GM Rolls Downhill, with Aid of Wind, Taxpayer, Into Bankruptcy

Nick Gillespie | June 1, 2009

Administration officials said late Sunday the federal government would provide an additional $30 billion to GM—which has already received about $20 billion in government loans—to help it restructure through bankruptcy. GM will follow a similar course taken by Chrysler LLC, which filed for Chapter 11 protection in April and hopes to emerge from its government-sponsored bankruptcy this week.

The officials, speaking on condition of anonymity in advance of Obama's public remarks, said the administration expects the court process to last 60 to 90 days. If successful, GM will emerge as a leaner company with a smaller work force, fewer plants and a trimmed dealership network....

GM will move forward with four core brands—Chevrolet, Cadillac, Buick and GMC. The company plans to cut 21,000 employees, about 34 percent of its work force, and reduce the number of dealers by 2,600. GM was announcing plans to close 11 facilities, idle three others and name the buyer of its Hummer division. GM's stock dropped to its lowest price in company history Friday, closing at just 75 cents. The shares will be virtually worthless in a Chapter 11 reorganization.

More details here.

According to the latest plan, the U.S. government will own 60 percent of the company, 12 percent would go to Canada and the province of Ontario, 17.5 percent to a union trust, and 10 percent to the bondholders.

There's about $27 billion in outstanding debt owed in institutional and individual investors, 54 percent of which voted in favor of the above Chapter 11 deal. The retiree health care fund for the UAW is owed about $20 billion but gets a bigger chunk of the company, which is one of the reasons some bondholders are pissed (and exactly how the feds end up with six times the ownership share is anybody's guess, though the Obama folks point to the original terms President Bush laid out and say they are similar).

Ignore for the moment any discussion of the actual terms of the deal and think of the psychology that follows from this sort of massive intervention. Suddenly, we've gone from basic conversations about whether the government should intervene at all in private industry (and the money to do in this case is coming from that pot supposedly limited to financial institutions, which is a whole other mega- and meta-question) to haggling over terms. The feds have indeed learned something from the car industry, and that's how to squeeze the taxpayer/customer for every dime while discombobulating them in the showroom.

But rest assured, the feds will be covering all those warranties on Chevy Cobalts and Cadillac Hybrids. I look forward to seeing Ray LaHood (look him up, though it will take a while to find out who he is at the Dept. of Transportation's own website) getting under those hoods.

Comments

Tomcat1066|6.1.09 @ 8:07AM|#

I thought the government was getting 70%, not 60%. Not that it matters though, they shouldn't be getting a damn thing!

Bingo|6.1.09 @ 8:26AM|#

The reason they are getting Whatever-the-large-percent is because anyone else taking over that clusterfuck of a company would be tossing the Unions to the curb, along with their pension funds, healthcare plans, etc. GM has now become a government created welfare/jobs program for the auto-unions. It's no longer a car company.

|6.1.09 @ 8:35AM|#

GM has now become a government created welfare/jobs program for the auto-unions. It's no longer a car company.

I thought it stopped being a car company and became a bank several decades ago.

-jcr

|6.1.09 @ 9:00AM|#

PJ O'Rourke had a great piece in the Wall Street Journal last week. Basically it said leftists hate cars because they hate freedom. Before cars we were all stuck in small neighborhoods and all had to live close enough to walk to work or close enough to a train to take it to work. Thanks to the car, we can now live wherever the hell we want to. And that drives leftists crazy. They just hate the idea of people having freedom. They don't care about global warming or sprawl or anything else. They care about freedom. They hate the idea of people living how and where they want to live. Going back to the 40s leftists have hated the suburbs. They never forgave the post war suburb for eliminating the need for government communal housing like they had in Eastern Europe. The suburbs are just the cake provided by the market people chose over the dry bread provided by government.

This whole GM thing is about more than just paying off unions. It is about destroying the car. It is about making cars as expensive, hard to get and unreliable as possible. It is about making it so people can't live and do what they want to.

|6.1.09 @ 9:18AM|#

Needless to say, I won't be considering a GM car in the future. If I was Ford. I'd be trying to figure out how to ditch the UAW which can't be trusted to build a decent car for a private sector company.

|6.1.09 @ 9:20AM|#

James Ard,

"Union Free and Government Free" sounds like a good slogan for a car company. I wonder if all those Obama voters who have spent the last 25 years distaining American cars are going to sell their Accords and Priuses and buy American now that Obama is responsible for GM and Chrysler? I seriously doubt it. Buying poorly built, unionized, government provided cars is something that is no doubt the duty of the little people.

|6.1.09 @ 9:45AM|#

If you think military base closings got congresscritters tits in a flutter, wait'll the plant closings* (GM ain't close to being done downsizing) are announced by Government Motors.

