GM on brink of ‘biggest’ US bankruptcy

By David Twomey | May 28th, 2009

General Motors has moved to the brink of the largest bankruptcy ever seen in the United States following the failure of its bond offer to creditors, which would have seen about US$27 billion reduced to just a 10 per cent holding in the company.

General Motors officially said that a crucial bond- exchange proposal failed to gain enough support and that its board of directors would meet to review the carmaker’s options, clearing the path for what would be the largest US industrial bankruptcy ever.

GM said in a statement that the exchange offer had fallen far short of its debt-reduction target set in consultation with President Obama’s administration.

The company said in a release that “substantially less” than the 90 per cent threshold had been tendered and none of the exchange offers would be accepted.

The exchange had been seen as GM’s last hope to cut debt outside the kind of government-financed bankruptcy that has been underway for its smaller rival Chrysler since the end of April.

The carmaker’s board may meet as soon as today to review options, representatives said. The company has been kept in operation since the start of the year with $19.4 billion in emergency federal loans,

GM’s bond-exchange offer had been dogged by criticism since it was launched a month ago that it was an unfairly low payout made at the direction of US officials more sympathetic to the competing claims of GM’s unionised workers and retirees.

GM shares, which could be worthless if the automaker files for bankruptcy, were down 10 per cent at US$1.29 in premarket trading.

Analysts said GM’s bondholders had tipped the company toward a near-certain bankruptcy that would rank as one of the largest and most complex reorganisations in US history.

“The exchange offer was really a transparent attempt to blame bondholders for the bankruptcy rather than to accept responsibility for years of mismanagement and failure to anticipate things that should have been understood,” said Richard Tilton, a restructuring analyst at Covenant Review.

Independent auto industry analysts Erich Merkle said: “The task force made that hurdle so high, they wanted them to go into bankruptcy. They see that as the solution.”

GM is widely expected to file for bankruptcy by June 1, the deadline set by President Barack Obama for the company to demonstrate its viability or seek refuge in bankruptcy court.

“GM today stands at the very brink of bankruptcy,” the United Auto Workers said in a document that detailed terms for the sweeping concession agreement now before rank-and-file members for votes Wednesday and Thursday.

Ratification, which is widely expected, is a priority of the Obama administration’s auto task force, which wants GM to sew up big-ticket cost-cutting and other deals and demonstrate stakeholder unity ahead of any Chapter 11 filing.

Any major changes in the ownership structure of a new GM appeared unlikely as the government is ready to increase its planned stake, and its risk, from 50 per cent to as much as 70 per cent in order to further cut the company’s debt, the Wall Street Journal said on Tuesday.

The US government has provided a combined US$36.6 billion to GM, bankrupt Chrysler and their financing units since December and has said it stands ready to finance a GM bankruptcy proceeding.

The Journal reported that the Treasury was prepared to sink another US$50 billion into GM through various financings, most of which would take the form of company equity.

Flying High

Well – the US government becoming the major share-holder of GM to prevent it going bankrupt. Hmmm. Surely a classic case of the blind leading the blind….

I hope all is not lost – I would hate to see GM succumb to only selling wheezing econo boxes. We have enough of those already.
Wheelnut

Best thing that could ever happen to them –

At least now under govt supervision not to mention the fact that Prick Waggoner has finally gone GM have got the chance to make some much needed changes – changes that should have happened at least 10 years ago..

Then hopefully at the end of it all GM will be have more streamlined/efficient operations not to mention more competent management.. who realise that the world actually comprises of other countries not just the US of A
Andrew M

I agree Flying high.

Also I question who will be offered an ownership stake in the US government to stop them from also going bankrupt due to all the money they are handing out.
Surley the bearings have just about had it in the money printing machines
Andrew M

Wheelnut,
yes its good they seem to be finally biting the bullet and taking the “get it over and done with” bunkruptcy option, but as Flying said, lets hope that government stake doesnt lead to producing “conservative” products.

With either option, we may just be seeing the last of the GM as we know it
Mantle

Goodbye to Holden. GM can not keep affiliates that are continually losing money. Watch this space for the biggest news in Australian motoring history because Holden will be in big trouble.
Frenchie

Mantle you sound like a TROLL!
lazybones

What I don’t understand, is all the other major GM Brands have some kind of deal on the table. IE A government package, potential buyers. Look at how much detail we already know about Opel.

