The GM Plan

[Larry Gude]

Okay, GM stock is trading up around $1.63 now, so I'm paranoid again that I'm missing something. There has to be some piece of the puzzle that I don't know about, and other people do - or maybe the world just never runs out of stupid people.

Stupid people have made as much money as smart people. Keep that in mind.

 

[Tilted]

Small GM bondholders seek talks with U.S. task force | Reuters

WASHINGTON (Reuters) - A group representing up to 100,000 individual investors, many of them retirees, holding about a fifth of General Motors Corp debt asked the Obama administration on Thursday to intervene with the company on its restructuring plan.

"I wish the White House would take small bondholders into consideration the way they are taking the United Auto Workers into consideration," Jim Graves, a former GM employee, said at a news conference.

...

Small and institutional debt investors have complained forcefully they are being treated unfairly compared to the UAW, which reached a sweeping agreement on concessions with GM earlier on Thursday.

Individual GM Bondholders Face Tough Choice - WSJ.com

You can't read the full WSJ article without a subscription, but the portion I wish to cite is the preview.

General Motors Corp. is trying to get bondholders to agree to a debt swap deal. Debra June, a substitute teacher from Stuart, Fla., is an example of why the offer is proving to be a tough sell.

Six years ago Ms. June invested $70,000 in GM bonds, thinking they were a safe bet. But under under the offering GM unveiled two weeks ago, all she would get is some stock worth about $280, according to her own estimate.

“I’m just going to take the bonds and hang them up in my living room. They’re more valuable as wallpaper,” the 52-year-old ...

I think here estimate is probably low - I'd guess more like $2,000 or $3,000 - but the point is still the same. What say you to her, President Obama?

 

[Tilted]

U.S. to work with GM ahead of June 1 deadline | Reuters

WASHINGTON (Reuters) - The Obama administration has no plans to push General Motors Corp into bankruptcy next week and the outcome of the automaker's restructuring efforts may not be known until a June 1 deadline, a source familiar with the situation said early on Friday.

Earlier, the Washington Post, citing sources familiar with the discussions, reported that the Treasury Department would steer GM into bankruptcy next week under a plan that would provide the company just short of $30 billion in new federal loans,

A U.S. Treasury spokeswoman declined to comment.

Let's say the $30 Billion number is accurate - that's a total of $57.9 Billion for GM and GMAC alone. That doesn't include Chrysler. The eventual total may well approach $100 Billion.

When this whole saga started last year, MANY of us could clearly see 4 realities:

(1) That the money we were loaning them was just a start, that we would end up laying out much, much more.

(2) That they would end up in bankruptcy anyway.

(3) That, one way or another, the U.S. government would end up owning parts of, or a part of, GM.

(4) That the net effect of us providing the loans would be to screw debt-holders, and reduce what they would get paid back, to the benefit of current employees. I must confess, I was a little naive in this regard. I actually thought that bond-holders and the UAW VEBA funds would get fairly equal screwings - you know, because of the law and stuff. Ahhh, I can remember the innocent days of long ago when those kinds of thoughts were common and such notions weren't laughable.

It looks like all of those things will be realized. And, GM and Chrysler will end up being shells of their former selves anyway.

 

[Tilted]

House Republicans back GM bondholders in talks | Politics | Reuters

WASHINGTON (Reuters) - Four U.S. Republican lawmakers have complained to Treasury Secretary Timothy Geithner that a plan to restructure automaker General Motors Corp subverts the rights of bondholders, according to a letter from the lawmakers obtained by Reuters on Friday

A proposed restructuring favors the claims of the United Auto Workers union "over the rights and claims of the company's diverse group of bondholders, who collectively hold $7 billion more in General Motors debt than the UAW's health trust and are equal members of the creditor class," the lawmakers said.

"Bondholders must have a seat at the table during negotiations in how the company would be restructured," said the letter to Geithner from Representatives Jeb Hensarling, Eric Cantor, Mike Pence and Pete Sessions.

"We are extremely concerned that in the name of restructuring General Motors, the Presidential Task Force on the Auto Industry ... has begun waging what some believe amounts to a war on capital: contractual rights of investors are being trampled by the government under the rationale of 'extraordinary circumstances,'" the lawmakers wrote.

