What if GM did go bankrupt?

[DavidS]

This is a very interesting article...

What's even more interesting is that it was written 3 years ago.

The situation at GM has gotten worse. I'm now officially changing my position. I do not want GM bailed out. I realize that this would cost taxpayers a whole hell of a lot of money... but where does this stop? Where do we lend GM money today and in 6 months from now, they ask for another $25 billion and we face the same scenario?

I hate to say it, but if the economy is going to get worse, then let it get worse. Let's get everything that could collapse to collapse and everything that could be a problem into a problem. This way we know exactly what we're dealing with and we can face the problems head on. It's better for GM to collapse today than in a year from now just when the economy was starting to recover.

What If GM Did Go Bankrupt...
How investors, customers, and suppliers might fare under Chapter 11

After weeks of listening to analysts and pundits beat the drum about the possibility of a General Motors Corp. (GM ) bankruptcy, Chairman and Chief Executive G. Richard Wagoner Jr. decided he had heard enough. On Nov. 16 he declared in an internal memo to his 325,000 employees that bankruptcy is "unnecessary." There is no plan to file for Chapter 11 protection, Wagoner said flatly, calling such an action "contrary to the interests of our employees, stock- and bondholders, dealers, and our suppliers and customers."

In other words, Wagoner was calling bankruptcy unthinkable. And for a long time, that's exactly the way it seemed. GM has $34 billion in cash and could free up roughly $15 billion more selling various businesses. That alone should be enough to keep the company running for a few years. What's more, its cash-burn rate of $2 billion a quarter will slow down as a recent restructuring, which will eliminate nine factories and 30,000 workers over three years, takes hold.

But despite Wagoner's protestations, investors are clearly starting to ponder the unthinkable. The price of GM's credit-default swaps, which are insurance in case the carmaker can't pay back its loans, have soared in the past month. They now cost a premium of 12 percentage points of the value of the debt that they insure, four times what they cost in January. Few people believe that Washington would help bail out GM, as it did with Chrysler. Investors, suppliers, and employees, meanwhile, are starting to imagine how a GM bankruptcy would unfold and taking steps to defend themselves if it should happen. Some suppliers, for example, are trying to get shorter payment terms from GM in exchange for lower prices.

What would a GM bankruptcy look like? It probably would be the most massive Chapter 11 filing of all time -- a watershed moment in the history of American business, with far-reaching consequences for all of GM's stakeholders. While the direct impact on the national economy would be relatively modest, the Midwest would be hit hard by the combination of job losses at GM and its suppliers and benefits cuts for the company's retirees.

Plenty of observers believe that this suffering would be worthwhile, of course, if a stronger company emerged from bankruptcy. As airlines and steelmakers have done, GM could use Chapter 11 to rewrite union contracts, potentially enabling it to slash retiree benefits and close plants without having to pay furloughed workers. The auto maker could even dump tarnished brands and get bankruptcy court protection from dealer lawsuits. "Bankruptcy could do great things for GM," says William J. Rochelle III, a bankruptcy attorney with Fulbright & Jaworski LLP. But, of course, Chapter 11 is no sure bet. History is full of examples of companies that have emerged from bankruptcy simply to return in a few years. Here's a quick overview of how a GM bankruptcy might unfold for some of the key players:

Customers
One big risk of a bankruptcy filing is that it would cast such a pall over GM that sales would plummet. Consumers will buy airline tickets from a bankrupt company, but cars are a long-term commitment. Many buyers would worry (unnecessarily, in all probability) that GM wouldn't be able to honor its warranties. No U.S. carmaker has filed for bankruptcy in decades. But retailers such as KMart (SHLD ) and Hechinger and carmaker Mitsubishi all saw sales fall when their financial problems became widely publicized, notes Thomas T. Stallkamp, former Chrysler (DCX ) president and now the industrial partner for private equity firm Ripplewood Holdings LLC.

To stem eroding market share, GM could eventually use the lower costs achieved through bankruptcy to drop prices and lure more buyers, says Diane C. Swonk, chief economist with Mesirow Financial Services in Chicago. But cutting prices further could just exacerbate GM's already severe revenue problems. Its per-vehicle revenue of $21,000 is $3,500 less than rival Toyota's.

Rental car companies, purchasers of about 15% of GM's volume, would get nervous, too. They often sell their used models back to the auto maker. They're worried they would have to liquidate the cars themselves if GM went bankrupt, says Maryann N. Keller, a longtime GM watcher who sits on the board of Dollar Thrifty Automotive Group Inc. (DTG ). And, of course, if the company's retail sales are down, the value of used GM cars would fall, too. "GM should do everything it can to avoid bankruptcy," says Keller.