But with Holden, deadly silence, why isn’t Ruess even talking to Rudders about options? Why are they saying they are not for sale.

“Watch this space for the biggest news in Australian motoring history”

Unfortunately I think you could be right.

I watched the Letterman interview with Lutz coverning the Volt. His departing comment concerns me. “The volt will be made in the USA and exported to the rest of the world”. If Holden are tooling for the Cruze, couldn’t they have a slice of the volt in the future too??
http://300kw GFYS

Just get on with it!
Luke

Lazybones I agree. We’ve heard absolutely nothing about the imminent implications to Holden. And there are should to be some.
lazybones

Luke i reckon this is going to be a long drawn out c11. Possibly lasting 2-3 years before they emerge as a profitable company. Even then it will be an all American GM with the exception of Korea & China.
adam (aka mada)

Nah, Gm will file and be back on thier feet within 3 months.
In reality GM/Crysler will emerge from BK with less debt than Ford which has done the hard yards themselves.
Any competitive advantage over Ford for example will not be Fords fault.
Very sad it’s taken bankruptcy to turn GM and Crysler into competitive companies once again.
As i’ve said already, Ford and the rest of the auto companies are simply better operated businesses than GM/Crysler.
GM fans really can’t argue any differently.
Tom

Obama will threaten and bully every GM bond holder and break every bankruptcy law in order to speed up the bankruptcy proceedings, just like he did with Chrysler. The whole goal of 90% of bondholders reThey’ll be in and out in a few months, unfortunately.
Tom

Damn enter button. The whole reason behind setting 90% bondholders agreeing to take 10% GM stock in exchange for their debt as a loan condition was so the US Government could blame bondholders for the bankruptcy rather than blame GM. Even the easiest company shareholder votes rarely get that sort of approval. The Government likes to vilify the bondholders, but the reality is without them GM would have gone bankrupt a long time ago, and lots of mums and dads investment accounts would be locked up in those bonds.
lazybones

“Nah, Gm will file and be back on thier feet within 3 months.”

3 Months!! its taken 6 months just to do the paperwork to get this far. Also keep in mind its not just about restructure, they have see an upturn in sales. I don’t see the market bouncing back in 3 months. May be 12.
Stumpy

I agree that GM will be back on their feet but the time frame that happens in is another thing.

The pace of growth in other sectors will happen before the auto industry, it will lag a little. With the public funding GM will have breathing room if they get it right.

12 to 24 months would be startlingly quick IMO.
topdog

Do thay still have to pay back the billions in loans from the goverment.Plus the extra 30 billion there giving them after the june 1.
Duck

Seriously I don’t know much about this stuff……………but I’d like to know…………

Why has Chrysler done financially worse then General Motors?
And why has Ford done better then General Motors?
Mantle

GM will never recover from this. When they do go into bankruptcy and things are revealed we will see how deep this mess goes. They will still have billions in debt because they have the Gov loans hanging over their head. It sure is going to be interesting when all the shit is revealed. I dont see how Holden will survive ……nor should they.
Wheelnut

Duck the answer to those questions relatively simple.

In relation to Chrysler – they were on “life support” back when they were part of the Daimler [Merc-Benz] Chrysler Group.. ans if they couldn’t improve their operations their products or their image etc under the world’s oldest car company then what hope did they have?

As for Ford – They didn’t have the ignorant arrogant narrow minded academic Rick Wagonner as CEO
BK

Holden will follow next in australia to go broke . Mr rudd has helped em enuff and there wont be anymore help for em. Wait till end of year to hear more sad stories from Holden.To bad there wont be a VD commodore
http://Caradvice Alex

Does anybody know if this affecting Holden sales here? It would be interesting to see if Joe Average is considering GM going bankrupt when going to buy a new car.
Andrew M

Alex,
To be honest I wouldnt be surprised if the average punter didnt know that GM owned Holden.

Holden portrays an image that they are their own company/wholly Australian etc.

When most people hear GM, they think big yank tanks are the only things being affected
max

Wheelnut, have you ever loked at GM’s and Toyota’s financials?

