: GM will go bankrupt: Why that that may be good for the General



Blackout
10-10-08, 01:58 PM
From jalopnik

GM Will Go Bankrupt And Why That May Actually Be Good (http://jalopnik.com/5061552/gm-will-go-bankrupt-and-why-that-may-actually-be-good)

<!-- google_ad_section_start --> http://cache.gawker.com/assets/images/jalopnik/2008/10/GM_More_Horsepower.jpgI'm not the first person to say it. After yesterday's 31% drop in the price per share (http://jalopnik.com/5061095/gm-share-prices-go-retro-in-search-of-better-times-wagoner-hits-youtube-to-shore-up-confidence), news outlets talking to the right people this morning are already saying it, albeit fecklessly, like thus: "Will GM declare bankruptcy?" All I'm doing is removing the question mark. The pundits saying "bankruptcy is not an option (http://www.detnews.com/apps/pbcs.dll/article?AID=/20081010/OPINION03/810100387/1031)" are completely ignorant of the facts, living in an alternate reality or parroting the GM PR public line (http://voices.washingtonpost.com/livecoverage/2008/10/gm_bankruptcy_not_an_option.html?hpid=topnews) (a line I don't begrudge GM for pushing given the need to be positive or else face a rush for the hills), because let's be clear here if the marketplace for credit does not change in the next year, bankruptcy is not only an option, it's the only option. Yes, GM will be forced to declare bankruptcy. Although yesterday's drop in share price had more to do with the release of the short-selling ban on GM stock than anything else, it's indicative of the bigger picture. It's the same one facing every major company in the United States today, and every consumer looking to buy a house or a car an inability to get a loan. For GM, those loans are what they'll need to go about doing business on a day-to-day basis and it's a problem that looks to not be fixing itself anytime soon. But the "b-word" may not be a curse word for the General. In fact, it could potentially be one of the best things to happen to the automaker in years. Here's why and how.
For the first time in the history of the company, the crisis isn't product. It's clear GM's figured out the need to design and build high quality, fuel efficient and attractively-designed vehicles. Not only have they realized the need to do it, they're actually doing it. Even the most jaded auto enthusiasts, journalists and industry analysts with even the slightest clue have to admit they've stepped up their game in the past few years. But, that won't stop bankruptcy at GM just like it isn't stopping bankruptcy at their dealerships, as the recent failure of Bill Heard Chevrolet (http://jalopnik.com/5056225/exclusive-inside-the-fall-of-bill-heard-chevrolet-the-worlds-largest-chevy-dealership) showed us last month.
Although the automaker has the cash to go about doing business right now, we've been told in the past the company needs $11 billion in working capital on hand at all times to remain in business. Right now, they've apparently got somewhere around $20 billion. With a "burn rate" (god, we SO didn't miss that term from the dot-com bubble) averaging over $1 billion a month (and a greater spend in recent months thanks to increasingly lower auto sales (http://jalopnik.com/5057594/gm-september-sales-drop-156)) and an inability to raise more cash (other than whatever minor deals they can come up with like refinancing buildings like their Renaissance Center HQ in downtown Detroit (http://jalopnik.com/5060222/gm-attempting-to-refinance-hq-threatening-to-sell-renaissance-center)), the automaker will hit that $11 billion mark pretty darn quick. When that happens, there's no more crazy deals they'll be able to come up with to avoid declaring bankruptcy.
What's that you ask what about the $25 billion in Federal loans? GM's cut of that pie will give them a few billion, yes, but nobody's expecting that money to hit the General's accounts until sometime next year and anyway, they may not even make it that far.
What about the open markets? Well, S&P just made it much more difficult yesterday, claiming it was reviewing GM for further long-term credit downgrades ratings that already indicate their bonds are below investment grade. So don't expect help to come from the capitalist-loving marketplace.
So what happens when they hit that wall and actually have to throw down the B-word? Nobody knows for sure, and anyone who claims they do is full of more bull than Bank of America after swallowing up Merrill. But, one thing's clear any form of court-mandated reorganization allows GM to reevaluate all sorts of deals like the one recently signed with the UAW, with suppliers and most importantly, with creditors seeking repayment on the $43 billion in debt and $80 billion in other liabilities on the books at the General potentially allowing the automaker to wipe some of that out. More importantly, just like the airlines, it'll give them the time to continue selling their ever-better vehicle lineup. True, many folks may be scared of buying vehicles from a company that's declared bankruptcy but of course, that didn't stop people from piling into Northwest planes after the airline did the same. And that's where they and we, have got some hope.

