RKMBs Forums .::Important::. Politics and Current Events Democrat Leaders Want Automaker Bailout

WASHINGTON (AFP)--General Motors Corp. (GM) is likely to take a page from Chrysler LLC's playbook in an expected bankruptcy that tests a legal strategy for a quick restructuring with heavy government backing, analysts said.

GM, which faces a June 1 deadline from the U.S. government to come up with a viability plan or face a cutoff of aid, is widely expected to follow rival Chrysler into bankruptcy and use a similar plan to emerge leaner and more competitive.

Yet the two companies could still face legal hurdles and loud objections from the financial sector in a test for the plan by President Barack Obama's administration to save the two automakers critical to the U.S. economy, analysts say.

"I think GM will learn a lot from the Chrysler bankruptcy," said one bankruptcy attorney, who asked to remain anonymous, but is familiar with the Chrysler case and represents auto industry clients.

"I would expect GM to file in the same court. The fast track was adopted by the bankruptcy court and it is key to GM as it was for Chrysler."

GM, which is widely expected to seek court protection even while it scrambles to win cost savings, would represent a much larger bankruptcy case with thousands of investors and other parties, but both firms are trying to shed debt and legacy costs including for vast numbers of retirees.

"I think (bankruptcy) will be a little smoother for GM," the attorney said.

"If I were representing GM I would get on the same railroad as Chrysler and ride it."

The notion of a quick, surgical bankruptcy is being touted by the administration as the only means of saving the critically important auto firms, but has nonetheless drawn fierce objections about skirting creditor rights to get a quick exit.

In the Chrysler case, and most likely in the GM case, the company may remain under court supervision but the key assets would be sold to a new entity free of most debt, providing a fresh start.

But some complain that the financial sector is being forced to make bigger sacrifices than the United Auto Workers union and others.

David Cole, chairman of the Michigan-based Center for Automotive Research, said the tough stand against holders of debt could prove costly over the long term.

"The government wants to be paid back and have an equity position and stick it to the financial industry," he said. "If I were in the financial industry I would be very suspicious."

Kent Engelke at Capitol Securities Management, said the administration plan for GM, based on reports, "is asking the senior debt holders to forgive $27 billion in debt for 10% of the company. The U.S. Treasury and the UAW will forgive $20 billion and receive 89% of the newly formed company."

The plan, he said, "sacrifices the senior debt holders for the unions. This is wrong, lacking legal precedent, violating the most basic rule of law and capital structure."

I'd like to see the video of Obama in November saying we cant afford GM to go bankrupt. Good times.

When you're as wildly popular as President Obama, who needs Congress? So it is that the rookie in the White House imposes a go-green-or-die fiat on the filthy and woeful auto industry.

The White House's new and tougher gas-mileage rules force a 42 percent increase in new cars’ miles-per-gallon, and a 30 percent rise for trucks, by 2016. All to curb gasoline usage by 1.6 percent—by the year 2020.

Will someone please tell me what the hell we’re thinking here?

This amounts to one of the most severe and sweeping enviro-reforms ever mounted by government. And look Ma—no hands in Congress had to lift a finger to vote. This is all bureaucracy, baby, courtesy of the Environmental Protection Agency and the U.S. Department of Transportation.

Obama said yesterday that the new CAFE (Corporate Average Fuel Economy) rules would fuel Detroit on a (dubious) crusade to develop and sell greener cars. (Ahem, at a time of still-cheap gasoline.)

It will mean "certainty" for the Motor City, Bam says. Yeah—the certainty of a heart attack.

This extra burden comes at the worst possible time for GM [GMS 1.59 -0.006 (-0.38%) ], Chrysler and Ford [F 5.26 -0.07 (-1.31%) ]. And it won't work—it just looks good. Which kinda sums up a lot of new moves coming out of Washington these days. We debated this last night on CNBC Reports.

The president proudly unveiled his new diktat yesterday, flanked by a gaggle of grinning yes-men: governors and greenies and execs from carmakers American and foreign.