Moght pay to at sometime. If you look back over the last years or so there is one clear point that stands out. Total sales in dollar terms. If you substitute Toyota’s sales($) with GM..GM does not look so bad, yet they sell about the same number of cars/whatever.

Toyota
PERIOD ENDING 31-Mar-08 31-Mar-07 31-Mar-06
Total Revenue 262,394,000 202,864,000 179,083,000
Cost of Revenue 214,795,000 162,883,000 144,249,000

Gross Profit 47,599,000 39,981,000 34,834,000

GM
PERIOD ENDING 31-Dec-08 31-Dec-07 31-Dec-06
Total Revenue 148,979,000 181,122,000 207,349,000
Cost of Revenue 150,603,000 169,001,000 164,682,000

Gross Profit (1,624,000) 12,121,000 42,667,000

Remember, they sell about the same amount of units, give or take 1% or 2% . Look at the GROSS SALES decline for GM from 31/12/06. This means that per unit, GM is recieving less than Toyota is per unit sold(on average).

I suspect GM’s pricing is the primary reason they have failed. In order to achieve sales volume they have to sell their product, on average cheaper than Toyota. This is the bad side of fleet discounting, and in OZ, its not nearly as bad as in the states, where rebates can reduce the price of a car by almost 5k.

Look at the current pricing on the Omega, Aurion and Falcon, all loaded with goodies, and cheaper to drive away in than a standard 6. No one is making money on these, and Holden with the higher dev cost of the Zeta platform would be hurting more than the other 2. If you are losing money on a per unit basis due to price drops/slashing, then the more units you sell, the money you lose. Simply the cost of making the car, now exceeds its sales price, look at GM’s 31/12/08 number above. That loss is at the cost of sales level only, it cost GM more to make the car, than the revenue generated by its sale. That loss is before, fixed costs, interest and taxes are accounted for.

To achieve sales, GM has lost its price point.
Wheelnut

Despite how poorly run GM is … why do you think the US Government is doing what it can to help GM? Because they realise what negative impact the 1000s of job losses would have on the economy if GM were to cease operations completely.. and the same will happen here with Holden

The bankruptcy laws in the USA are different to those in Australia.. in Oz if you go bankrupt; you’re bankrupt end of story! and all your employess lose their jobs as your company goes into liquidation.

Yet in the US there are a number of levels of Bankruptcy; the company files for bankruptcy – the level of bankruptcy depends a range of circumstances which are assessed and closely scruitinsed. such as whether or not your business will be able to recover if you were given a certain level of govt protection [under the bankruptcy laws]

How long the protection of the US Bankruptcy laws last depends on how quickly the company improves/recovers. As things improve the level of protection will gradually ease off. Then when the US govt believes GM have made it to a point where they can start to pay back creditors etc

Think of it as US Govt funded Re-hab for big business

So unfortunately for all you GM-Holden bashers – the likelihood of GM-Holden disappearing completely appear to be rather slim given that the US Govt will now oversee operations not to mention control the finances etc

GM-Holden will continue to operate and emerge from this as a more efficient company partiuclarly that the US govt is there to ensure that GMs planned restructure takes place..
They have invested billions in supporting the Auto Industry and they want to see a return – that is they want to see GM-H survive.

Because they realise what negative impact the 1000s of job losses would have on the economy if GM were to cease operations completely.. and the same will happen here with Holden
Wheelnut

I know that Max.
Yet; there is no denying that Chrysler were on Life Support even when they merged with Daimler [Merc-Benz].. they had all that design and engineering expertise to take advantage of and what did they come out with cars like the Crossfire and the PT Cruiser.. very sad.

As For Ford – the fact that they have managed to avoid the financuial problems that GM have been experiencing is because their Management was more democratic than GM –
Infact a number of the Changes which were outlined as Part of GMs restructuring plans were raised several years ago but Rick Waggoner vetoed them – despite the fact that several automotive experts not to mention other Board members including Bob Lutz beleived they would be very successful and would improve GMs position/image.

