GM and Chrysler

[KFRCanuk]

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.

[omagh]

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.

[SharperDingaan]

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

[JackRiver]

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

[JackRiver]

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

[Smazz]

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"

[SharperDingaan]

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.

   

[JackRiver]

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

[Smazz]

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.

[JackRiver]

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