GM bankruptcy

[Lurker]

I understand that people are upset that their investments are close to worthless. Everyone involved took a hit and made concessions on this bankruptcy.

But here's what you said...

In fact, there's enough bondholder outrage at the stinker of a deal they were served, I predict a lawsuit to force GM into Chap 7, becuase the bondholders will get more money that way. And I agree. Chopping it up and selling it the highest bidder would probably get the most money for the company.

And that's just wrong on every level. Nobody is suing to force Chapter 7 liquidation. The bondholders would be worse off if GM did liquidate completely. I just can't stress enough how wrong your original post was. On every point.

[Partha]

What part of 'financial instruments are a gamble' did these guys not understand?

[Fallakin Kuvari]

What part of 'Bondholders get paid back first' does our government not understand?

[Lurker]

Unsecured bondholders don't get paid back first.

[Arkaron]

Perhaps the most bizarre claim to originate out of the automotive bankruptcy wave is the notion that product and demand didn't precipitate this. I seem to remember someone saying that to Congress, that it wasn't a product issue. This seems funny to me.

[Kulaf]

It's all tied together. You can't make good product if you don't have money for R&D into new processes and such and you can't get the money if you don't sell product. So much of the American car companies profits were being eaten up by various factors that they started to fall behind technologically.

[Partha]

Horseshit. It wasn't lack of resources that made GM and Chrysler executives embrace the large fake-ball SUV/Truck culture at the precise moment that such sales were going to fall off a cliff, and it wasn't lack of resources that made them get almost completely out of the market for small, fuel-efficient vehicles. And, no, unions didn't make them do it, either. It was the damn-near criminal reliance on selling fewer cars at a higher profit margin that bit them in the ass when said vehicle sales declined 30%.

I was just in a Dodge dealership the other day. How fucked up their product line is is well demonstrated by the fact that their budget vehicle (Caliber) gets under 18 mpg city - and that's less than their sporty vehicle (Avenger). I saved a shitload of money by buying an older Passat and got better gas mileage. That's not the fault of anyone but management.

[Kulaf]

Horseshit. It wasn't lack of resources that made GM and Chrysler executives embrace the large fake-ball SUV/Truck culture at the precise moment that such sales were going to fall off a cliff, and it wasn't lack of resources that made them get almost completely out of the market for small, fuel-efficient vehicles. And, no, unions didn't make them do it, either. It was the damn-near criminal reliance on selling fewer cars at a higher profit margin that bit them in the ass when said vehicle sales declined 30%.

I was just in a Dodge dealership the other day. How fucked up their product line is is well demonstrated by the fact that their budget vehicle (Caliber) gets under 18 mpg city - and that's less than their sporty vehicle (Avenger). I saved a shitload of money by buying an older Passat and got better gas mileage. That's not the fault of anyone but management.

You mean that same "fake-ball" SUV/Truck culture that Toyota and other Japanese car companies were trying to take over? American car companies are at a great disadvantage in other contries so much that they literally abandon the markets in favor of just competing here. And the American auto consumer is just like the American home buyer was.....bigger and more than they could afford was the in choice.

[Partha]

American car companies are at a great disadvantage in other contries so much that they literally abandon the markets in favor of just competing here.

Wrong.

http://www.autoobserver.com/2008/01/gms ... rseas.html

Wagoner told Bloomberg preliminary results indicate GM set 2007 sales records in Europe, Asia and other non-North American markets, while U.S. volume fell for the eighth straight year.

"I don't concede anything at all,'' Wagoner told Bloomberg. "GM has very aggressive growth plans in 2008, particularly if you look at markets like China, India, Brazil and Russia.''

On the profit side, GM lost $38 billion through September. Profits overseas couldn't offset domestic losses and a $39 billion third-quarter deficit due mostly to a writedown of the value of future tax benefits.

If you wish to continue commenting, I wish Dd would institute a sound file attached to your posts that approximates the 'BLBLBLBLBLBL' caused when you move your finger up and down between your lips. It would add tremendous value.

[Riggen]

What I'm not quite understanding is how anyone failed to see this coming.

[Fallakin Kuvari]

What I'm not quite understanding is how bleeding heart liberals (socialists) think that spending is going to get us out of a economic crisis caused by too much spending on credit. What does our government do? They run to china asking "Can we have some more?" and sell some bonds. China doesn't want any more of our debt? Oh, we'll go the route of California and just sell some bonds to ourselves via the Federal Reserve.

I'm patiently awaiting hyperinflation, hopefully I'll be long gone before it kicks in.

[Fobbon Lazyfoot]

What I'm not quite understanding is how anyone failed to see this coming.

The impression I get is that nobody exactly "failed to see it coming" in the strict sense, but rather failed to see it coming in the same way a smoker is suprised when they get lung cancer.

What I'm not quite understanding is how bleeding heart liberals (socialists) think that spending is going to get us out of a economic crisis caused by too much spending on credit.

Again, just my impression, but I don't think spending is meant to fix the problem but rather mitigate the damage. If bailout dollars are going to workers (which, granted, not all of them are), and workers funnel that money into the local, federal-tax paying economy, then how much money is the government really spending? Isn't it in the government's best interest, in terms of its own paycheck, to keep jobs afloat?

I think the company itself failed because they simply made an inferior product at a noncompetitive price. My girlfriends parents spent I believe 20k on a brand new neon in '05, which now has about 35,000 miles on it. They bought my girlfriend a '97 corolla with 150k on it for four grand. They now want to trade her. I stopped shopping for American cars when I failed to find a single car on half a dozen lots that got more than 20mpg city. I haven't clocked my civic, but i can make three round trips to portland (~60 miles one way) on one tank of gas when I'm really strapped for cash. I can't really argue with that. I've heard of the ford focus getting milage thats comparable, but thats one make. Does GM even make a fuel efficient model? I never saw one.