However; Rick Waggoner had the attitude I drive a big ugly impractical SUV.. therfore; the rest of America [rest of the world] wants to drive big ugly impractical SUVs..
Wheelnut

Now that Waggoner has finally gone [25 years too late]; It looks as though those changes along with a few others will help turn things around for GM.. partiuclarly now that the US Govt will be overseeing things etc
max

“American Leyland” anyone
BK

hey wheelnut you have an addiction to Waggoner.Dont just blame 1 thing for GM collapse. Blame the whole out fit. GM= Gods Mistake
Spitfire

BK Says:
May 29th, 2009 at 10:02 pm

To bad there wont be a VD commodore.

Thank god for that. Imagine asking a girl out for a dinner date and saying I will pick you up in the VD.
Wheelnut

BK – Correct me if I am wrong but the major decisions such as what type of cars GM make and where they are made; aren’t made by the workers on the assembly line are they?

Sure you can delegate authority but you can’t delegate responsibility.

Rick Waggoner is the one responsible as he is the one who made the decisions – unfortunately though he lacked vision as well as the ability to make the hard decisions which could have and would have saved the once mighty car company [from bankruptcy].

GMs successive losses prove this as does the fact that over the same period of time cross-town rival Ford have gradually improved.. I mean they didn’t need to be bailed out did they?

Why because unlike Wagoner ; Ford CEO Allan Mullaly had a plan…. and by failing to plan you’re planning to fail – which he/GM did.
Tom

But then again Wheelnut, the workers on the line are responsible for producing so badly put together vehicles. Which in the end swayed the consumer off…
Wheelnut

Aaahh yes but then again that’s a management decision…. a decision to cut costs by reducing the level of quality control which takes place during production as well as post-production inspections.

Which then leads to their reluctance to look at ways as to how the build quality can be improved.
BK

Wheelnut the overall bottom line for GM is that they made junk. If they made better cars they would be still around. GM just thought quantity not quality. Dont blame waggoner for everything. How many other people have to decide on what is the best for GM. You make is sound like wagonwheel runs,operates every single thing GM do .You got it wrong there. GM made duds and the whole company is full of em.
Wheelnut

I agree GM [US] Did make junk partiuclarly when you compare how much the build quality etc of cars from their subsidiaries such as Opel Vauxhall and Holden improved compared to the majority of cars from the US.

I knwo Wagoner is nt entirely responsible he had a number of allies However he did veto a number of proposals and projects which many believe could have and would have saved GM

Yet what do you mean by “they made better cars they would be still around” becauae despite the fact that they are going to file for Bankrup[tcy under chapter 11…
They will still be able to operate and start to implement the proposed restructuring changes which they outlined as part of the bailout agreement – the only difference being that it will all be done under the supervision of the US govt.
Wheelnut

If anything the only real thing the workers can be blamed for is for not agreeing to a $15 p/hr pay cut [from $40 to $25p/hr] when it was obvious that GM was suffering.. But that was mainy because of pressure from UAW heavyweights.
In tough economic times job is better than no job

But the damage was done long before then

Sure the pay increase wouldn’t have been so bad if the quality of cars had improved but then again that is more an issue with management for not implememting more stringent quality control procedures or better training.

Workers can only do the best with the tools that they have been given and operate within the policies etc created and implememted by management.
Tom

Wheelnut Says: “Aaahh yes but then again that’s a management decision…”

Wheelnut, that’s rubbish and you know it! It mostly comes down to “Care Factor” of the individual guys on the assembly line.
National Work Ethics, and Work Culture play a bigger part on it, then any particular management decision. That is the reason hy the level of build quality of US, and Australian built cars (Be it Commodore, Falcon or Aurion) lags behind those of comming out of Germany, or Japan.
Wheelnut

Thing is Its hard to undersatnd how the management style of those in Detroit can be so different to those in Port Melbourne or Elizabeth

Holden had a program whereby assembly line workers received points for suggesting ideas on how things ould be improved – the points could then be exchanged for a range various items or bonuses
When they were building the VT one employees idea improved things so much he received a new car – a Monaro..

Maybe that’s why the UAW workers didn’t agree to the paycut because Wagoner and Co treated them with such contempt.. and didn;t listen to them. Yet who knows more about the problems a car has and how they can be improved than those who build them..
Tom

Wheelnut Says: “Holden had a program whereby assembly line workers received points for suggesting ideas on how things ould be improved – the points could then be exchanged for a range various items or bonuses
When they were building the VT one employees idea improved things so much he received a new car – a Monaro..”