Nice to hear from you guys, but where have you been? And, where are the rest of the Republicans?

 

[Larry Gude]

Nice to hear from you guys, but where have you been? And, where are the rest of the Republicans?

Doing what they do best; ignoring things like they have been for the last six years or so, less they get accused of Bush Derangement Syndrome.

It's the done thing! It makes you kewl and part of the gang!

 

[Larry Gude]

Random thoughts;

washingtonpost.com

The US will likely have given GM $45 billion by the end of next week.

GM sold 8 million units in '08. Let's generously call it 10 million, just to make this easier. That means, in terms of additional profit GM needs to make an extra $450 per car per year, at 10 mil sold a year, for 10 years, to pay back the principle. Doesn't sound so bad that way, does it?

Now, if they could just stop losing $2,000 per unit for starters...

If I worked for Obama, that's how I'd make the argument; It's 'only' a measly $450 a year extra per car for 10 years or so. Big deal. Of course, if I was the government and owned a car company I'd make every one of you buy GM for the coming year and charge you and extra $4,500 per and be done with it in one year AND make a profit while I was at it.

 

[Tilted]

GM Bondholders Reject Plan, Setting Stage for Bankruptcy

General Motors has failed to persuade enough bondholders to accept a debt-for-equity swap, setting the stage for the largest-ever U.S. industrial bankruptcy by the end of this month.

The largest U.S. automaker had so far failed to gain anywhere near the 90 percent of bondholder support desired to stave off bankruptcy, two sources familiar with the discussions told Reuters Tuesday.

Bondholders have until midnight to make their final decision on the tender. As of midday Tuesday, the source said the company had only "low-single-digit" interest from bondholders.

That's a good sign. It's ashame that the Chrysler debt wasn't as diffuse as GM's, and that so much of that debt was held by TARP recipients. Because, as it was, there weren't enough who could refuse the offer, in order that they could mount a meaningful fight. Their legal position was even stronger than that of GM's bondholders. (That's not to say that GM's bondholders aren't being treated very unfairly, and in a manner not consistent with the law.)

I'm afraid that people will see the fight between GM bondholders and GM/the UAW/the Administration, and believe that it is a mirror of the Chrysler situation. Having done so, they may find themselves more sympathetic to the behavior of the Administration in this instance, and the reality that its behavior in the Chrysler situation was an order of magnitude more heinous, will be lost on them.

To be clear, the rule of law needs to be defended with regard to the GM bankruptcy - but it's not the test case in which it has the strongest hand. That would have been in the Chrysler situation. In that case, the rule of law had nothing less than a Royal Flush, and still somehow it looks like it is going to lose. (Or, I guess you could say that it is being intimidated into folding.)

 

[Larry Gude]

The media is starting to worry;

washingtonpost.com

The administration argues that it could not risk alienating the union for fear of triggering a walkout that could permanently cripple GM. It also posits that it had to agree to protect suppliers and fund warranties in order to preserve jobs and reassure prospective buyers that their cars would be serviced. These are legitimate concerns. But it's too bad that the Obama administration has not thought more deeply about how its bullying of bondholders could convince future investors that the last thing they want to do is put money into any company that the government has -- or could -- become involved in.

 

[Nanny Pam]

This is why GM stands for Government Money

 

[Tilted]

The media is starting to worry;

washingtonpost.com - nation, world, technology and Washington area news and headlines

The administration argues that it could not risk alienating the union for fear of triggering a walkout that could permanently cripple GM. It also posits that it had to agree to protect suppliers and fund warranties in order to preserve jobs and reassure prospective buyers that their cars would be serviced. Well duh - no kidding. But you can't just screw debt-holders so that a company can keep operating. When a company seeks the protection of bankruptcy laws, it has to understand that its ultimate fate drops a few pegs on the priority scale. However, that particular argument is one of the reasons why I suggest that the GM bondholders legal position isn't as rock solid as the position of Chrysler's secured debt-holders was. These are legitimate concerns. But it's too bad that the Obama administration has not thought more deeply about how its bullying of bondholders could convince future investors that the last thing they want to do is put money into any company that the government has -- or could -- become involved in. I don't have so much extra capital that I'm willing to loan large amounts of it to others for relatively small guaranteed returns - but, if I did, I would be much less likely to loan it to entities that are under U.S. legal jurisdiction. I would be looking to opportunities in less banana-republic-ish nations. I can't believe I just said that, but I did.

