opposed by then-Senator Joe Biden. Delaware, by the way, is the chosen venue for 34 percent of national bankruptcy cases. But surely Biden's busy running the Middle Class Task Force, and won't be able to influence those decisions in any way. Right?
2). What will the post-bankruptcy G.M. look like? BusinessWeek says that G.M. has been considering a good G.M./bad G.M. plan "for months," where a new company would be formed that would quickly, with some government support (say $7B) buy Cadillac, Buick, and GMC and -- possibly within a few weeks -- re-emerge as a profitable company, while bad G.M., a conglomerate including Hummer, Saturn, and a bunch of owed pensions and empty (or soon-to-be) factories, would languish in court. (I'd like to recommend the logo above as the new face of Bad G.M., by the way). Bondholders would take a haircut at the hands of the court and try to get their money back from liquidation of Bad G.M. assets, while the pension fund could eventually, the NYT says, be turned back over to Good G.M. to deal with.But not so fast. What's to say that JPMC and friends won't hold GM -- good or bad -- up in court and press for liquidation to get their money back? Faith in their goodness and desire to see the American auto industry... OK, I can't even finish the sentence. Unless my Chapter 11 understanding is rusty, creditors can ask the court to push a business into Chapter 7 liquidation -- and even if the court doesn't agree, just going through the motions of requesting and denying it would take time.
Bottom line: G.M. wants to restructure out of court, because once it gets into court, it could be a long, ugly, uphill battle that will devalue consumer confidence in it exponentially with each passing week. The government wants GM to prepare for bankruptcy, because it looks likely, and is hoping that the process can be swift for the more profitable brands. The bondholders and UAW members, neither of which has been particularly willing so far to grant G.M. concessions out of court, would have to do so very quickly in court to make that happen.
Can you guess how this will end?
TIP:
Enter the amount, and click "Tip" to submit!
Redstocking Grandma
cmnaylor
Kathy Riordan
aging hippie chick
Poet of Logan Square
Just Cathy
Salon.com
Comments
but there they all are, with their eyes in the headlights, and their hands in our pockets.
The only hope is that it is a case of getting ugly before it gets better.
We all guessed, without knowing the company during the exercise, that these guys would be out of money by mid 09 or early 10.
The pension obligation is a killer. The car operation loses billions with the money made up through GMAC which has also now tanked.
Their core business -- car making -- lost money for years, with the financing arm making up the difference.
Bad GM sheds the pension obligation. Carl Icahn called for this practically ten years ago.
http://www.taipanpublishinggroup.com/taipan-daily-040309.html
Workers don't have that protection and will be devastated. But that's what bankruptcy court union busting is all about:
http://www.makingsteel.com/delphicase.html
Or to mixin a new metaphor, the fascist approach, a la China, appears to be the answer. We elected Obushama.
When Japanese quality and shipping costs were an issue, that cost difference was not a huge deal. Quality improved, and they built plants on our shores, hence taking down the entry barrier that enabled the US auto companies to survive with that cost disadvantage.
Management and union alike share in the blame for that, as the benefits concessions were a long-term obligation. Management was rated on quarterly performance and had to get them back to the table. A pension benefit kicking in a decade down the road had no impact on management.
Conversely, union leadership will be older and more inclined to be attuned to such benefits as they are looking at their retirement whereas younger folks would want the cash impacting short term operating performance.
So there was moral hazard in the overall bargaining units as no one cared about the long-term implications.
Those chickens came home to roost.
It is not the SOLE reason for the demise, but it is a huge contributing factor. The cost disadvantage meant less to invest in R&D and other measures, yadda yadda. It slowly choked the company.
I don't care so much about the shareholders, or JPMC, etc., or even about whether or not we are a major car manufacturer...
...but those autoworkers' jobs are important, and not just in the present economy, but in the future. We ALL benefit from the advantages accrued by unions. They've already made a lot of concessions. Bankruptcy may mean even more. Pensions? What pensions?
Saturn would be good for this particularly because they are already producing light cars. In fact, many DIY gas to electric conversion projects use Saturns for just that reason. The company would have to get a lot smaller, of course, and offer just a few models at first. But it would be nice to at least look at the possibility. No use letting that capacity go to waste.
Onto whom is the question that is never answered. The workers bargained away wages for said benefit. Who are you (or Icahn) to unilaterally say, "Do Over"; you folks don't deserve pensions. There have been studies (check my posts), which found that net wage between Southern foreign auto plants and unionized North plants were within a dollar or two. Why should workers, retired and current, be the ones to take the hit for lousy management? Do you know that Nissan designs their cars with American designers in California? At least, they did last time I checked. A lousy car, no matter how cheap, won't sell. If you disagree, then I should be able to find a Yugo or two to sell you.
If, on the other hand, you assert that the lowest wage SHOULD be the prevailing wage for each category of labor, then you should really start a Friends of Malthus club someplace. And be careful what you wish for: the open borders notion of Reagan/Bush/Gingrich/Bush cabal is seeing to it that high skill categories are punished by foreign countries. Whether Obama, and his Goldman Gang, will stop that is a bet I won't take. Do you really think they'll exempt your line of work forever? Do you really think that if Roto-Rooter wanted 10,000 Indian plumbers brought over, at $2.00/hour, that Obushama would stop them?
Which raises the question: what is the purpose of the USofA, anyway? Is it merely a stratagem for capitalists to privatize profits and socialize costs, while concentrating income/wealth into a decreasing number of households? Thus reducing demand, and prices, and oh by the way, increasing the value of their wealth? That is what has happened since Reagan; even the R/B/G/B statistics demonstrate this.
Do you really think they'll let you in the club?
Or does the USofA have a higher purpose? If so, what do you imagine that might be? The unfettered access to assault weapons? Would that be sufficient recompense for enforced penury?