Thats a simple stunt mate, I take it you never worked in a significant management position?

Wheelnut Says: “Yet who knows more about the problems a car has and how they can be improved than those who build them.. ”

The Engineers that design them, given they stick around long enough…And let’s not forget all products have to be built to a price!!
Wheelnut

Tom Says: May 30th, 2009 at 8:01 pm
Wheelnut Says: “Aaahh yes but then again that’s a management decision…”

Tom says: Wheelnut, that’s rubbish and you know it! It mostly comes down to “Care Factor” of the individual guys on the assembly line.

National Work Ethics, and Work Culture play a bigger part on it, then any particular management decision.
That is the reason hy the level of build quality of US, and Australian built cars (Be it Commodore, Falcon or Aurion) lags behind those of comming out of Germany, or Japan.

What you believe that if GM sacked all their US workers and employed workers from Toyota or BMW the quality of their cars would miraculously improve?
They might initially but whether or not it continues depends on how they are managed and treated by management.

Maybe if Wagoner [and Co] didn’t give themselves a $50k+ bonus for poor performance – they could have spent the money on hiring more staff to look more closely at the quality of the cars or even implement better training programs..
The fact they ignored the problems and gave themselves a bonus shows that Wagoner and Co were more concerned about themselves than the company. Therefore; its understandable for the workers to have a similar attitude

If management have a sapproach to work then the workers are likely to have the same approach.. yet if the workers feel as though management value them and their ideas they would want to do a better job

As for culture that too is influenced by management decisions who implement the policies and the level of standards etc. Then there’s the style of managment.. not to mention the management structure.

Sh1t flows down-stream rememeber
Wheelnut

Maybe Tom but whilst something like a car may look good on paper whether or not its able to become a reality is an other issue.. I mean very few [concept] cars ever end up looking exactly the same as what they did on paper do they?

There is a significant amount of trial and error involved in designing and building a car which is why they have so many prototypes – then comes the challenfe of designing the programs and building the robots [to build the cars] and of course training the workers

It’s at this stage that engineers and designers often find faults or problems with their design and have to make changes.. and some of the time the problems are discovered by the assembly line workers.

Sometimes highly educated engineers try to be too smart too complicated whereas simple workers often have more practical more logical ideas which are more likely to work – they have more real world experience

Whether or not management listen to their suggestions is another matter GM [US ] don’t.. Holden do.
Tom

Wheelnut Says: “What you believe that if GM sacked all their US workers and employed workers from Toyota or BMW the quality of their cars would miraculously improve?
They might initially but whether or not it continues depends on how they are managed and treated by management.”

Mate, you are grasping at straws here. That is very stupid, I would have never said that.

But if you build those cars in Japan, or Germany (disregardinmg the drawbacks of the design, and the quality of the material) you’d certainly end up with a better built product.

As was the case with some of the early Jeep Grand Cherokees that were assembled in Graz Austria for LHD markets, as opposed to the U.S.
They made a name for themself with a significantly better build quality!!

Wheelnut time to take off those rose coloured Holden Fan boy glasses, and smell the coffee!! I can’t believe you are still stuck on stage 1 (Denial) of the Kübler-Ross Death Grievance model..
You being such a GM holden upsets fanboy can’t accept the current situation of your beloved manufacturer! You’d love to pin all of this on Wagoner…
The guy was better suited for the role, then you or me.
He had more facts then any of us, so you can’t judge the guy!!
Tom

Please Wheelnut,
Don’t try to educate me on Engineering Development Cycle!!
Wheelnut

You may think that the progtram where Holden gave employees bonuses for suggesting ideas is a simple stunt – However; it made workers feel as though they were an important part of the company and that managment listened to them. Which is why the build quality of the Holden Commodore has gradually improved over the years.

Who implemented the program Peter Hannenberger.
Who was he? He was the CEO of Holden.
CEO isn’t that a management position? I believe it is

Maybe if GM [US] management implemented a similar program the build quality of their cars would have improved and they wouldn’t be in the situation they are at the moment.
Wheelnut

Tom Says: May 30th, 2009 at 8:48 pm
Wheelnut Says: “What you believe that if GM sacked all their US workers and employed workers from Toyota or BMW the quality of their cars would miraculously improve?
They might initially but whether or not it continues depends on how they are managed and treated by management.”

