Corner of Berkshire & Fairfax Message Board

General Category => General Discussion => Topic started by: KFRCanuk on March 31, 2009, 07:35:32 AM

Title: GM and Chrysler
Post by: KFRCanuk on March 31, 2009, 07:35:32 AM
Am I wrong in thinking that Obama is pre-announcing the bankruptcy of GM and Chrysler. They are telling consumers that their warranties will be backed by the Federal Government.

It seems that on several occasions, the Obama Administration seems to pre-anounce what they will be doing and then coming out and doing it a couple of weeks after.


Title: Re: GM and Chrysler
Post by: omagh on March 31, 2009, 09:44:13 AM
Hi KFR,

Bankruptcy seems to be in the cards...The warranty guarantee ensures that this consumer liability will be backstopped by the government rather than the new equity.  I was reading these links this morning which support your theory...
http://www.calculatedriskblog.com/2009/03/government-gm-chrysler-may-well-require.html
http://www.calculatedriskblog.com/2009/03/administration-on-gm-chrysler.html

-O

Am I wrong in thinking that Obama is pre-announcing the bankruptcy of GM and Chrysler. They are telling consumers that their warranties will be backed by the Federal Government.

It seems that on several occasions, the Obama Administration seems to pre-anounce what they will be doing and then coming out and doing it a couple of weeks after.



Title: Re: GM and Chrysler
Post by: SharperDingaan on March 31, 2009, 10:21:34 AM

Look at it as a
- No BS message. Underlined with one head now, Chrysler's in 30 days ?, & both boards in 90 days ? 
- Trail balloon. Guage the public reaction before they implement.
- Quick hit. Validate the current approach. 
- Precedent. Apply what he does here to the banking sector.

Worth noting is that a lot of other sectors are hurting as well, but nobody has their hand out quite like Detroit. Perhaps a little smoking barrel incentive to those CEO's & boards to get their acts together ?

SD


Title: Re: GM and Chrysler
Post by: JackRiver on March 31, 2009, 11:55:26 AM
Am I wrong in thinking that Obama is pre-announcing the bankruptcy of GM and Chrysler. They are telling consumers that their warranties will be backed by the Federal Government.

It seems that on several occasions, the Obama Administration seems to pre-anounce what they will be doing and then coming out and doing it a couple of weeks after.




Below only pertains to GM.  I think Chrysler is pretty much on its own now.  Sink or swim.  Do a deal or you are done.

I actually think the white house is employing some pretty ingenious tactics to try and avoid an actual bankruptcy filing at GM.  GM's structure has to be at least reasonably viable for the government to put more money in.  GM will get to viability in one of two ways, 1) the present stakeholders reach an agreement on concessions that gets them there, or 2) bankruptcy forces the terms of a viable structure.  I think the message from the white house is pretty clear to the stakeholders who think they still hold some cards in this game, that is, it will be worse for you in bankruptcy than you think, so you had better start making deeper concessions now because we promise you the ones forced on you in bankruptcy will be deeper still.

Yours

Jack River
Title: Re: GM and Chrysler
Post by: JackRiver on March 31, 2009, 12:16:52 PM
Putting Chrysler aside, I think this GM stuff should be, if not neutral, a net positive to the markets.  It's crystal clear that they are going to support GM, so no matter what happens, bankruptcy or not, there should be very little disruption in the operations at GM either-way.

Adding to my previous post, I think it's obvious why one would prefer agreed to concessions versus forced mandates.  People do tend to respond better when they are party to the decision making process even if the outcome is at a cost to them.  This may make a fool of me, but If I had to bet on bankruptcy or not, I think I would bet not (for GM). 

Yours

Jack River
Title: Re: GM and Chrysler
Post by: Smazz on March 31, 2009, 12:32:14 PM
Damn,
I wish I could pull up old threads from the other board.

I remember when Chrysler were in talks about amalgamation - I started the thread "after amalgamation - Bankruptcy next" ;D
Title: Re: GM and Chrysler
Post by: SharperDingaan on March 31, 2009, 02:24:19 PM

The moral hazard really requires a bankruptcy solution.

It would be far cheaper to collapse GM, federally cover the existing warranties, spin out a brand new entity, & offer all workers either early retirement (top off the pension fund) or a job in the fewer remaining plants. Ideally the same with Chrysler.

Ford to run the consolidated entity, if only because they've proven that they actually know how to run a car company

$ to the workers themselves, new investment $ at the bottom of the market, votes to Obama.

