New Era in Autos as GM Set for Bankruptcy

New Era in Autos as GM Set for Bankruptcy http://online.wsj.com/article/SB124385428627671889.html
DETROIT -- General Motors Corp. will file for Chapter 11 bankruptcy
early Monday, marking the humbling of an American icon that once dominated the global car industry and setting up a high-stakes gamble for U.S. taxpayers. video GM Prepares to File for Bankruptcy 1:16
General Motors is set to file one of the biggest bankruptcies in history. (Courtesy of Fox.)
The question now facing 56,000 auto workers, 3,600 GM dealers and the Obama administration: Will it work?
The government, which will own a majority of the company, is wagering upwards of $30 billion that it can return GM to profitability, reversing a decades-long decline by shearing away liabilities and creating a freshly competitive car maker by summer's end.
The reorganization faces myriad risks, ranging from legal challenges to the uncertainty of when consumer demand for new cars will rebound. In becoming GM's new owner, the government is also entering largely unexplored terrain filled with political minefields, notably the possibility of meddling by Congress in the company's daily operations and business plans.
Even if a new GM emerges swiftly from bankruptcy, the administration will face a thicket of challenges, including closing more than a dozen factories and shedding the Pontiac, Saturn, Saab and Hummer brands. Shepherding these unwanted parts of GM -- the so-called Old GM -- through liquidation in court could take years, with potential extra costs to taxpayers if the process bogs down. From Blue Chip to Near Bankrupt
General Motors' shares closed at 75 cents a share on Friday. Take a look at its history. The GM Bankruptcy
* Opinion: The Obama Motor Co. * Potential Conflicts Abound in U.S.'s Role * Filing Could Lift Economy in Long Term * Shared Stress to Ripple Through Auto Business * Fallout to Reach Consumers * Remnants of 'Old GM' to Linger * Bondholders Back Debt for Equity * Video: GM's History | Preparing for Bankruptcy * Complete Coverage: WSJ.com/Detroit
And unknown is how the cost of restructuring both GM and Chrysler LLC would have compared with the cost of letting both companies fail in terms of lost wages, disruptions among car-parts makers and the broader economic fallout. Chrysler, which could emerge from bankruptcy as soon as Monday, will be controlled by Italy's Fiat SpA under its own risky revamping.
In a potential sign of turbulence, secured lenders to GM, which are owed about $6 billion, expect the government to pay their claims at face value during court proceedings, but only if they release their claims against certain GM property, such as inventory, machinery and receivables. This could open the lenders to later demands they pay back part of the loans, if the collateral is deemed less valuable than initially agreed upon.
But there is a rosy scenario, too, according to government and industry officials as well as other experts. Bankruptcy should allow GM to pull off one of the most expedient downsizings in the industry's 120-year history. Long hampered by laws, union strife and management practices that kept it from fast action to fix problems, GM plans to eliminate almost all of its debt, halve its U.S. brands, shutter 2,600 dealers and rewrite labor contracts almost overnight.
Emerging sometime this summer would be a GM with a cleaner balance sheet and slimmer operations than the company that has posted deep losses since 2005. GM has burned through $33.6 billion in cash the past four years. Under its restructuring plan, GM will shed more than $79 billion in debt, gain work-force savings worth billions of dollars a year, close unneeded facilities and reduce its dealer network by 40%.
View Full Image Sales consultant Ron Cruz hangs a red tag with a fixed, discounted price for this GMC Envoy SUV at the Martin General Motors dealership in Los Angeles Monday, Nov. 14, 2005. Associated Press Sales consultant Ron Cruz hangs a red tag with a fixed, discounted price for this GMC Envoy SUV at the Martin General Motors dealership in Los Angeles Monday, Nov. 14, 2005. Sales consultant Ron Cruz hangs a red tag with a fixed, discounted price for this GMC Envoy SUV at the Martin General Motors dealership in Los Angeles Monday, Nov. 14, 2005.
The Obama administration, for its part, has navigated the GM rescue so far with notable speed, clearing away many of the biggest obstacles in just months with less drama than many expected. In six to 18 months, GM could be a publicly traded company again, administration officials said.
Under the plan, the administration will spend a bit more than $30 billion to fund the bankruptcy and in exchange receive 60% of GM's stock, while the Canadian government will put in $9.5 billion for a 12% stake, senior administration officials said.
Over the weekend, owners of a majority of $27 billion in GM unsecured bonds agreed to a sweetened offer to trade their investment for stock. Days earlier, the United Auto Workers union signed off on a range of concessions.
GM at the last minute also found buyers for some unwanted subsidiaries, including German-based Opel, which is being acquired by a consortium led by Canadian auto-parts supplier Magna International Inc., and the Hummer brand, whose buyer remained undisclosed.
GM is expected to file its papers at 8 a.m. Monday in U.S. Bankruptcy Court in New York's Southern District in Manhattan, followed soon after by a speech by President Barack Obama. GM Chief Executive Frederick "Fritz" Henderson will then hold a news conference in New York outlining GM's plans.
Long-term success for the company depends on a critical question: When will consumer demand for new cars rebound, and with what force? New-vehicle sales in the U.S. have dropped nearly 40% since January, to an annual rate of fewer than 9.5 million a year. At that level, even Toyota Motor Corp., the world's biggest car maker, is losing money.
