GM is months away from bankruptcy. EDIT : Files for Chapter 11

[HotChillyPepper]

Originally Posted by Tech

This was mentioned by me long time back in 2006 in earlier posts on Aveo LS. But hopefully US Govt should come in and handle this tough situation.

No. According to today's news, GMs bailout may not be so easy as we would think. It looks like Government had given enough warnings for GM and Ford about the possible crisis, but no action taken to beat the situation.

Now GM may opt filing Bankruptcy to get protection from its defaults. Government may allow the company to do so and generate the revenue by itself to pay the debts. So I don't think its a problem in buying GM vehicles now. They will even give a good deal to get more business.

GMs share value dropped down to 1USD which is lowest in last 25 years.

[harry10]

How is this affecting the GM car sales in India. Any new report?

[rawnak]

Bailout of Big 3 is not fair.
What about other sector companies, will US govt. bailout any company
going under. Then is it fair to companies which managed well.
Big 3 Auto can never be successful, lousy products, cheat dealers,
huge retirement benefits bill.
But political leaders here will not let them fall since detroit will be empty then.

[HotChillyPepper]

Originally Posted by rawnak

Bailout of Big 3 is not fair.
What about other sector companies, will US govt. bailout any company
going under. Then is it fair to companies which managed well.
Big 3 Auto can never be successful, lousy products, cheat dealers,
huge retirement benefits bill.
But political leaders here will not let them fall since detroit will be empty then.

One interesting fact about Us is every 1 out of 10 US citizen is employed with a car related business. So saving those companies will save a lot of people.

[muralisk]

It's official: General Motors is a small cap. Following a drop to a new 52-week low of $2.75 a share, GM closed at $2.92, down 13% on the day, giving the maker of Hummers a market cap of $1.65 billion. At SmallCapInvestor.com, as with many other investment sites, the threshold that separates small caps from mid caps is $2 billion. In January 1999, by contrast, GM peaked at $87 a share, translating into a market cap of about $50 Billion.

[harry10]

Originally Posted by rawnak

Bailout of Big 3 is not fair.
What about other sector companies, will US govt. bailout any company
going under. Then is it fair to companies which managed well.
Big 3 Auto can never be successful, lousy products, cheat dealers,
huge retirement benefits bill.
But political leaders here will not let them fall since detroit will be empty then.

No they cant bail out everyone but these are symbols of American heritage. Since the time anyone can rem they are the major forces in automobile industry and US cant afford to lose them and tarnish its image more.

[AMATMO]

losing these marks can be big embarassment to the country itself, its much more than a mere commercial entity

[greenhorn]

does this mean that the spark is going to be the matiz all over again?

[mjothi]

Its too early to comment like this. I dont think such a big company will close once for all like this. Lets see.

[Path_Finder]

Originally Posted by mjothi

Its too early to comment like this. I dont think such a big company will close once for all like this. Lets see.

Bankruptcy does not mean closing down once for all at once. It is a official declaration that the company is not able to pay off what it owes to others. And the beginning of some controlled procedures which can lead to recovery or a close down or a takeover.

[aaggoswami]

Three article that again reconfirms the problem.

1) Source :
US Automakers Face Unprecedented Threat of Collapse - worldcarfans

Article:

Where to begin?

GM shares have fallen to their lowest point in 65 years. On Tuesday GM stock closed at $2.85 (no misplaced period there, Ford shares are $1.77). It's market value is now 1.8 billion US, or about 2 percent of Toyota's.

GM and Ford are burning through their cash reserves at unprecedented levels. GM is losing about 1 billion US a month while Ford spent 7.7 billion in the third quarter of the year.

October sales reports sounded a death knell for Detroit. Sales were down 31.9 percent overall compared to the same period last year. For GM, they were down 45 percent. Ford sales were down 30 percent, Chrysler 35 percent.

Sales have been hurt due to the sagging economy but also because of the credit crisis as dealers and consumers are having a hard time finding financing for car purchases. Even Toyota has had to drastically reduce it's sale projections but the company does not face the same risks as its US counterparts.

Detroit is scrambling to adapt to an automotive market in 2009 that could contract to about 11 million unit sales, compared to recent years where sales hovered at around 16 million units. But GM, or even Ford and Chrysler, may not survive the year.

GM needs to raise cash. It has floated the idea of selling off the Hummer brand or the money-losing Saab. Volvo, owned by Ford, is also a money-loser for that automaker. GM had to abandon its merger talks with Chrysler owner Cerberus Capital Management due to a lack of cash to fund the deal.

GM says it will run out of cash by mid-2009 if something isn't done urgently.

Bailout

The Detroit automakers are seeking about 25 billion US in loans from the US government for help in developing new products, to meet the demands of consumers for more fuel efficient cars. They are also seeking an additional 25 billion US in emergency loans to get them through next year, which will be tough by all accounts.

GM's CEO Rick Wagoner says that the automakers cannot wait for the Obama administration to come into office and that by January 20th when Obama is sworn in, it may be too late.

Consequences

If GM collapses, it could be catastrophic. It will take many of its suppliers down too. This may shut down Ford production, since Ford uses many of the same suppliers such as Lear and Johnson Controls. It could lead to complete collapse of the industry the likes of which have never been seen. About 2.4 million jobs are threatened directly and another 7 million other jobs related to the industry face serious risks too.

2) Source : GM Cancels L.A. Auto Show Press Events - worldcarfans

Article:

You know an automaker is in trouble when they are canceling press conferences at auto shows. These are the kinds of venues where automakers are supposed to trot out their shiny, new products and rake in all the marketing benefits from the free media exposure.

But GM is in a dire financial situation and it will not be introducing any new models or holding any press events at the L.A. Auto Show. All new intros have been pushed back to the Detroit Auto Show in January.