...

 

[Larry Gude]

...

And the larger fear is that, well, what exactly DOESN'T fall under fed sway, given the brave, new world?

 

[Tilted]

OMG! The last GM plan was bad enough - in terms of fairness - because of how well it treated UAW held debt relative to 'bond-holder' debt. Well, the agreement reached between the UAW and GM last week included different terms in regard to that debt.

As if to raise a symbolic middle finger to any notion of fair play (and more specifically to those evil, uncooperative bond-holders), the new terms seem to be even better for the UAW VEBA funds. Sorting out the precise terms can be difficult (i believe intentionally so - they report figures in different ways depending on the context), so I am not absolutely certain that my understanding is correct, but I'm fairly confident.

The UAW VEBA accounts aren't really giving up anything. They are still getting $10 Billion worth of assets, plus $6.5 Billion worth of preferred shares paying 9% interest, plus another $2.5 Billion note (haven't calculated the interest yet), and 17.5% of the equity in GM. This is instead of the $20 Billion worth of assets that they are owed. Do the math and tell me what they are giving up. All they are doing is amortizing some of the debt, not losing it - and amortizing it on desirable terms I might add.

In addition, and I did not know this before, there are to be no reductions in GM's pension benefits to the UAW and no reductions in GM's life insurance and legal service benefits to the UAW.

I won't even get started on the terms they negotiated for GM to buyout current employees. If the government didn't have a hand in this, the bondholders would be in court right now getting injunctions to prevent more of their money from being given away. This is theft - plain and simple.

http://online.wsj.com/public/resources/documents/gmuaw.pdf

 

[Tilted]

Okay, I've poured through the most recent 10-Q and 10-K for GM, and I've found 2 independent sources which concur with my understanding of the terms of the UAW-GM agreement, and I now feel sure that my understanding is correct. The deal keeps getting better for the UAW. This has turned into a complete farce.

The problem is, because of various details of the deal, it is easy to spin the situation to make it sound like the UAW retirees are giving up a lot. They are not - but it requires a fair bit of focus and attention to the details to really understand that - and I doubt many people will pay that much attention to anything beyond the brief snippets they hear on the news. I'm sure the situation will be painted such that the UAW made major concessions - they did not.

It could be argued that the UAW VEBA is making out even better than the original agreements called for - that they are getting more than they are supposed to. The numbers are close, and it depends in part on what happens with the new GM, so I wouldn't say that definitively - but it would be a reasonably-made argument.

It also appears that the U.S. government ends up with something closer to 70% of the equity in GM now.


Let's recap.

UAW - almost none of its debt holdings are lost, and for that which is, it gets 17.5%-20% ownership of GM (about $1 Billion = 17.5%)

Bondholders - all of their debt holdings get lost and they get 10% of the company (about $27 Billion = 10%)

U.S. taxpayers - lose who knows how much of the $30-$50 Billion they loan GM, and in return get about 70% of the company

That's what the U.S. Government would like to see happen.



Also, guess what this heading-into-bankruptcy-because-it-doesn't-have-enough-money-to-pay-its-debts company is going to be doing? This U.S.-taxpayers-have-to-give-it-billions-of-dollars-because-it-doesn't-have-enough-money-to-operate company has to offer buyouts to its employees to get them to voluntarily retire or quit, per this new UAW agreement.

The buyout amounts vary depending on the nature of their job, how long they've been there, and whether they 'retire' or 'quit', but the range is from $20K + a $25K vehicle voucher to $115K + a $25K vehicle voucher.

