General Motors & Chrysler Bankruptcy?



Let’* recap the events of the past 24 hours concerning the U.*. automobile industry.

• Last night the U.*. Government released their determination of the restructuring plans submitted by both General Motors and Chrysler. The findings by the auto task force said that both companies’ restructuring plans fall way short of being able to sustain the companies going forward
• President Obama this morning stated that General Motors will have 60 days to submit an entirely new restructuring plan that must be much more aggressive in cuts for employees, bond holders, and other stake holders. In other words.. make substantial cuts or the gig is up.
• Chrysler was given only 30 days to redo their restructuring plan. Additionally, the auto task force suggested that Chrysler must merge with Italy’* Fiat Company.
• The U.*. government will provide tax payer funds to both companies to carry them through their respective new deadlines (30 days for Chrysler and 60 days for General Motors)
• The U.*. Government will create a new entity that will backstop vehicle warranties for both General Motors and Chrysler. This new entity will be funded to 125% of the expected cost of future warranty claims. GM and Chrysler will provide 15% of the funds and the tax payers will provide the other 110% of the cost.
• The Wall Street Journal is reporting that President Obama has told both General Motors and Chrysler that he would prefer to see both companies enter into a Government forced bankruptcy to avoid a long drawn out process of restructuring. (RebelTraders note: This is what I am in favor of, a Government controlled bankruptcy will force the debt to be written down, and allow both companies plenty of time to restructure without more tax payer funds. It is also my opinion that bankruptcy will be the only way to get the UAW to make the concessions necessary to keep these companies alive, albeit crippled until they can completely restructure their broken business model).

It is my view that President Obama should not have provided yet time another extension. Both companies have had enough time to provide a resturcturing plan that would work, and all the while they have been playing around it has been on our tax payer funds.
President Obama has done the correct thing this morning in telling the companies that the public teet will be put back inside the bra. But, giving them another 30 and 60 days to ‘try again’ is ridiculous. It should have been done now.
A collection of headlines and comments off the news wires today relating to this story:

• General Motors Corp - Reportedly dealers will hold meeting regarding comments out of the Obama Administration
• General Motors Corp Spokesperson: Must still address talks with bondholders, unions and stakeholders; prefer completing restructuring outside bankruptcy, but would accept a court supervised process if necessary
• General Motors Corp Reportedly preparing to offer plan for consumers that allows buyer who loses job to return vehicle at no cost
  - this program would be similar to plans offered by Hyundai and other car makers.
• General Motors Corp Bondholders reportedly willing to reduce debt burden through debt-for-equity exchange, provided business plan has chance of success
  - Bondholders note they are “disappointed that the Administration and GM did not discuss restructuring plan with them.
• General Motors Corp Bondholders reportedly offered $0.08/dollar in cash with a 90% stake in GM - unconfirmed report
  - $0.16/dollar offered in new unsecured debt