The GM and Chrysler guys had no choice but to be there, wincing beneath the grins: They just guzzled through $25 billion (CHK) in TARP taxpayer loans in a last-gasp bid to survive. Would they ever dare differ with Bam on his bid to annex their product-design labs—especially when they need billions more?

So let me point out some fatal flaws in this green decree:

* It will result in Americans driving more not less. When we get better mileage, we drive more than usual, negating much of the savings, says Penn State’s Andrew N. Kleit, who has written widely on the topic.
* The key to better mileage is lighter-weight cars—in which people die more often in traffic accidents. Since CAFÉ passed in 1975, smaller cars have killed almost 50,000 more people than otherwise would have died on the roads, the National Highway Traffic Safety Administration reported in 2002. CAFE kills up to 3,900 extra people each year, a study by Harvard and the Brookings Institition states. It finds that for every 100 pounds less that an auto weighs, up to 780 more people die in traffic accidents in a year.
* It will add $600 to the price of a car, further worsening the Big 3’s already sizable cost disadvantage. Toyota, Honda and Hyundai already pretty much meet the stricter standards.
* It will force Detroit to build wimpy li’l cars most consumers don’t want to buy. CAFÉ rules long have distorted industry production. Automakers churn out loss-leader subcompacts purely to lower the average mileage for their entire fleet, freeing them to make higher-profit SUVs. At Ford, the F-150 truck provided 120% of profits, back when it had profits.

I know, guys: We gotta fix this fuel problem sooner rather than later, we have to end our reliance on foreign oil. Blah blah blah. Sure we do—but not by Presidential fiat, not by way of a self-perpetuating bureaucracy. We need a free-market solution: Make better, cheaper, safer lower-fuel cars that we want to buy, and we’re happy to start driving them.

Not because Bam said we should, but because we choose to do so.

General Motors bondholders felt they deserved something like a 58 percent stake in the company in exchange for their billions of dollars in debt. What they were offered wasn't even close.

....

The government, which has already extended nearly $20 billion in loans to GM, ordered the company to come up with a plan that 90 percent of its bondholders would agree to. But the government allowed it to offer only 10 percent of the company's stock. GM was forced to withdraw the offer Wednesday after it fell far short.

....

GM bondholders are owed about $27 billion, the largest chunk of GM's roughly $58 billion in debt. They were offered the 10 percent stake to wipe out the debt, well short of the 58 percent they wanted.

Red State, American Thinker, Joey Smith and Reliapundit provide anecdotal and quantitative evidence that would appear to confirm a decided bias against dealers who donated to GOP causes or to anti-Obama Democrats.

Special note for moonbats: no one here is saying that the sole criterion for closing a dealership was partisanship. What we ask is: does it seem odd that the list of closed dealerships appears to have contributed a grand total of $200 to Barack Obama and millions to GOP candidates/causes?

Quote from an attorney who Deposed Chrysler's president last week: "It became clear to us that Chrysler does not see the wisdom of terminating 25 percent of its dealers... It really wasn't Chrysler's decision. They are under enormous pressure from the President's automotive task force."

Late night updates from Joey Smith and Thomas Lamb: Large Democrat Donor groups not only remain open in all locations, but have their competition eliminated... and/or can purchase for pennies on the dollar.

Stay tuned. More data crunching is underway.


A tipster alerted me to an interesting assertion. A cursory review by that person showed that many of the Chrysler dealers on the closing list were heavy Republican donors.

To quickly review the situation, I took all dealer owners whose names appeared more than once in the list. And, of those who contributed to political campaigns, every single one had donated almost exclusively to GOP candidates. While this isn't an exhaustive review, it does have some ominous implications if it can be verified.

However, I also found additional research online at Scribd (author unknown), which also appears to point to a highly partisan decision-making process.