When you hear me laughing over it, know I'll be crying inside.

* Dealerships being hung out to dry have bought a politician or 50 as well.

Citizen Nothing|6.1.09 @ 9:53AM|#

I don't know what it all means, but last summer I bought a used Saab from the son of the new head of Chrysler. (True story.)

|6.1.09 @ 9:54AM|#

"If you think military base closings got congresscritters tits in a flutter, wait'll the plant closings* (GM ain't close to being done downsizing) are announced by Government Motors."


Once we are paying for GM's losses, the argument will be that we have to have protectionism. How can we allow people to buy foreign cars when doing so is at the expense of the tax payer will be the argument. The end state BO and his chronies are hoping for is to have complete control over what cars Americans are allowed to buy.

|6.1.09 @ 10:14AM|#

Sad. This month's Wired magazine has an article about small startup automotive companies. They're specializing in designing auto parts, rather than whole vehicles. It's a new way of doing things, and has the potential of saving the auto industry in the US. Venture capitalists have sunk $300 million into these firms.

Looks like they just got fucked by the government (worse than the rest of us).

|6.1.09 @ 10:17AM|#

"This month's Wired magazine has an article about small startup automotive companies. They're specializing in designing auto parts, rather than whole vehicles. It's a new way of doing things, and has the potential of saving the auto industry in the US. Venture capitalists have sunk $300 million into these firms."

Think about it. Why the hell does the country only have three auto makers. We don't have only three computer makers. We don't have only three department stores. In any other industry, the names and companies have changed over the years. Fifty years ago, people went to Penny's and Sears and Wollworths. Now they go to Target, Wall Mart and CVS. Why hasn't anyone been able to start a new car company in literally over 70 years. I think at least part of the answer lies with someone whose initials are U.A.W.

Rhywun|6.1.09 @ 10:27AM|#

Thanks to the car, we can now live wherever the hell we want to.

You forgot to thank the government's multi-billion dollar road construction & mortgage assistance programs, but I suppose that would harm the "rugged individualist" argument that you and Mr. O'Rourke are trying to fabricate.

|6.1.09 @ 10:31AM|#

Why GMC?

What does GMC sell that isn't a rebadged Chevrolet?

At least Saturn made a distinctly different car. Not one anyone wanted, apparently. But they were different.

Of course, if GMC is going to go with its heavy trucks and leave the light truck biz to Chevy, I can see some sense in that.

|6.1.09 @ 10:46AM|#

"You forgot to thank the government's multi-billion dollar road construction & mortgage assistance programs, but I suppose that would harm the "rugged individualist" argument that you and Mr. O'Rourke are trying to fabricate."

Where do you think the government got that money to do that? They taxed it from everyone. Yeah, people were tired of living in cities at the end of World War Two. So they got together, paid some taxes and built a bunch of roads and houses so they didn't have to live there anymore. It was probably the greatest single improvement to the quality of life in the history of the country.

If you don't like the fact that we built roads and helped people get mortgages (and I am talking about the days when we gave reasonable mortgages not the insanity of the last 15 years) what is your sollution? What should we have done? Said, no "we can't build roads and let people live where they want"? Is that it? Tell the country to fuck off because to give them the services they wanted because we have better things to spend our money on, like trains no one wants.

Rhywun|6.1.09 @ 11:41AM|#

So it's perfectly OK for the government to tax everyone in order to give some subset you are claiming to be "everyone" something they want?

|6.1.09 @ 11:48AM|#

"So it's perfectly OK for the government to tax everyone in order to give some subset you are claiming to be "everyone" something they want?"


You are just being a troll and highjacking the thread. The roads now exist. Maybe it was wrong to build them. The demand for suburbs was so great in the 1950s, the market would have no doubt built them anyway. So what are you going to do now? Make war on people's freedoms because you are pissed off about President Eisenhower's tax policies?