[Lurker]

What I'm not quite understanding is how bleeding heart liberals (socialists) think that spending is going to get us out of a economic crisis caused by too much spending on credit.

I'd explain why the information Fox News beemed into your gray matter is wrong, but I think a discussion of macroeconomics vs microeconomics might be a bit over your head.

[Partha]

What's really going to pop wingnut heads is when they go back over this period and discover that the only things that kept people from rioting in the streets and hanging bankers were the very social programs they've dedicated most of the last 25 years trying to destroy. Imagine this recession without Social Security, unemployment insurance, and Medicare/Medicaid.

[Klast Brell]

It's the same problem that affected every other part of the economy that's taking it up the ass. Everyone too focused on short term profit. Maybe they could see the storm clouds coming. But they either thought they could pull their money out before the bubble burst, or they were unwilling to reduce any of their large short term profits in order to ensure their long term viability. The big 3 were making so may SUVs because they were so profitable. They made more money on the sale of each SUV than they did on the sale of a fuel efficient sedan. Why would they spend the millions upon millions of dollars to shut down a money making production line and rebuild it for less less profitable, less popular cars? You say they are building SUVs that nobody wants? They would have been building cars that nobody wants with little ability to predict exactly when the demand would shift. The stockholders wouldn't stand for it.

[Kulaf]

It was the damn-near criminal reliance on selling fewer cars at a higher profit margin that bit them in the ass when said vehicle sales declined 30%.

Ok then explain this:

http://www.msnbc.msn.com/id/18286221/

Toyota Motor Corp. sold 2.35 million vehicles worldwide in the January-March period, surpassing the 2.26 million vehicles GM sold in the quarter, according to preliminary figures.

But Toyota has long beaten GM in profitability, racking up record profits for the past four years, with $11.8 billion profit for the fiscal year through March 2006. GM lost $2 billion last year.

If GM was "damn-near criminal" in charging a "higher profit margin".......where are the profits? Clearly they weren't "selling fewer cars" by any appreciable margin.

[Klast Brell]

If GM was "damn-near criminal" in charging a "higher profit margin".......where are the profits? Clearly they weren't "selling fewer cars" by any appreciable margin.

The profits were spent. Spent on stock dividends. Spent on paying bonds. Spent on Stock options and all the other executive compensation. Spent on redecorating the executive offices. Spent lobbying congress. Even spent giving loans to people to buy those SUV's.

[Fallakin Kuvari]

UAW is going to be getting .50 on the dollar in the Chrysler Bankruptcy (they're a Junior creditor). Indiana Pension fund is getting .29 on the dollar (they're a senior creditor). Tell me how thats working out correctly, Lurker or Partha.

[Lurker]

The .50 on the dollar isn't a real figure, but I'll try to explain anyways.

The senior creditors are getting 2 billion in cash for the sale of Chrysler to Fiat. Nobody has shown that to be an unfair value for the assets being sold.

The UAW is getting no cash. They are getting equity in a new company which may or may not be worth something down the road. The UAW has also agreed to pay and benefit concessions. Any value they see is going to depend on the success of the new company which is going to depend on having a labor force.

It's also important to add that the senior creditors have absolutely no claim to equity in the new company. None. They want more cash from the initial sale, but that's impossible since they are already getting all the proceeds from the sale.

I'll be shocked if the SC intervenes on those lines.

Good question though. Much better than your "OMG SOCIALISTS!!!" stuff earlier.

[Kulaf]

If GM was "damn-near criminal" in charging a "higher profit margin".......where are the profits? Clearly they weren't "selling fewer cars" by any appreciable margin.

The profits were spent. Spent on stock dividends. Spent on paying bonds. Spent on Stock options and all the other executive compensation. Spent on redecorating the executive offices. Spent lobbying congress. Even spent giving loans to people to buy those SUV's.

Hehe. Here is an excerpt from GM's 2007 annual report:

On the cost-side of our turnaround plan, we realized the full benefit of our massive cost-reduction efforts in 2005 and 2006, with GM North America now running at an annual structural-cost base that is $9 billion less than in 2005.

Ok they dumped 9 billion in structural costs in North America.

Now look at one of the biggest things impacting their books:

Consider that from 1993 through 2007, GM has spent a total of $103 billion in the U.S. to fund legacy pensions and retiree healthcare – an average of about $7 billion a year – a dramatic competitive and cash-fl ow disadvantage.

Yeah.....that's a lot of money right there. $7 billion a year for workers that do nothing to contribute to the growth of the company any longer. Those greedy bastards and their golden parachutes!

Let's look at dividends: Prior to 2006 GM was paying a $2/share dividend on common stock. In 2006 they reduced the dividend to $1/share. I believe there is roughly 600 million shares of GM common stock, so that is 600 million in dividends. That's not a hell of a lot for a company the size of GM and certainly not a major factor in their loss and is a 50% reduction in shareholder payments.

Let's look at the credit financing......well they sold a 51% stake in GMAC to raise 13 billion over 3 years and still reported a loss.

Look at their sales in Asia and Europe and you find not the rosey picture that Partha tried to paint as GM has literally no market penetration in any established auto market like Germany or Japan. Their growth is coming in emerging markets.......and so is everyone elses. This is not any kind of competative advantage.....it actually highlights exactly what I claimed which is they face strong barriers to entry in other established auto markets.