Consider the partial list of Chrysler dealership owners, listed below. You'll notice that all were opponents of Barack Obama, most through sponsorship of GOP candidates and organizations, but a handful through Barack's Democrat rivals (Hillary Clinton and John Edwards in 2008, for example).

• Vernon G. Buchanan: $147,450 to GOP candidates and organizations
• Wallace D. Alley and Family: $4,500 to GOP.
• Robert Archer: $4,600 to GOP and conservative causes.
• Homer S. Higginbotham and Family: $2950 to GOP.
• James Auffenberg and Family: $28,000 to GOP; $6,000 to one Democrat candidate.
• Michael Maroone and Family: $60,000 to GOP; $8,500 to two Democrat candidates.
• Jerome Fader: $6,500 to Democrats; $2,500 to Independent Joe Lieberman.
• Stephen Fay and Family: $13,500 to GOP.
• William Numrich: $20,000 to GOP.
• Robert Carver: $10,000 to Democrats including $1,950 to Hillary Clinton, nothing to Barack Obama.

• Robert and Linda Rohrman: $24,000 to GOP.
• Frank Boucher, Jr. and Family: $18,000 to GOP, $1,000 to one Democrat candidate.
• Scott Bossier: $4,300 to GOP.
• Todd Reardon: $17,000 to GOP; $2,000 to one Democrat candidate.
• Russ Darrow and Family: $78,000 to GOP.
• Bradford Deery and Family: $24,700 to GOP.
• Charles Gabus and Family: $30,000 to GOP.
• Brian Smith: $15,500 to GOP.
• Michael Schlossman: $14,000 to GOP; $14,000 to three Democrats ($12,500 to Sen. Russ Feingold).
• Don Hill: $11,000 to GOP; $12,800 to conservative incumbent Rep. Heath Shuler.

• Don Miller: $2,000 to GOP; $1,000 to Feingold.
• Eddie Cordes: $2,150 to GOP.
• Robert Edwards: $1,100 to GOP.
• James Crowley: $19,100 to GOP.
• Stanley Graff: $2,200 to John Edwards (2008 Presidential Run); $500 to GOP.
• John Stewart: $10,500 to GOP.
• John Fitzgerald and Family: $4,600 to John McCain (2008); $2,000 to Hillary Clinton (2008); nothing to Barack Obama.
• William Churchill and Family: $3,500 to GOP.
• Thomas Ganley: $9.450 to GOP.
• Gary Miller: $20,000 to GOP.

• Kevin and Gene Beltz: $18,500 to GOP.
• Arthur Grayson: $14,000 to GOP.
• Eric Grubbs and Family: $26,000 to GOP.
• Michael Leep and Family: $19,500 to GOP; $4,800 to three Democrats including Sen. Evan Bayh.
• Harry Green, Jr.: $10,000 to GOP.
• Ronald Hoover: $5,250 to GOP.
• Ray Huffines and Family: $18,500 to GOP.
• John O. Stevenson: $1,500 to GOP.
• James Marsh: $8,200 to GOP.
• Max Pearson and Family: $112,000 to GOP.

I have thus far found only a single Obama donor (and a minor one at that: $200 from Jeffrey Hunter of Waco, Texas) on the closing list.

Chrysler claimed that its formula for determining whether a dealership should close or not included "sales volume, customer service scores, local market share and average household income in the immediate area."

In fact, there may have been other criteria involved: politics may have played a part. If this data can be validated, it would appear to be further proof that the Obama administration is willing to step over any line to advance its agenda.

It bodes poorly for America and the rule of law.

May 27 (Bloomberg) -- The lawyer who represented Chrysler LLC’s</a> dissident lenders is organizing some General Motors Corp. bondholders and plans to argue in any GM bankruptcy that the loser this time will be will be Main Street, not Wall Street.

GM, the largest U.S. automaker, faces a probable bankruptcy filing by June 1 following the refusal of bondholders to accept a 10 percent equity stake in a new company, part of a U.S.- backed plan to give the American and Canadian governments equity ownership of as much as 69 percent and a 17.5 percent trust for unions. GM bondholders hold $27 billion in claims.