People like having yards and living in the burbs. Good for them. The question is can you stand letting people make choices your don't like or is "freedom" for you just the freedom to only do what you approve of?

|6.1.09 @ 12:13PM|#

Goddammit, I typed this all and it didnt go anywhere.

Here goes again.

John,
Rhywun is right. Taxes are bad mmmkay. Forcing people who live in the cities to pay for roads for people who live in the suburbs is wrong. Wrong any way you look at it.

If the market would have paid for the roads to be built, then let the market pay for them.

Mike Laursen|6.1.09 @ 12:29PM|#

Looks like they just got fucked by the government (worse than the rest of us).

It's their own fault for engaging in innovation without giving politicians a chance to claim credit for any successes they achieve.

|6.1.09 @ 12:29PM|#

"If the market would have paid for the roads to be built, then let the market pay for them."

Fine then let them. But how does that mean that we should let OBama determine what cars we can drive?

FWIW, saying mmkay went out with the first GW Bush term.

|6.1.09 @ 12:36PM|#

Ya know, of all the things that governments do with my tax money, building and maintaining roads is pretty close to last on my list of things to complain about.

The roads are open to everyone. Everyone benefits from the commerce that the roads make possible.

That some people took advantage of an opportunity that is open to everyone to live a lifestyle that you disapprove of is a pretty weak reason to complain about the role of government in creating that opportunity.

|6.1.09 @ 12:46PM|#

No, I agree with your larger point.
Liberals hate freedom (at least the freedoms they don't agree with).
They hate cars because they give people freedom (freedoms the don't agree with).

I just disagree with this part:
""people were tired of living in cities at the end of World War Two. So they got together, paid some taxes ""

They didn't get together and pay some taxes. I mean that is probably how taxes should work, but it isn't how they do work.

Also
"Mmmmkay" is in everytime I watch a re-run of that Southpark episode.

alan|6.1.09 @ 12:48PM|#

"You forgot to thank the government's multi-billion dollar road construction & mortgage assistance programs, but I suppose that would harm the "rugged individualist" argument that you and Mr. O'Rourke are trying to fabricate."

As someone who has constructed his own road extensions that the public can use as it wills (no, no thanks required) so they can get comfortably around a piece of ruralburb land I own, I can vouch that road construction is not expensive and the technology involved is at best, simple.

Tunnel and bridges are somewhat more complex, but I have seen the amount of money contracted to pave a strip of near flat land going several miles cost several million dollars in my locality. Whereas, rental fees, materials and time, I could have done for a few thousand dollars.

The government has jacked the price astronomically above what it would have been under a private system. And to that I am suppose to say, 'thanks'? Only if I were blind stinkin' ignorant would I feel a thanks to be called for in this matter.

Mike|6.1.09 @ 1:30PM|#

John, you are absolutely right. Here's a gem from our Messiah: "I'm not interested in the suburbs. The suburbs bore me." He and all of the other statist, urbanist, environmental twits hate cars. They carp about "sprawl" which is what happens when you let people choose where they want to live. Fortunately, most people are too tied to their cars to have them taken away. They can hurt us, but not kill us.

PS: In 10 years, any car made by either GM or Crysler is going to be an overpriced piece of crap. If anyone wants to support the US car industry, buy a Ford. Or start your own car company. Hopefully, you'll fare better than Preston Tucker.

|6.1.09 @ 1:43PM|#

If anyone wants to support the US car industry, buy a Ford.

Or a Toyota, or a Nissan, or a BMW, or any other car made in US plants.

My most recent car purchase was a Toyota FJ Cruiser, one of the last models sold in this country and made entirely in Japan. For me, that was a real plus.

|6.1.09 @ 2:00PM|#

alan

I doubt that your "road construction" has been done to anywhere near the standards of the public road your referring to. And probably does not have anywher near the drainage and utility infrastructure. Probably didn't have to be phased so as to accomodate thousands of cars every day as though nothing was going on.

Which of the laws is it? "The less you know about something, the easier it is."

And roads do have to be constructed to these standards and adequately drained if they are going to hold up under the traffic loads they'll be subjected to.

I've been in road construction for over forty years and I can tell you that there is very little fat in either the engineering or construction costs for public roads.

That is not to say that the government hasn't increased costs by imposing higher standards for maintenance of traffic when reconstructing active roads and higher standards for stormwater runoff treatment.

But those things were all in response to public demand. And people still bitch about the inconvenience of driving in a construction zone.