   
Title: Re: GM and Chrysler
Post by: JackRiver on March 31, 2009, 04:27:27 PM
What the bondholders/creditors of GM have to come to grips with is that a bankruptcy here will not result with their being owners of the new entity.  The government will be the new owners considering how much money will further need to be pumped in.  I thought that message was clear from the White House but, maybe not.  I'm starting to think that maybe GMs creditors just don't understand what's in play for them.  It is fun to watch.  The creditors are playing a game and if this game had a name it would be, "Bad or Worse: take your pick." 

Bloomberg articles:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYDb9GJhSUsA&refer=home

http://www.bloomberg.com/apps/news?pid=20601087&sid=aXbrsK4NXMi0&refer=home

If I was forced to bet, I would still bet that we avoid bankruptcy at GM.  Someone will eventually explain to the creditors how little they will get in bankruptcy.  The clock is ticking.

Yours

Jack River
Title: Re: GM and Chrysler
Post by: Smazz on March 31, 2009, 06:30:31 PM
I'm starting to think that maybe GMs creditors just don't understand what's in play for them.  It is fun to watch. 
you would think they would have learned from watching the UAW and the like play that game with the buyouts.  Oh to be a fly on the wall at those meetings.
Title: Re: GM and Chrysler
Post by: JackRiver on March 31, 2009, 07:34:27 PM
Man, our President is as serious as a heart attack.  Another Bloomberg article, which I'm sure you guys have seen, suggest that the President would prefer an accelerated/prepackaged bankruptcy.  I still think this holds with what I said above.  1. Chrysler is on its own.  2. the GM creditors had better take this last offer for concessions serious.  They stand to lose a lot more if they let it go to bankruptcy.  If I were them I would think about it in terms that are similar to what happened to stockholders at Fannie, Freddie, AIG and Bear, and not what normally happens to creditors in bankruptcy.  Not in the same magnitude of loss, but in the way the government took out the stockholders when they assumed control.  I would expect the government to do something similar to GM creditors.

Like I said, this is fun to watch.  May be one of the few areas of investments where poker skills come in handy. 

Yours

Jack River
Title: Re: GM and Chrysler
Post by: Uccmal on March 31, 2009, 08:27:41 PM
Those really fine GM plants in Oshawa, Ontario, would make a nice addition to Magna International. 

Whatever anyone thinks of its founder, Magna is at the moment the healthiest, and best managed car company run out of North America.  The make complete BMWs in Europe.  It's not much of a reach for them to build a high quality GM branded vehicle here. 

BTW: The comments on this thread about the President's strategy are very interesting.  I too am now wondering if GM is going to be the test case for a few of the big financial companies.
Title: Re: GM and Chrysler
Post by: Smazz on March 31, 2009, 08:35:05 PM
Its funny,
I was just thinking of something along those very lines.
I have experience in the assembly and engineering of power plants and vehicles are like making snowmen in comparison.

It is very easy with todays technology and sourcing to develop an efficient assembly plant (thats all they really are) in little time.  They dont even need a current plant IMO. 

If they are smart they would put some new $ into natural gas conversions etc.
This would be the easiest low hanging fruit with the shortest change curve.
Title: Re: GM and Chrysler
Post by: SharperDingaan on April 01, 2009, 06:10:09 AM

Couple of points, then we'll call it a day;

The underlying US problem is continuing denial. The current recession/depression is a temporary thing, very smart people are working on it, but ultimately it'll be business as usual & the market will return to what it was before all this started. That is how we do it here, so get used to it.

GM, Chrysler, AIG, Zombie banks, etc. exist only because we can't imagine it otherwise. 'Car' & 'Wall Street' cultures tell us 'this is how it has to be', because somehow only 'they' understand it .... & how dare you question the emperor! But ... when you have some of the most efficient plants & lowest financing rates in the world, and still can't make a profit - that is incompetence; and failing to act early on the legacy issues simply underlines it. 'Car' culture is sick, & needs surgery.

When a rich kid gets into trouble, daddy reaches for his lawyer & they argue that little johnny/jenny shouldn't be penalized because it was just a one time thing & they move in different circles; pay a fine & move on. The defence argues that on the other side of the tracks little johnny/jenny's 'one time thing' caused enormous hardship; paying a fine isn't good enough, the underlying behaviour has to change. Millions of ordinary & hard working people on the 'other side of the tracks' are being put out of work because of this incompetence, & John Q Public has had it. Behaviour is going to change.

The 'car' solutions have been fairly well 'known' for some time. They weren't implemented because it wasn't expedient to do so, & it was far more profitable to simply continue with 'business as normal'. Whatever the administration does now will be a game changer, & the fact that it was done at all will be almost more important than what was actually done.