“The difference with GM is that, whereas the ‘bad guys’ in Chrysler were hedge funds, who Obama called ‘speculators,’ here they’re Main Street -- individual retirees who bought bonds when they were like gold bullion,” said Thomas Lauria, a lawyer with White & Case LLP who represents Chrysler lenders fighting that company’s U.S. backed reorganization. Lauria said he is seeking to represent GM bondholders in any bankruptcy of that company.

In the Chrysler case, the dissident debt holders disbanded 10 days after the company collapsed, citing political pressure that began when U.S. President Barack Obama criticized the group. Evan Flaschen, chairman of the restructuring department at law firm Bracewell & Giuliani LLP, said uncooperative GM bondholders may be less politically vulnerable.

Retirees Versus Retirees

“The story that hasn’t been told is, this isn’t GM’s union retirees versus the bondholders. It’s retirees versus other retirees,” said Flaschen, who isn’t involved in the GM matter. While Chrysler’s dissidents lost steam because they were forced to identify themselves and faced public stigma, including alleged death threats, GM’s opponents may be harder to criticize, Flaschen said.

GM Chief Executive Officer Fritz Henderson has said the U.S. Treasury allowed the automaker very little flexibility in its negotiations with bondholders. Julie Gibson, a spokeswoman for GM, declined to comment.

“We’re stuck, we need the white knight,” said Gary Thomas, a retired auto mechanic and GM bondholder, in an interview. “I’m not asking for special treatment, I’m just asking for parity. I just feel like whatever the UAW gets, the bondholders should get.”

Roger Kerson, a spokesman for the United Automobile Workers Union, didn’t return a call seeking comment. Jenni Engebretsen, a spokeswoman for the Treasury, didn’t respond to an e-mail seeking comment.

Individual Creditors

Thomas said he has joined a group of individual creditors called GM Bondholders Unite that wants Lauria to represent them. The group is trying to gather investors and hire legal representation to get “fair and equitable treatment” in a bankruptcy, according to its Web site.

Former GM employee Jim Graves, 58, said he represents his 80 year-old mother, Vivian Floyd. Graves, of Celebration, Florida, said he plans to fight the government’s offer to return pennies on the dollar for her $100,000 investment in GM bonds.

“What it boils down to is about half a cent on the dollar at today’s price of GM stock,” he said. “It’s stunningly unfair.”

Graves calculated that his mother’s bonds may be worth 9 cents on the dollar if stock in the new GM reaches half of the company’s decade-long high of about $63 a share. Graves, part of a group calling itself The Main Street Bondholders Coalition, said he didn’t have legal counsel.

Lauria said he seeks to represent some individual GM retirees if Detroit-based GM seeks court protection. As with Chrysler, the attorney said the Obama administration is subverting the U.S. bankruptcy code.

Last Month

In the case of Auburn Hills, Michigan-based Chrysler, filed last month in U.S. Bankruptcy Court in Manhattan, Lauria argued on behalf of a group of hedge funds calling themselves “Non- TARP” lenders. He sought to distinguish his clients from recipients of taxpayer money from the Troubled Asset Relief Program who backed the U.S. plan.

The lawyer claimed that the U.S.-backed reorganization plan for Chrysler subverted the law by paying some unsecured creditors more than secured creditors, who by law, he said, should have priority.

“Obama painted the Chrysler non-TARP lenders as evil, but when you look at whose investing in these funds, it’s pension plans and mutual funds,” said attorney Michael Foreman of Dorsey & Whitney LLP. “Who’s investing in mutual funds and pensions? It’s people on Main Street.”

Lauria didn’t disclose which GM bondholders he represents. He said he would seek to have his fees paid out of the GM bankruptcy estate.

Nevin Reilly, a spokesman representing the ad hoc group of bondholders that has been negotiating with GM, declined to disclose the identities of the holders his group represents.

