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