That question has been answered time and again in unsatisfactory fashion which happens to be they get shoved over onto the medicaid system.
The other side of that coin, Mr. Young, happens to be if you do not shed cost, you lose the whole kit and caboodle. Is it better to force GM to stay with the badly bargained past practices and see the entire thing go down, or to find ways to push back, receive concessions, and manage to have an ongoing entity that can continue employing people, albeit at lower numbers than in the past.
Sure. Stand on principal. Wail into the night sky about the unfairness of it all, but the bottom line happens to be that if they continue choking on the accumulated effects of bad business deals NEGOTIATED BY BOTH SIDES, the entire entity will collapse under its own weight.
Some purists argue that is a good thing. Let GM disappear. The assets in a chapter 7 fire sale get picked up by the Nissans and Hondas of the world and the workerbees assimilate back into a burgeoning work force.
That is the other extreme to insisting it all stay in tact and magic wands get waved to make them competitive.
Moderation and acknowledgement of reality suggests a middle course somewhat tough to see with any clarity from either of those extremes.
Umm. Last time I looked, a pension wasn't health care. So, do retired autoworkers deserve to be disenfranchised of their pensions? If one so asserts, how does this help get us out of the mess we're in? Or do we assert that we need to further concentrate income/wealth from the 1% and 22% we now have (and which is at the levels leading up to and through the Great Depression) to, say, 1% and 40%? Or is there some other magic level of concentration which represents the ideal American economy? How much concentration is enough? What rules, if any, should there be to manage concentration? Or, should there be no rules?
One approach, not embraced by the Wingnuts, is to encourage unionism across the fascist South. Remember, we got into this mess because of income inequality. Increasing income inequality, by disenfranchising those not of the Goldman Gang, won't fix the problem. Doing this incrementally, hoping no one will notice, won't work either.
If GM is forced to keep all of its non performing assets and functions, then it will cease to exist, costing thousands of jobs. If allowed to shed some of these, it will continue to operate, employing some of the remainder.
The part shoved over onto medicaid that is most assuredly part of a pension, Mr. Young, happens to be the medical portion, which for the aging demographic is a very high component.
Are you at all familiar with risk pools for insurance and the associated costs related thereto? These would be components skyrocketing over the years, particularly for the elderly and hence why this would be something they would be eager to shove over onto the government side of the ledger.
Think of it as merely a little early co-opting of the universal health care aspect.
I will be more than happy to continue in civil fashion. If not, so be it.
My father, who is 67, must work full-time at Wal-Mart, and not as a greeter, but a stocker. That's hard, physical work, at almost 70. Since most of the doctors refuse to accept Medicaid, my dad HAS to work so as to keep he and my mom's access to decent healthcare. Also, their combined Social Security is not enough to cover them financially.
I'm not sure what GM should do about their pension obligations, but I do know that if the Treasury Department can throw trillions at wealthy bankers they can throw a few billion to people who worked hard their whole lives in anticipation of a little R&R before they drop dead.
ktm, notice: it's a wrecked SATURN! Which I also hope is not the ending to this, on many levels. I don't think pensions are totally in trouble -- something will be worked out, but that something might be handing them off to the government pension management system. Oy yoy yoy.
AustinCynic, for a minute I thought you were suggesting I personally merge with Tesla (and was thinking about the band). But I agree -- it makes me sad that Saturn is going to be part of the "bad" group here, and as such all of their green technology might get tied up in the bad package and denied further investment for a long time.
Rob, my hope is that the talks of GM pension plan being handed back to good G.M. over time is more than talk -- there's some precedent from an earlier steel company dissolution of this kind. But you're absolutely right: this could end tragically for many, many retired folks.
Thanks, everyone, for the comments, and sorry for the delay (and brevity) in responding.
The reference to Wingnuts is taken from the "Ask a Wingnut" serial on Salon. It's kind of interesting. Not a reference to you, so far as I know. I issue no apology to True Wingnuts.
As to the very idea of unions: there is in economics the notion of "countervailing power"; when there is monopoly/oligopoly (monopsony/oligopsony) the free market no longer exists and the only recourse to tyranny is a balancing power. Unions fill this need. For example, at the moment 4 banks control (with taxpayer assistance) 40% of the banking function. That, I argue, is not a free market. Such levels of concentration require countervailing power. Without such, we get fascism, read: China/India/Russia/etc. You may welcome such an outcome. I do not.
>> Are you at all familiar with risk pools for insurance and the associated costs related thereto?
I've spent a number of years in various parts of the insurance industry, so yes. The Wingnuts have opposed the notion of broader coverage, by lowering age requirements for example, for Medicare. One of the main benefits of lowering the age requirement (broaden coverage) is to do what Risk and Insurance 101 tells you will happen: risk will be diluted by including less risky individuals. What the insurance industry always tries to do is to narrow risk, by defining ever more narrow cohorts from which they pick and choose to cover; leaving the rest to be dealt with by Government or not at all. There is a reason HMO came to be code for Healthy Members Only. Socialize cost, and privatize profits, as usual. The fallacy, and there always is one, is that sooner or later we all become risky. This is why civilized countries have universal coverage. Contrary to Wingnut Propaganda, people in such countries really are healthier than here. Maybe not so easy to get a nose job, but priorities matter.
The issue is whether our society devolves to Soylent Green or Dickens' London or Mumbai of today, courtesy of the Goldman Gang and fellow travelers. Those that seek such an outcome need only admit it.
Whether you are in the market for a new car or not, we all need to get back into the showrooms and see the cars and trucks that we invested in.
Please forward to anyone you feel has been impacted by this economy.
http://www.youtube.com/watch?v=pW--vyWE98U
Thanks in advance!
Chris Kilcullen