Suppliers
Big players like parts maker Tower Automotive Inc. and American Axle & Manufacturing (AXL ) rely on GM for a large chunk of their business. If its market share slid more quickly, they would suffer declines in revenue. The carmaker would try to keep the disruption to key business partners to a minimum, but many smaller parts makers could topple into bankruptcy, predicts Stallkamp. He says Ripplewood considered buying one thriving parts maker recently, a company with about $500 million in revenue. But it was too dependent on GM. If the auto maker stopped paying suppliers even just for a few weeks after filing, that company and a handful of others could end up in bankruptcy, he says.

That's why some parts makers are starting to open talks to get paid sooner. GM has already stretched payment terms out to two months in most cases. Suppliers are also trying to diversify their sales with other auto makers, relying less on a GM that will be downsizing for the foreseeable future.

Pensioners and Employees

If GM went belly-up, retirees, workers, and taxpayers could all take a hit. Right now, its $90 billion pension fund is fully funded on an accounting basis. But the government-backed Pension Benefit Guaranty Corp., which acts as a safety net for corporate pension plans, says GM is underfunded by $31 billion.

How that would play out in a GM bankruptcy would be complicated. The PBGC could be on the hook for billions in pensions. The agency also could force the Detroit giant to keep funding its own pension plan even in bankruptcy -- though the company could make the case that it should pay less. Still, GM's 450,000 retirees would get hit: They may end up with smaller pension payouts, and their medical benefits, as well as the health-care plans of existing workers, would most likely be whittled back.

Investors
GM's creditors would also stand to suffer. The company has $31 billion in long-term debt, most of it due in 2023 and beyond. Of $34 billion in cash, $15 billion is in a fund earmarked for health-care liabilities. Who knows how much will be left in a few years? Fitch Ratings analyst Mark Oline says GM will have to spend some cash to pay for its announced restructuring and could still have to pitch in to help its former auto parts arm, Delphi Corp.

That raises the possibility that creditors won't recover their whole investment, as was the case in the bankruptcies of United Airlines (UALAQ ) and telecom firms Winstar and Teligent. By the time of a GM filing, however, many of the company's debt holders may be risk-savvy investors like Wilbur L. Ross. Turnaround whizzes like Ross buy distressed debt to get a voice in restructuring plans and then seek an equity stake when a company emerges from bankruptcy.

Stockholders, however, usually get wiped out. That fact may also play a big role in keeping GM out of bankruptcy. Even if it wanted to file, billionaire Kirk Kerkorian would do everything to fight the move. His 9.9% stake is already underwater by about $350 million. Kerkorian and other large shareholders -- many of whom have suffered longer -- could band together and force management to fix the business without bankruptcy. One source familiar with Kerkorian's tactics says he wants to see a deep restructuring plan done quickly, and outside of the courts.

That would be the best for all concerned, so long as the company faces up to the enormity of its current mess and executes a plan that finally stands a chance of working.

What If GM Did Go Bankrupt...

 

[Grismonda]

To be serious, though, nobody really knows what will happen if the car companies go bust.

One theory of economics holds that it will send the country spiraling into a depression.

Another suggests that in the absence of US auto makers, workers will be able to get jobs in related fields (airline building, etc) or retrain, and although things will be tough at first, it will work out.

There are also many more theories of economics, which is why it's basically a worthless science which has been given the job of predicting the future. And we all know how easy that is.

Economists are only right in hindsight. They are like weathermen who have no meteorological equipment.. They just say "looks like rain, so let's say it will rain" and sometimes they are right and it rains, and sometimes not.

Then the contrarian economists say "it looks like rain, so it will probably be a sunny day."

 

[dilloduck]

To be serious, though, nobody really knows what will happen if the car companies go bust.

One theory of economics holds that it will send the country spiraling into a depression.

Another suggests that in the absence of US auto makers, workers will be able to get jobs in related fields (airline building, etc) or retrain, and although things will be tough at first, it will work out.

There are also many more theories of economics, which is why it's basically a worthless science which has been given the job of predicting the future. And we all know how easy that is.

Economists are only right in hindsight. They are like weathermen who have no meteorological equipment.. They just say "looks like rain, so let's say it will rain" and sometimes they are right and it rains, and sometimes not.

Then the contrarian economists say "it looks like rain, so it will probably be a sunny day."

gotta agree with you on that one---when Greenspan and the gang jsut shrug their collective shoulders and claim they had no clue things were gonig to bust, you gotta wonder.