Junior Creditors

Workers aren’t always treated as junior creditors. The U.S. bankruptcy code specifically provides for employees to get preference over bondholders, said Richard Hahn, co-chairman of the bankruptcy practice at Debevoise & Plimpton LLP, a New York law firm, who isn’t involved in the GM negotiations.

Section 1114 of the code requires a debtor “timely pay” all retiree benefits unless the bankruptcy court orders otherwise, or the authorized representative of the recipients of those benefits agrees to other treatment, Hahn said.

In a GM bankruptcy case, Lauria said he would argue that, because unions and bondholders are both unsecured creditors, their claims should get equal treatment.

He said GM’s initial offer to bondholders would have given union-workers 12 times their recovery. Under the new U.S.- plan, bondholders will still get less than the unions, he said.

“The new paradigm seems to be that the contractual rights of creditors can be overwritten to protect politically favored entities like labor unions,” Lauria said.

‘Unfair’ Plan

Flaschen predicted that, while the U.S.-backed reorganization plan for GM may be “unfair” under the bankruptcy code, it’s bound to succeed.

“To put it crassly, you need the employees going forward, you don’t need the bondholders,” Flaschen said.

Flashchen said bondholders may argue against the U.S.- funded debtor-in-possession loan that calls for a “good GM” and a “bad GM,” claiming it violates federal bankruptcy law by being a secret plan of reorganization.

GM’s $3 billion of 8.375 percent bonds maturing in 2033 have fallen to 7.13 cents on the dollar from 21 cents at the beginning of the year and 70 cents 12 months ago, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 115 percent.

GM and the U.S. are likely to say that bondholders will get more under its plan than in a liquidation, Flaschen said.

“If you were the judge, you would be told by the government, that if GM liquidates--if you don’t do this--another 2 million people will be out of jobs,” Flaschen said. “Do you want to be the judge who decides that?”

The Chrysler bankruptcy case is In re Chrysler LLC, 09- 50002, U.S. Bankruptcy Court for the Southern District of New York (Manhattan)

To contact the reporters on this story: Tiffany Kary in U.S. Bankruptcy Court in New York at tkary@bloomberg.net and; Christopher Scinta in U.S. Bankruptcy Court in New York at cscinta@bloomberg.net.

“We’re stuck, we need the white knight,” said Gary Thomas, a retired auto mechanic and GM bondholder, in an interview. “I’m not asking for special treatment, I’m just asking for parity. I just feel like whatever the UAW gets, the bondholders should get.”

The revised offer to the holders of $27 billion in unsecured GM bonds amounted to a take-it-or-leave-it ultimatum: Go along with what the government auto task force's proposal or be left holding the assets a new GM doesn't want — ones with presumably little value at all.

In addition to the 10 percent of the stock in a newly formed GM that was originally rejected by bondholders, the new offer would give them warrants to acquire an additional 15 percent stake at a deep discount. That would come only if they agree to support selling the company's assets to a new company under bankruptcy court protection.

The Securities and Exchange Commission filing said that if enough bondholders don't agree to support the sale by 5 p.m. Saturday, the amount of stock and warrants they get would be substantially reduced or eliminated. The filing didn't specify how much support is needed.

The government had demanded that 90 percent of GM's bondholders agree to a previous debt-for-equity swap that failed. The Obama administration official said the government would not require a specific percentage of bondholders to approve the new proposal but would make a judgment call based on the level of support.

About 15 percent of bondholders had agreed to the previous proposal, the official said. Combined with the approval of a bondholders committee and other large debtholders that collectively hold about 20 percent of GM's unsecured debt, the government now expects at least 35 percent support, the official said.

The committee said it would go along with the new deal, but it was still unfair.

"While the committee continues to remain troubled by preferential treatment that the UAW VEBA is receiving compared to the bondholder class — rejecting this offer in the expectation that the bondholders will do better in a litigated outcome was a risk the committee is unwilling to take," the committee said in a statement.

