GM bondholders get crappy deal – UAW better off

I have not had too much time to review the “deal” floated yesterday concerning the restructure of General Motors, but a friend sent me a link this morning to a Washington Post article providing some of the details.

I read part of it, and what caught my eye was that the government, bond holders and the union would all end up owning a percentage of the auto giant. The fed’s $27 billion investment would give them a 50 percent stake in the company. Bond holders with about the same invested would get a 10 percent stake. Finally, the United Auto Workers would get about 40 percent of the company in exchange for $10 billion of the health plan funding for retired workers.

Go back and read that paragraph again please. I’m serious.

I read the information in the article and nothing clicked, until Ed Morrissey over at Hot Air picked up on what I totally missed.

Does anyone at the Treasury do math any longer?  The total sacrifice of all three parties would be $64 billion, of which the federal government and the bondholders are contributing the same percentage: 42.2%.  The UAW will contribute about 15.6%.  Why would the Obama administration expect bondholders to contribute 42% of the solution in order to gain 10% of the company?

Here is the important notes from the Washington Post article. Read the full article.

He [White House press secretary Robert Gibbs] said the government “could have gotten nothing for something, or something for something” and that it insisted on a 50 percent stake to leave open the potential to recover some of the $18 billion the Treasury Department has already lent GM and the additional $9 billion that it would inject under the new plan. …

Under the proposed offering which GM filed with the Securities and Exchange Commission, investors holding $27.2 billion of GM bonds would swap those bonds for 10 percent of the equity shares of the restructured company. The United Auto Workers would get up to 39 percent of the company in return for half of the $20 billion GM owes to a health fund for retired workers. Current shareholders would get 1 percent of the new shares.

I understand that GM made a deal with the unions about health care and other benefits. I too understand that those deals were unsustainable in the first place. This deal puts the union way ahead of the bondholders who provided capital to GM at a time of need.

This action will simply ensure that private investors will avoid helping companies like GM and be risk adverse. Why would you want to put your money into a situation where unions and the federal government have the ability to pull strings like this?

But remember – this is exactly what liberal politicians and many Democrats want. They want you to depend on the federal government. It is all about control.

Update: This story is starting to get noticed. From Hinderaker at Power Line

As we’ve said for a long time, the only way to bring transparency and the rule of law to the issues raised by the troubled automakers is through a bankruptcy proceeding. Instead of that, we have a national-socialist type top-down restructuring carried out by politicians to achieve political purposes. It is deeply ironic, with hindsight, that the Left used to accuse the Bush administration of “shredding the Constitution.”

This is exactly what I expected. Remember this post I wrote in the days after General Motors CEO Rick Wagoner was shown the door?

What if Wagoner wanted to go the straight Chapter 11 route? This would allow the car not-so-giant to restructure while keeping operations rolling, stay protected from creditors, and allow the company to specifically rework union contracts.

Our guess – after review of Obama’s statement yesterday – is that this will not be a straight Chapter 11 bankruptcy, but a more modern union-friendly version using specific parts of the bankruptcy law to avoid having to renegotiate the union contracts.

Segway and General Motors – are we paying for this thing? Update – Video, Wolf says “No Thanks.”

General Motors – a.k.a. Government Motors – will be teaming with Segway Inc. to produce a self-balancing vehicle that can seat two adults and move through city streets at 35 miles per hour. It is based on the original stand-up Segway.

The Segway is a pretty cool thing that police departments and mail carriers have used to move an individual from point A to point B. By no means did Dean Kamen’s invention become anything more than a cool toy.

thumbnail-segway-pumaThe new Personal Urban Mobility and Accessibility (PUMA) vehicle – and I use the term vehicle loosely – can’t be any smaller, does not seem to have doors, bumpers, air bags or anything other than a seat belt for protection. This thing – and its occupants – could be killed on impact with a plastic newspaper vending machine. Click on the image to see a the article and a bigger picture of a prototype. This has very little similarities when compared with motorised chairs, and when you check it out here, you’d know what is being expounded.

Have you noticed that almost all of the purchases of the Segway have been by government entities? Well since the government now owns a good chunk of GM, I guess that our money is being used to design this death trap. (It’s a death trap if you’re stupid enough to ride in it on city streets)

The struggling auto maker, surviving on a government lifeline, is looking to generate enthusiasm for its increasingly uncertain future ahead of the New York auto show this week.