This soon to be bankrupt company is going to have to pay employees $100,000 plus, so that it won't have to have a job for them anymore. But, it doesn't have any money to pay its debt to bondholders - people who loaned them money, so that they could keep operating, so that those employees could have jobs as long as they did. I've never been embarrassed to be an American in my life - but I'm close to feeling that way right now.

 

[Tilted]

GM Bankruptcy Looms After New Bondholder Deal

General Motors took a major step toward going through the kind of bankruptcy it favors by persuading major bondholders to accept a sweetened deal, even as talks to sell its Opel business between Berlin and Washington hit a rough patch.

GM said Thursday it reached a deal with some major bondholders that would give them a bigger stake in a reorganized automaker and could pave the way for a fast-track bankruptcy backed by the U.S. Treasury.

The announcement was the clearest indication yet that GM, the No. 1 U.S. automaker, is close to filing for bankruptcy under the direction of the Obama administration. It would be the biggest-ever bankruptcy for a U.S. industrial company.

Under the proposed deal, which is supported by creditors holding about a fifth of its debt, bondholders representing $27 billion in debt would be offered 10 percent of a reorganized GM -- the same stake they had been offered previously.

But as an incentive, bondholders would also receive warrants to acquire another 15 percent of the equity in the new company, provided they support a quick Treasury-backed sale process similar to one now being used for rival Chrysler.

Bondholders would have until 5 p.m. EDT Saturday to indicate they would not oppose the sale process as planned, GM said.

If bondholders do not provide those indications, common equity and warrants "would be substantially reduced or eliminated." A committee representing the major bondholders said they supported the revised offer as the "the best alternative ... in the current difficult and dire situation."

Once again, we have another disgusting development in this sad saga. You just can't fight the system anymore, because now, you can't even count on having the rule of law by your side.

Effectively, the bondholders have the choice to agree to let themselves be screwed, in which case the screwer agrees to not make it quite as painful - or they can refuse, in which case the screwer has made it clear that they will make it as painful as they can. And, they can successfully make this threat, because they have demonstrated that there is little or no limit on their ability to deliver on their threats - the rule of law is now an eunuch.

I don't think that one can still reasonably make the case that the threat of tyranny in America is an idle one.

 

[Tilted]

Why Haven't GM Shares Gone to Zero? - MarketBeat - WSJ

It's about time somebody asked that question.

 

[Tilted]

UAW President Ron Gettelfinger has a news conference scheduled for 1:30 PM, presumably to give his spin on all of the concessions that the UAW has made with regard to the GM restructuring.

There are 2 issues here: (1) debt that they (VEBA) are owed, and (2) the terms of their collective bargaining agreement going forward. I've not mentioned much about the second issue, because it frankly doesn't pertain to the discussion about unfair treatment of various debt-holders during the restructuring process. Agreeing to different employment terms isn't the same as giving up money that you are already owed. Since GM is going through bankruptcy, the old contract would effectively be out of the window anyway. GM doesn't have to have jobs for them going forward, and no bankruptcy judge would order them to. The UAW is agreeing to new terms, because they want to have jobs - its really no different than negotiating a new contract from scratch. Because of bankruptcy, GM isn't beholden to the old one anymore.

Yes, if GM wants to continue to operate, they have to make some agreement with workers - but, one of the biggest reasons that GM would care to continue to operate is for the benefit of the workers. So, any leverage the employees would seem to have in that regard is artificial - it's leverage over themselves. 'Concessions' they make in a new collective bargaining agreement don't really represent them giving up something that they are entitled to get. It's just agreeing to lesser terms than they were able to get last time, so they can still have jobs. Furthermore, these terms are only in effect until 2011. The notion, that the UAW is 'giving up' something with regard to these terms that is somehow comparable to the actual losses that bondholders are having to stomach, is disingenuous, at best. It is spin designed to mislead the inattentive observer.

All of that having been said, they still didn't give much up with regard to the collective bargaining agreement, though I have little doubt that Gettlefinger will portray it as though they gave up an arm, a leg, and a kidney or two.