Under the restructuring plan, the surviving New GM would break even when the rate of all new-vehicle sales in America reaches 10 million a year. In the view of many analysts, economic recovery should unleash pent-up demand, pushing U.S. sales far past GM's break-even point, though probably not within reach of the historic peak of more than 17 million sales back in 2000.
View Full Image A Los Angeles GM dealership that recently shut, as part of the auto maker's downsizing. Getty Images
A Los Angeles GM dealership that recently shut, as part of the auto maker's downsizing. A Los Angeles GM dealership that recently shut, as part of the auto maker's downsizing. A Los Angeles GM dealership that recently shut, as part of the auto maker's downsizing.
Yet some worry the New GM will emerge under the same management as its predecessor, minus longtime Chief Executive Rick Wagoner. After pushing out Mr. Wagoner in March, the Obama car task force gave the top job at GM to Mr. Henderson, a 25-year veteran whose father worked at the company.
In an interview Thursday, Mr. Henderson said he understands that federal officials want results. "They're expecting that we'll get the job done," he said.
GM won't prosper without halting the lengthy slide in its U.S. market share, to 22% in 2008 from 45% in 1980. It faces the old perception of poor quality that turned swaths of the American market toward foreign-brand models.
"I won't buy another GM," said Dennis Brown, a banker in Cypress, Calif., whose 1980s-vintage Pontiac Fiero and Chevy Chevette suffered a litany of mechanical problems. Current GM models have fared better in quality rankings.
Beyond quality, trendsetters typically shun Detroit-brand cars, a problem that is especially prevalent among highly educated buyers who also tend to purchase higher-margin vehicles. Car buyers who are college graduates account for 70% of European-brand car sales in the U.S. and 55% of Asian brands -- but only 39% of Detroit-brand car sales, according to J.D. Power & Associates.
GM hopes to counter its image as a maker of gas guzzlers with the 2010 introduction of the electric-powered Chevrolet Volt. Administration officials have downplayed the market potential of the Volt because of its expected $40,000 price tag, compared with less than $25,000 for the popular Toyota Prius, a hybrid gas-electric. Even at $40,000, moreover, the Volt will struggle to break even because of the cost of its technology. [Flags fly outside GM's world headquarters] Getty Images
Flags fly outside the General Motors world headquarters in Detroit, Michigan, last week.
GM's new deal with the UAW, meantime, promises to deliver considerable cash savings, and has been billed as capable of putting GM's labor costs on a level playing field with key rivals such as Toyota and Honda Motor Co. GM cut hourly costs, such as overtime provisions, supplemental unemployment and entry-level pay rates, by at least $1.5 billion annually.
But the car maker will not be entirely out of the woods. It faces heavy retiree-related costs that will cut into profits on every car and truck it builds.
Because of the way the UAW health-care agreement is set up, GM will still be sending about $600 million to the union annually in the form of preferred stock dividends. Even if GM builds two million vehicles a year in the U.S., a stretch in the current 10-million annual market, it will spend $300 in retiree health-care costs per vehicle it builds in the U.S.
GM faces another challenge related to pension obligations. Once flush thanks to strong investments, GM's pension funds, covering nearly 500,000 Americans, have been drained by the decline in the stock market and by a move by the company to increase pension payments to offset falling health-care benefits and entice older workers to retire early.
As of Dec. 31, GM estimated its U.S. pension funds were underfunded by $12 billion to $13 billion, and would need "significant contributions" as early as 2013.
In its deal with the UAW, GM canceled some pension-benefit increases that were due to retirees. But GM may attempt to use bankruptcy protection to allow the Treasury to buy attractive assets of GM without assuming the related pension liabilities. On Feb. 17, GM asked the government to bail out the company's pension funds in coming years.
--
Civis Romanus Sum

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

My guess is no. GM now has an image problem with consumers, creditors and suppliers. And they are severe as it gets.
Can you trust GM that screwed so many of us with bailouts and auto quality issues?
Can suppliers open up new credit lines and be assured they will not get stiffed again? My guess is smart vendors say we would like your business but cash up front please. We can't take another hit like the last one as it causes us to throw our people out of work without a bailout.
Can GM borrow money for operations? Not likely, who is going to back it up? Don't say the government, they are share holders. I mean back it up as in give me your first born and kidneys if you default.
With sub-zero credit, still has the GM debt junkie culture, beggar, tax theives, entitlement culture, GM is morally, ethically and fiscally a bankrupt company.
Just the kind I don't deal with.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Tell us what used car dealer you DO deal with? LOL

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Motorsforum.com is a website by car enthusiasts for car enthusiasts. It is not affiliated with any of the car or spare part manufacturers or car dealers discussed here. All logos and trade names are the property of their respective owners.