The birth of Government Motors
Posted on May 31, 2009 at 10:54 pm
This morning’s bankruptcy filing by the largest of Detroit’s Big Three will trim its shareholder base to four groups: The U.S. government (60 percent), the UAW’s health trust (17.5 percent), the governments of Canada and Ontario (12.5 percent) and bondholders (10 percent).
Other nuggets on this topic:
Bloomberg News on the new company’s expected world view:
The new GM would emerge armed with vehicles from its Cadillac, Chevrolet, Buick and GMC units. It will be built to survive on 10 million annual car sales, the Obama administration said. That’s down from the present break-even sales of 16 million vehicles. GM intends to close 11 factories and idle an additional three, while attempting to reopen one idled facility to build a new small car.
Reuters via CNBC gives the skeptics some time at the mic:
“I don’t think they’re going to be successful in answering the fundamental problems of this company — they are addressing the financial issues, but not the business issues,” said Stuart Hirshfield, a bankruptcy lawyer with the Mintz Levin law firm.
And this pithy quote:
“I think this is going to be Obama’s Vietnam,” said automotive historian Bob Elton. “Every time he turns around, there goes another $20 billion.”
Might those next $20 billion go to suppliers? The Journal takes a look at the dominos of a Chapter 11 filing:
It’s possible struggling suppliers will get indirect help from the government through GM in the form of a more payments to suppliers than might be the case in a traditional bankruptcy. A person familiar with the Treasury Department’s discussions expects more suppliers to file for Chapter 11 and said, “We will support GM — and Chrysler for that matter — in trying to make it orderly.”
The Washington Post on the union-investor tug of war:
“The proposal seems to favor the rights and claims of the UAW, a political ally of the current administration and a powerful lobbying force in Washington, over the rights and claims of the company’s diverse group of bondholders,” according to a letter from 20 House members, led by Rep. Jeb Hensarling (R-Tex.), to Treasury Secretary Timothy F. Geithner. “Contractual rights of investors are being trampled by the government under the rationale of ‘extraordinary circumstances.’”
An AP story in the Chicago Tribune examines the tax credits GM will be eligible for when (if) it turns a profit:
Decades ago, Congress severely restricted the ability of money-losing companies to cash in on the tax breaks if they are taken over by other companies. The goal was to discourage corporate takeovers for the principle purpose of avoiding taxes, Willens said.
The government, however, doesn’t want to penalize firms for participating in the taxpayer-financed bailout, so the Treasury Department has issued several notices in recent months creating exceptions for firms that get bailout money. Under the new rules, corporations can keep their tax breaks if the government becomes a majority owner.
And finally, the GM coverage by the Detroit Free Press includes a look at what might happen to the company’s iconic Renaissance Center HQ.