Camelot is a great place, but stay too long & you get in-breeding. Eventually it falls to the barbarians, they get 'assimilated', & the cycle repeats itself. We're living in historic times!

SD


 
 

 


   
Title: Re: GM and Chrysler
Post by: Broxburnboy on April 01, 2009, 06:31:47 AM
SharperD:

Well said, I must agree with you that we are living through a paradigm shift, and that the world economy
will take  a dramatic turn from an unsustainable debt driven consumer/producer economy to a sustainable but
much less materialistic economy.
The writing has been on the wall for many years and the economic impact of the change has been
made worse by the inertia of the debt driven economy and unjustified feelings of entitlement at all levels.
New economic policies should be judged by whether they act to prolong the current failed paradigm or enable the coming of the new.
In the case of GM and Chrysler..Will current government assistance simply prolong existing entitlements throughout the supply chain,
or act to produce a sustainable level of production of "green" vehicles?
Title: Re: GM and Chrysler
Post by: Smazz on April 01, 2009, 11:10:40 AM
The problem:

Culture of Entitlement
Title: Re: GM and Chrysler
Post by: omagh on April 02, 2009, 06:08:18 PM
http://www.nytimes.com/2009/04/03/business/03motors.html?partner=rss&emc=rss&pagewanted=print
G.M. Willing to Consider Bankruptcy
DETROIT — General Motors stated in a regulatory filing to the Treasury Department on Thursday that it is prepared to file for bankruptcy protection if it cannot restructure out of court.
It echoes what G.M.’s new chief executive, Fritz Henderson, said this week, but marks the first time G.M. has officially disclosed to President Obama’s auto task force that it was willing to consider such a step.

Hi KFR,

Bankruptcy seems to be in the cards...The warranty guarantee ensures that this consumer liability will be backstopped by the government rather than the new equity.  I was reading these links this morning which support your theory...
http://www.calculatedriskblog.com/2009/03/government-gm-chrysler-may-well-require.html
http://www.calculatedriskblog.com/2009/03/administration-on-gm-chrysler.html

-O

Am I wrong in thinking that Obama is pre-announcing the bankruptcy of GM and Chrysler. They are telling consumers that their warranties will be backed by the Federal Government.

It seems that on several occasions, the Obama Administration seems to pre-anounce what they will be doing and then coming out and doing it a couple of weeks after.



Title: Re: GM and Chrysler
Post by: KFRCanuk on April 03, 2009, 12:01:21 PM
Saw this on Autoblog and thought it was interesting

http://www.autoblog.com/2009/04/03/gm-and-aig-why-bondholders-might-want-bankruptcy/
Quote
Before we begin, let us state clearly that this is speculation by Karl Denninger at The Market Ticker. Examining the various stakeholders' interests in General Motors, Denninger has come up with a scenario that supposes GM's bondholders might actually want the automaker to file for bankruptcy.

The bondholders appear to be the biggest obstacle to restructuring. They're not allowing GM to reach its government-mandated target for debt reduction because they would lose much of their investment in the process. According to Denninger, however, the biggest and most savvy of those bondholders could get 100% of their investment back if GM files for bankruptcy. Those bondholders would have had their bonds backed by credit default swaps (CDS), which Denninger supposes would have been written in large part by insurance giant AIG. If that's the case, then we the taxpayers are on the hook to repay 100% of those bonds because the government has agreed to fulfill AIG's CDS collateral obligations.

Thus, these particular bondholders would have no reason to help GM stay afloat by reducing its debt obligations. If GM goes under, they would just wait for checks from the government to be made whole again. Denninger goes on to say that in such a scenario, these bondholders could make even more than 100% of their investment back because the government backing takes place "even if the bonds have a recovery in bankruptcy." The only way to stop this would be for the government to decline to back any more AIG obligations, which could then bankrupt the "too big to fail" AIG depending on its ultimate exposure, but would save GM. Decisions, decisions...

This theory relies on AIG being in the middle of things, yet it wouldn't be outrageous to think that the biggest and smartest institutional bondholders went to the best known CDS paper writer for protection. As if that weren't enough, Denninger suggests that government-backed warranty work could become "a monstrous inducement" for dealers to bilk the government, a version of Medicare fraud for the car industry. The next 57 days look to be as exciting as they will eventually be costly.

So it sounds like the tax payer pays to keep GM afloat or backstops AIG to back the CDS's due to bankruptcy. Wow... Can you say weapons of financial mass destruction?