Mate, you are grasping at straws here. That is very stupid, I would have never said that.

Then what did you mean by:

National Work Ethics, and Work Culture play a bigger part on it, then any particular management decision.

That is the reason hy the level of build quality of US, and Australian built cars (Be it Commodore, Falcon or Aurion) lags behind those of comming out of Germany, or Japan.

because there are just as many people in Germany and Japan as there are in the USA or Australia with a she’ll be right attitude to work and just as many who would rather not work at all.

having said that there are just as many Australians and Americans who believe in doing a decent days work for a decent days pay as there are in Germany or Japan

It may surprise you but The Germans and Japanese are human just like us.. not some sort of superior being.
Everyone is different and has different attiudes different goals and responds/reacts differently to different situations etc.

Yet overall they have the same requiremants and expectations etc as we do.. one of which would be to be treated equally and with respect.

If they felt as though GM Management didn’t listen to them or they were being used etc then you would expect the workers would react and do less then a satisfactory job… which would have an impact on the levelof build quality.
and by being human; The Japanese and Germans would most likely react the same way if they were in a similar situation

Which menas it all comed down to management and that National Work Ethics or National Culture really has nothing to do with it
Tom

Mate, apart from some die hard fanboys, most people regard holden’s Commodore as rubbish. An prime example of a badly put together vehicle. So I don’t understand why you keep using holden as an example. Holden Just like GM has been making multi-milion dollar losses, even durring the boom period. So it’s in the same sh*t as GM!! Besides GM, Yanks are masters of SPIN, such as the stunt you mentioned. So I guarantee you that where Holden got it from!!

As for your comment about Japanese, German workers.
I bet you are one of those aussie blokes that has probably never left this country (Maybe apart from NZ, and Bali). Let alone worked in another country, so I will not bother arguing with you on the matter, as you have no clue.

And please, whats up with the essays??… So many words, yet so little substance!!
Wheelnut

If Holden got the idea for their rewards program from GM why didn’t GM have a similar program -then surely their workers would have been alot happier and produced better quality cars.

As for most people regarding the Holden Commodore as being a piece of crap – the VE/WM has been praised by a number of highly respected international motoring journalists not to mention won several international COTY awards and is a car that a number of american car enthusiasts want but are unable to afford due to the economic downturn – For a start its alot better looking and now that Pontiac is gone they wnat GM to start selling it as a Chevy Impala and they even want our Ute.
The majority of people believe its an impressive performance sports sedan particularly in terms of bang for your buck
The Realist

Strange, how come my post isn’t visible?
Wheelnut

Tom – the fact that you have resorted to making assumptions about my knowledge etc by implying that as you believe that I haven’t been overseas that I am less educated than you or don’t know as much as you – which in a way is a personal insult.

Shows its more likely that you are the one who doesn’t know that much about cars or management etc
If you did you would be able to counteract my comments / arguements with something that showed some depth or lateral thinking.. something a bit more thought provoking to try and change my opinion etc

Yet how does the issue as to whether or not I have or haven’t been overseas have an effect on my level of intelligence in relation to a particular subject/topic?
Duck

BK, I tink you mean VF not VD.
Duck

think*
swampdawg

The sooner the GM restructure begins the better.
Get on and get it over and done with.
GM = Government Motors.
BK

I said VD commodore
BK

Could you imagine Wheelnut taking over Waggoner position. Wheelnut would have trouble just maintaining the water drinking fountains at GM
Duck

Wheelnut, whats your comeback? ^^^^^^^^^
Duck

I’ll be on your side.
Bavarian Missile (.)(.)

To what duck ?

Like most good models Wheelnut doesn\’t get out of bed unless its a worthy exercise. Clearly it isnt !

Night night……xoxox
Brett

The realpolitik about US taxpayers subsidising overseas jobs (read Holden) is beginning:

‘“It is unacceptable to ask U.S. workers to subsidize the exportation of their own jobs,” said Representative Dennis Kucinich, Democrat of Ohio, whose district includes Cleveland. “The taxpayers’ investment should be used to protect American plants so that American workers can build the next generation of automobiles.”