 

[Sunni Man]

In one way or another, the Jewish bankers are going to make a ton of money in this economic melt down. They always do!!

 

[dilloduck]

In one way or another, the Jewish bankers are going to make a ton of money in this economic melt down. They always do!!

No doubt about that one--The media is doing a tremendous job protecting them from racial retribution.

 

[DavidS]

In one way or another, the Jewish bankers are going to make a ton of money in this economic melt down. They always do!!

Fuck you - get your fucking anti-semitic bullshit out of here. You want to talk about an industry that the Jews have capitalized upon, talk about the Nobel Prize. How many Muslims have received that again? 7. How many Jews? 177. And the Muslims outnumber the Jews 1 billion to 20 million. The Jews have contributed more to the world society than any other faith in the entire world.

 

[dilloduck]

Fuck you - get your fucking anti-semitic bullshit out of here. You want to talk about an industry that the Jews have capitalized upon, talk about the Nobel Prize. How many Muslims have received that again? 7. How many Jews? 177. And the Muslims outnumber the Jews 1 billion to 20 million. The Jews have contributed more to the world society than any other faith in the entire world.

How is truth anti-semitic?

 

[Sunni Man]

Just look at the names of the big private finicial institutions the government is bailing out. Typical Jewish last names like Goldman or Sachs. Or just look up the names of the main players and owners of the banks and major brokerage houses. They are all Jewish or Jewish controlled.

 

[DavidS]

Just look at the names of the big private finicial institutions the government is bailing out. Typical Jewish last names like Goldman or Sachs. Or just look up the names of the main players and owners of the banks and major brokerage houses. They are all Jewish or Jewish controlled.

And look at the names of the 19 people who killed 3000 people and injured nearly 10,000 more. All Arab Muslim.

 

[Sunni Man]

You want to talk about an industry that the Jews have capitalized upon, talk about the Nobel Prize.

The Nobel Prize is an Industry

 

[Annie]

Just look at the names of the big private finicial institutions the government is bailing out. Typical Jewish last names like Goldman or Sachs. Or just look up the names of the main players and owners of the banks and major brokerage houses. They are all Jewish or Jewish controlled.

The topic of THIS thread?

 

[Sunni Man]

And look at the names of the 19 people who killed 3000 people and injured nearly 10,000 more. All Arab Muslim.

Actually DavidS, that's a good comparison.

Muslim terrorists are NO different that Jewish banker terrorists.

They are both out to destroy America.

 

[DavidS]

Actually DavidS, that's a good comparison.

Muslim terrorists are NO different that Jewish banker terrorists.

They are both out to destroy America.

Go to hell.

 

[GigiBowman]

And look at the names of the 19 people who killed 3000 people and injured nearly 10,000 more. All Arab Muslim.

You appear to be very Anti-Arab/Muslim. We need to come up with a word for that.

Racist?

 

[DavidS]

You appear to be very Anti-Arab/Muslim. We need to come up with a word for that.

Racist?

And where are your comments about Sunni being anti-Jewish?

 

[Sunni Man]

And where are your comments about Sunni being anti-Jewish?

I am not against Jews. They are a clever and fun loving people.

I am just pointing out that for some reason. Jews who are self centered and immoral are drawn to the banking industry and destroy alot of people.

How can you defend these economic parasites???

 

[GigiBowman]

And where are your comments about Sunni being anti-Jewish?

That's a given and since you make sure to tell us daily no need to point it out, it would be redundant....

but I'm pointing out to you, that you are no different.

 

[DavidS]

That's a given and since you make sure to tell us daily no need to point it out, it would be redundant....

but I'm pointing out to you, that you are no different.

19 out of 20 of the world's current conflicts are being caused by Arab-Muslims. I'm not against ALL Arab-Muslims, I'm against the ones who want me dead and want to rule the world for themselves.

 

[Red Dawn]

I am not against Jews. They are a clever and fun loving people.

I am just pointing out that for some reason. Jews who are self centered and immoral are drawn to the banking industry and destroy alot of people.

How can you defend these economic parasites???

Do you have a credible link, besides mein kampf, for evidence of jews controlling the banks?

I just spent 2 minutes on google, and none of the CEOs of the tops 5 US banks are jewish. They're all white, gentile dudes. Mostly with anglo-saxon names, one indian-american, one greek-american,and one croatian american name.

 

[Sunni Man]

19 out of 20 of the world's current conflicts are being caused by Arab-Muslims.

Please provide a list or link to this absurd statement.

Thank you