GM will still be participating in the show and will put on display the extended-range including the production Chevy Volt, as well as several of GM's hybrids.

GM is in the worst position of the big three Detroit carmakers, all of which are facing an unprecedented threat of financial ruin and bankruptcy. Ford still has enough cash on hand to see it through 2009, which will be one of the toughest years in the automotive industry in the US in a long-time. But GM may run out of cash by mid-2009 if they do not receive a bailout package from the US government.

All three US automakers are lobbying Congress and the Bush administration for a bailout package. GM says it cannot wait for the Obama administration to take office and that it urgently needs money in the form of guaranteed government loans before then in order to avoid insolvency and possible bankruptcy.

The automakers are asking for an emergency fund of 25 billion US

3) And the rescue plan by US Government.
Source :
Congress Considers Auto Rescue Plan - With Strings - worldcarfans

Article:

America's three automotive giants have been given a further step towards a lifeline when US lawmakers committed to pushing for their financial salvation. House Speaker Nancy Pelosi said Congress would also consider including Ford, General Motors and Chrysler in the USD700 billion financial industry bailout that is being talked about.

Top of the problem though, especially for GM, is that the companies are quickly running out of operating cash. The Bush administration may therefore yet save the American auto industry before January 2009. Loans of up to USD50 billion could be on the cards, half of which is for retooling and amendments are being drafted for. The other half is being eyed by the UAW for health care costs of retirees.

With any loan comes conditions and for the auto industry things are no different. Some of these conditions include the capping of executive salaries, bans on so-called golden parachutes and protections for taxpayers. Environmental housekeeping would also have to be strictly adhered to.

[dr_know]

Some interesting write up I saw recently:

I find the whole nationalisation thing in the US amusing in a morbid sort of way. The country that has railed against socialism for so long now becoming the world's leading socialist society. And having to borrow the money to achieve this from the world's supposedly biggest communist state simply adds to the delicious irony.

However, on the subject of bailing out GM, I think this has to be seen in a very different light to the banks etc. With the banks we've seen something of a chain reaction, with weakness in one bank leading to loss of confidence in the entire system, such that we came close to a total banking collapse according to the BoE Governor. That would have massive implications for virtually every individual, especially as the collapse could well have been global.

GM, however, whilst massive and having the potential to cause pain across a large number of its suppliers, would not cause a similar issue. Yes, GM fails, but that won't bring down companies such as BMW, Audi, Toyota, Honda etc, unlike banking where the Lehman's collapse directly led to the loss of funding lines to lots of other banks globally, followed by share price collapses for banks ranging from Goldman Sachs to HBOS. The banking crisis is one of condidence in a highly (over) leveraged industry. GM is close to collpase simply because it makes sub-standard, overpriced products that nobody wants to buy. GM has the wrong product line (gas guzzling SUV's for example), at a time of fears over long term fuel prices ($147/barrel oil remains in the memory long after the price has halved). Also, even Americans are now beginning to realise that global warming is a problem. GM and other US car makers woke up to this far too late. Their European and Japanese competitors have a better range of vehicles to meet this challenge already in production.

[rawnak]

"On Tuesday GM stock closed at $2.85 (no misplaced period there, Ford shares are $1.77). It's market value is now 1.8 billion US, or about 2 percent of Toyota's."

Toyota and Honda should buy parts of GM and stop retiree benefits.
Build mostly Honda or Toyota cars in GM plants and keep some good GM
products and can the rest. Anyway they have too variants of same core
design. GM has Saturn, Chevrolet, Buick, Caddilac, Pontiac, Hummer.
They should combine some of these overlapping brands and save customer
some confusion. AT least customer will not have to put up with fat butt
cars.

Originally Posted by aaggoswami

Three article that again reconfirms the problem.

1) Source :
US Automakers Face Unprecedented Threat of Collapse - worldcarfans

Article:


2) Source : GM Cancels L.A. Auto Show Press Events - worldcarfans

Article:



3) And the rescue plan by US Government.
Source :
Congress Considers Auto Rescue Plan - With Strings - worldcarfans

Article:

[aaggoswami]

Originally Posted by rawnak

"On Tuesday GM stock closed at $2.85 (no misplaced period there, Ford shares are $1.77). It's market value is now 1.8 billion US, or about 2 percent of Toyota's."

Toyota and Honda should buy parts of GM and stop retiree benefits.
Build mostly Honda or Toyota cars in GM plants and keep some good GM
products and can the rest. Anyway they have too variants of same core
design. GM has Saturn, Chevrolet, Buick, Caddilac, Pontiac, Hummer.
They should combine some of these overlapping brands and save customer
some confusion. AT least customer will not have to put up with fat butt
cars.

They wont. In fact Toyota, Honda will themselves end up being bankrupt if they bought parts of both. The problem, they will themselves love to have a hold no cash as the present economic donwturn will today or tomorrow effect them. IMO, USA and N.America are very important market for both of them. Here they will be taking the highest hit if we really go into bigger global economic trouble. So they both will think, rather than invest in these carmarkes, let us have cash on hand.
IIRC, GM earlier had issues about the retiree plans and it is hitting them real hard. There are some legal issues here to implement the withdrawal of these plans.

[sbasak]

GM is close to collapse simply because it makes sub-standard, overpriced products that nobody wants to buy.

This is very true but had it not been recent financial crisis, GM would have survived quite easily for many years. GM was a behemoth and did not bother to compete with other economic manufacturers in good times. They also have huge employee benefit burden. Basically everything that could have went wrong, did go wrong at same time for GM.

so, even Americans are now beginning to realise that global warming is a problem.

Americans are now also cash starved just like anyone else!