Jordan|6.1.09 @ 2:35PM|#

According to the latest plan, the U.S. government will own 60 percent of the company, 12 percent would go to Canada and the province of Ontario, 17.5 percent to a union trust, and 10 percent to the bondholders.

So the U.A.W. actually owns 77.5 percent then? And wasn't the point of bailing out GM to avoid bankruptcy in the firstplace? These clowns couldn't run a lemonade stand.

|6.1.09 @ 2:54PM|#

The head of the UAW was interviewed about the Chrysler deal. He said that the union would sell there shares as soon as they could so they could shore up the retirement fund.

As near as I can tell, they're not the least bit interested in future viability of the companies. Thjey just want as much cash as they can get.

Of course, they'll continue to milk Ford for all it's worth and they continue trying to organize other other non-auto industrial shops.

Willis Whitlock|6.1.09 @ 2:56PM|#

I wonder how much it would have cost to let Government Motors fail with no "loans". Seems like we could have retrained and supported all the unemployed workers for less.

|6.1.09 @ 3:03PM|#

Which of the laws is it? "The less you know about something, the easier it is."

That would be the Third Iron Law.

alan|6.1.09 @ 4:05PM|#

I've been in road construction for over forty years and I can tell you that there is very little fat in either the engineering or construction costs for public roads.

That has to be the funniest fucking sentence I have ever read. Did you write it with a straight face?

Mike Laursen|6.1.09 @ 4:07PM|#

That plan would be a way too sensible and pragmatic, Willis. You lack the kind of vision that makes our leaders great.

alan|6.1.09 @ 4:18PM|#

BTW, my actions were entirely in compliance with state regulations, you make storm water runoff sound like a special case that laymen can't grasp when it is not.

I'm wondering if this Iron Law, you cite actually works in reverse. The more something is at the center of your work experience the more you need to justify it in the grand scheme of things.

|6.1.09 @ 4:22PM|#

Hey there, i'm Annalisa and I work for GM... There's a lot out there about how the restructuring deal is unfair to our bondholders. But a majority of our bondholders voted in favor of the settlement, suggesting they believedthey'd fare better under an organized Ch. 11 process rather than liquidation.

...and about "government motors"...really, the President and every other government participant in this deal has stated unequivocally they want no role in day-to-day operation of GM... and there isn't much in it for the them politcally or for the UST to influence GM's operations beyond normal regulatory mandates like safety. IMO we won't be "Government Motors", DMV-like experience at our dealerships, or see a Pelosi2000 sedan - the only role the government expects to have is financial...

T|6.1.09 @ 5:29PM|#

But a majority of our bondholders voted in favor of the settlement, suggesting they believedthey'd fare better under an organized Ch. 11 process rather than liquidation.

Or they watched the Chrysler deal and decided they didn't want to get threatened publicly by the government.

Mike Laursen|6.1.09 @ 5:44PM|#

Annalisa, first of all sorry to hear that the company you work for is going bankrupt. That can't be fun.

First of all, 54% of the bondholders voted for, which means 46% didn't voted against. That's a pretty significant minority.

Secondly, I believe that on some level the President and other government officials didn't want to get involved. But they are involved. Totally analogous to government officials that say, "We don't want to be involved in Iraq." Well, we are.

|6.1.09 @ 6:42PM|#

Why hasn't anyone been able to start a new car company in literally over 70 years.

Regulatory lockout. The industry is so heavily regulated that it's basically impossible for a startup to make it, which is exactly how the incumbents liked it.

Mike Laursen|6.1.09 @ 10:54PM|#

When you say regulatory lockout, do you mean regulations pertaining to gasoline-burning engines, or is it something more encompassing? I ask because I'm wondering if startups like Tesla that make all-electric cars would get caught up in it, too.

|6.2.09 @ 12:19AM|#

By "regulatory lockout" I mean that the cost and complexity of the regulations are such that new small competitors cannot enter the market. Since the cost of safety or emissions certification is the same whether you sell 5,000 or 1,000,000 units, a new manufacturer must have a way upscale product or be priced out of the market. That's Tesla's problem in a nutshell. At the price they need to charge to pay for regulatory costs, they can't sell enough to make a difference to the environment because the middle class can't afford them, and as cars they're rather pathetic compared to other cars you can buy in their price range like a Mercedes S-Class.

Auto Body Repair|10.15.09 @ 11:44AM|#

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