Blackout
10-10-08, 02:01 PM
Also saw this as well on jalopnik

Though no formal up or down vote has been called, General Motors may be out of luck getting the $500 million in local refinancing for its Renaissance Center world headquarters we reported on Tuesday. The Detroit News now says members of Detroit's city pension board and Police & Firefighter's Fund board think GM's refi request is too much money for the funds to support given the current global auto market. Talk about a vote of no confidence in one the city's biggest employers.

Options now include seeking other methods of funding or actually selling off the RenCen though if a sale were to take place, GM would retain the headquarters on lease. Considering GM bought the whole place in May for $626 million and now is considering refinancing, this reminds us of our own investments these days: Buy high, sell low and the like. [DetNews]

The Tony Show
10-10-08, 02:01 PM
Bill Heard was under investigation in practically every state they operate in, not to mention in hot water with GMAC for not paying their bills. Insiders suggest that Heard's closing was forced by GM, and not a decision that the Dealer body made itself.

dqw1
10-10-08, 03:42 PM
I was wondering why Bill Heard closed so suddenly but there were story's (in the local news at least) about some shady stuff they were doing.

The Tony Show
10-10-08, 04:47 PM
Just Google "Bill Heard Lawsuit". GM would only allow their number one Chevy Dealer to rip people off and give them a bad name for so long. After a while, the negative press outweighs the sold units.

codewize
10-12-08, 01:20 AM
GM is trying to buy Chrysler, GM also stated that bankruptcy is not an option and there are no plans to file. This as of Fri afternoon on CNBC.

People injecting rumors into the mainstream media doesn't help anything. The market is down because people are scared, not because there's a real problem. There is a problem but the fundamentals are there and strong, people are just panicking and it causes a chain reaction and drives the market all over the place.

Playdrv4me
10-12-08, 01:35 AM
Bill Heard was under investigation in practically every state they operate in, not to mention in hot water with GMAC for not paying their bills. Insiders suggest that Heard's closing was forced by GM, and not a decision that the Dealer body made itself.

Unfortunately Bill Heard typifies the business practices common at MANY GM and Ford dealerships, many of which never evolved from the car sales stigmas of the '70s and '80s. Even at some of the GM dealerships that are supposedly "President's Award" winners, like the Ed Morse group, I've observed some behaviors that make my scratch my head a bit.

Of course there are alot of great dealerships out there too, and good Caddy dealers by FAR outnumber the Lincoln ones that are absolutely stuck in the past. It's nice to see alot of the newer and recently remodeled Caddy dealers are starting to perform more like BMW dealers than ancient domestic ones. Clean uncluttered floorspaces, friendly and not overbearing salespeople and an overall presentation that mirrors the quality of the cars as they improve.

LS1Mike
10-12-08, 01:56 AM
Unfortunately Bill Heard typifies the business practices common at MANY GM and Ford dealerships, many of which never evolved from the car sales stigmas of the '70s and '80s. Even at some of the GM dealerships that are supposedly "President's Award" winners, like the Ed Morse group, I've observed some behaviors that make my scratch my head a bit.

Of course there are alot of great dealerships out there too, and good Caddy dealers by FAR outnumber the Lincoln ones that are absolutely stuck in the past. It's nice to see alot of the newer and recently remodeled Caddy dealers are starting to perform more like BMW dealers than ancient domestic ones. Clean uncluttered floorspaces, friendly and not overbearing salespeople and an overall presentation that mirrors the quality of the cars as they improve.

Damn Dude, I was just going to post something very similar.
I am not sure if I like this. :eek: :)
I was going to add, I don't think they should Lump Caddy Dealerships in with Chevy/Pontiac/GMC Dealerships, because it seems to me at times the Service department and the sales department forget you are buying a 45-80,000 dollar car VS a 15-40,000 dollar car. Not that that should affect how you are treated but we all know it does. It would be nice to walk into a just a Caddy dealership and know what to expect.

CIWS
10-12-08, 10:38 AM
If Uncle Sam is going to bail out bad financial institutions to help save the economy they will not let GM fail. They might be better off to let GM and Chrysler merge to see if they can survive, and if not solve "both" their issues with one stroke.