A coalition of retail bondholders, meanwhile, continued to oppose the offer. The group said the new offer remained unfair to retirees who depend on GM bonds for income and was overly favorable to the UAW.

"From the beginning there's been a lack of transparency in this entire restructuring process," said Jim Martin, president of the retiree group 60 Plus Association, in a statement. "No one seems to have the best interests of small bondholders at heart."

United Auto Workers President Ron Gettelfinger, in a telephone interview with The Associated Press Thursday, said he didn't want to get into a debate with bondholders while the union is pushing for ratification of concessions to GM.

"An objective person that stood back and looked at all the sacrifices that have been made by active workers and retirees would see that we have made tremendous sacrifice," he said. The union's role, he said, was to get the best deal it could for active members and retirees.

Under the proposal, GM would enter bankruptcy protection and its good assets would be separated from bad ones.

The U.S. Treasury, which already has lent GM $19.4 billion, would get 72.5 percent of the new company's shares and provide $30 billion in additional financing needed to keep the new GM operating while its reorganization plan is reviewed by a bankruptcy court judge and the old GM is liquidated. The Canadian government was expected to provide an additional $9 billion, the Obama administration official said.

A United Auto Workers' retiree health care trust fund will get 17.5 percent and the old GM, effectively owned by the unsecured bondholders, would get a 10 percent stake.

If it's a case of a bailout that saves the our country's auto making industry & they go on & be sucessful again I think it's worth it.

Yeah, I didn't read any of that...so what were the "great sacrifices" that the UAW made?

I believe in unions, but I don't think the public should finance the pensions and benefits for unions that work for private companies.

...The U.A.W. agreement cuts some retiree benefits, saves G.M. $13 billion by giving a union retiree health care fund up to 20 percent of the equity in the restructured G.M. and prevents the union from striking until at least September 2015.

In return, the union persuaded G.M. to build more of the vehicles that it sells in the United States at union factories in America, rather than importing them from low-wage countries like China. G.M. said Friday that the percentage of domestically built vehicles sold in the United States would rise to more than 70 percent by 2013, from 67 percent today.

In return, the union persuaded G.M. to build more of the vehicles that it sells in the United States at union factories in America, rather than importing them from low-wage countries like China. G.M. said Friday that the percentage of domestically built vehicles sold in the United States would rise to more than 70 percent by 2013, from 67 percent today.

nytimes.com

Why does it sound like the UAW's concession was that they would actually work?

"...The U.A.W. agreement cuts some retiree benefits, saves G.M. $13 billion by giving a union retiree health care fund up to 20 percent of the equity in the restructured G.M. and prevents the union from striking until at least September 2015.

In return, the union persuaded G.M. to build more of the vehicles that it sells in the United States at union factories in America, rather than importing them from low-wage countries like China. G.M. said Friday that the percentage of domestically built vehicles sold in the United States would rise to more than 70 percent by 2013, from 67 percent today."


How exactly is that a concession?

They took "some cuts" in retiree beneftis, but now they have equity in G.M...granted, the stock ain't worth shit right now, and G.M. will supposedly save 13 billion, but I don't see this as a major sacrifice...G.M. will also build more cars in America, which appeases the union, so how is that a sacrifice, too?

Depends I suppose how much you value your retirement. Having what is probably a chunk of it invested in a company that has virtually no value would be a big deal to me.

Depends I suppose how much you value your retirement. Having what is probably a chunk of it invested in a company that has virtually no value would be a big deal to me.

Depends I suppose how much you value your retirement. Having what is probably a chunk of it invested in a company that has virtually no value would be a big deal to me.

Well, at least you've finally admitted that Obama's plan, and billions of taxpayer dollars, accomplished nothing but creating a worthless company

Which could have just as easily ALSO been the case WITHOUT the bailout. So, as noted before, there is no evidence that the bailout accomplished a single thing.

Not much interest in car companies right now....

...which tends to disprove your theory that these companies will survive

Tell that to Ford.