GM has slashed product-development programs, advertising and spending on auto-show events. But it will take to the streets of Manhattan on Tuesday to show off a prototype of the vehicle, called PUMA, for Personal Urban Mobility and Accessibility.

The Segway Personal Transporter was launched with considerable hype eight years ago but practical issues prevented the scooter from becoming a mass-market product, including its relatively high cost and restrictions on its use in many jurisdictions.

GM is betting PUMA’s more car-like traits — an enclosed compartment and top speed of 35 miles per hour — will lead to better results. GM didn’t say how much the machines would cost, but research chief Larry Burns said owners would spend one-third to one-fourth of the cost of a traditional vehicle.

Update (Jim): CNN’s Wolf Blitzer says no thanks. I do not wish to muck up Steve’s fantastic post but I thought you might like to see this downright silly, no market, government promoted, peddle pushing, carbon footprint hoaxing, GM product. And if this is the way they have been spending their research and development money … it’s no wonder they are bankrupt. Umm financially and otherwise.

And make sure you listen to what Wolf says at the end. I love the “liberal elite”. Don’t think they’ll be driving one of these things.


Will GM “bankruptcy” include renegotiation of union contracts?

What was the problem the Obama administration had with the General Motors plan to restructure the company? What was the plan GM CEO brought to the government that resulted in his ouster from the company? Read more

Totalitarianism? Update-Commentary

Newt Gingrich thinks it may be an over statement, but no question Geithner’s grab at Treasury to control financial institutions and Obama’s grab over at GM … translates into a power grab. Where will it stop?


Update 1: I never had the chance to comment on this. It is clear, after listening to Obama administration folks on TV today, that the control of GM is just the beginning and that this is but a warning shot. Obama’s folks feel flush with power over anyone that took bailout money, loan or not, and are not afraid to assert that power to reshape not just banking but corporate America as well.

Right now fear grips folks in banking and finance as well as on the street. Finance is frozen. You know, those people who you are asking for a loan, or invest your money for that new house, car or college. People in power in the industry most assuredly are not sure what moves to make on the chance that the government will either step in to void that deal in the name of “public good”. And while that fear freezes the financial system, my guess is its seeping into other industries as well, although I have no evidence that is the case.

The ends do not justify the means, so while some may be convinced that government asserting its will on business is the only way to cure a wounded system, Newt is right, in the end it will end the system itself.

Update 2: I apologize. I originally classified this under economics when in fact we are talking politics. My guess is it could be on either side, but I think it rightfully belongs here. Jim

Big Three? Maybe not …

Today, the external auditors for General Motors expressed their concerns over the viability of one of the three US car-makers:

“Auditors for General Motors today said there is “substantial doubt” that the struggling automaker will remain financially viable and able to continue operating, raising doubts about whether the company will have to declare bankruptcy or can continue to qualify for Treasury Department loans.”

In layman’s terms, this means that, all other things being equal, GM being in business in the near future (i.e. the next twelve months) is a questionable proposition, despite the billions the government has poured into the company.

A rational investor knows when to cut his losses…  any bets on the government’s next move?


Heads we lose, Tails they win…

GM has unveiled at least two portions of their recovery plan, submitted to and funded by the

First, the bad news

“General Motors Corp. will cut 10,000 jobs, or 14% of its salaried work force, this year as the auto maker struggles to cope with a steep drop in world-wide vehicle sales.

The job cuts are part of the plan the company submitted to Congress in December to secure bailout funding from the federal government. The company still has a week to submit an update on the restructuring plan’s viability.

Some 3,400 U.S. workers, or 12% of GM’s U.S. salaried work force, will be shed, with the bulk of the cuts happening by May 1. Most of those remaining will see a 3% to 7% pay cut on that date through year’s end, while executives will get a 10% reduction.

So much for the government being interested in creating or even protecting US jobs…

Now, this isn’t saying that it is all bad news over at GM… You tax dollar will be creating jobs… just not around here.

“SAO PAULO — General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.

According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to “complete the renovation of the line of products up to 2012.””

Who, exactly, is the government looking to “stimulate.”