So, just for clarity - with regard to the debt that the UAW VEBA fund is owed, this plan leaves it essentially whole. IF it has given up any value, it is marginal - very marginal. With regard to what the UAW has given up related to employee compensation going forward, I'd call your attention to this text from the UAW's own message, which they circulated to members in advance of the member vote on the tentative new agreement:

For our active members these tentative changes mean no loss in your base hourly pay, no reduction in your health care, and no reduction in pensions. In addition, we were able to slow the import of vehicles coming from China and other foreign sources and put some of that work in two US plants originally scheduled to close.

Their breaks are being cut from 50 minutes to 40 minutes per shift.

They are losing 1 paid holiday per year (out of 17).

Cost of living adjustments are being suspended for the rest of the contract.

Performance bonuses are being suspended for 2009 and 2010.

There are some changes in compensation for new employees.

They can no longer get pay in lieu of vacation time, they have to actually use their vacation time (although they can still get pay in lieu for up to 40 hours).

There are a few other things, like the buyouts I mentioned in an earlier post, that I don't have time to detail because I want to hear Mr. Gettelfinger's news conference. But, on the whole, this deal is still pretty sweet for UAW employees. I bet there are a lot of people who would love to make the 'concessions' that they are having to make.

Let's see how this gets spun.

 

[Tilted]

What a bunch of ungrateful, arrogant leeches. 74% of workers ratified the new agreement. On the one hand, that's a strong number to get for a union vote. On the other hand, how ungrateful and arrogant are the 26% of workers who voted against it?

The U.S. taxpayer is going to fork out upward of $50 Billion, essentially so that they can keep jobs (I'll leave the political motivations out of it), and they aren't willing to accept 10 minutes less break, one less holiday per year, and a few other 'concessions'? Are they serious? Without our money, THEY WOULDN'T HAVE ANY JOBS AT ALL.

 

[Larry Gude]

Since GM is going through bankruptcy, the old contract would effectively be out of the window anyway. GM doesn't have to have jobs for them going forward, and no bankruptcy judge would order them to. The UAW is agreeing to new terms, because they want to have jobs - its really no different than negotiating a new contract from scratch. Because of bankruptcy, GM isn't beholden to the old one anymore.

I find that hopelessly naive these days.

Quaint but, naive.

 

[Larry Gude]

What a bunch of ungrateful, arrogant leeches. 74% of workers ratified the new agreement. On the one hand, that's a strong number to get for a union vote. On the other hand, how ungrateful and arrogant are the 26% of workers who voted against it?

The U.S. taxpayer is going to fork out upward of $50 Billion, essentially so that they can keep jobs (I'll leave the political motivations out of it), and they aren't willing to accept 10 minutes less break, one less holiday per year, and a few other 'concessions'? Are they serious? Without our money, THEY WOULDN'T HAVE ANY JOBS AT ALL.

That's because 74% are really not recognizing how things have changed. The 26% seem to recognize, in my view, that solidarity this far should have meant solidarity all the way thus the PR game of being backed into a corner as far as can be expected. If everyone acts like they are getting screwed, they'd do better. There is NO way in hell Obama turns his back on them now.

 

[Tilted]

I've seen politicians spin stuff before. But, I don't know if I've ever seen anything like what I just saw. Talk about avoiding direct questions. Talk about going off on tangents and talking in circles about stuff that has nothing to do with what you were asked, so that you don't have to answer it. Talk about flat out lying.

He blew off the notion that the UAW wasn't giving up as much as the bondholders were being asked to, implying that such a belief was indicative of a lack of understanding of the situation. He suggested that the UAW VEBA funds were taking 25 cents on the dollar - preposterous, absolutely preposterous. He said that their deal was saving GM $13 Billion in cash flow. So? If I owe you $10 Billion as of tomorrow, and you agree to take $5 Billion tomorrow, and $7 Billion in a month, I've saved you $5 Billion in cash flow. But, I haven't saved you any money, or given up any value.

The bondholders aren't being offered the chance to get what they are owed sometime down the road when GM's cash flow improves - most of their debt is to be eliminated. (Actually, most of their debt isn't even current, but it is to be eliminated anyway.) I don't have a problem with that - that is what bankruptcy is about - but the same should apply to the UAW debt.

I don't say such things about people often, but Gettelfinger came off as a complete POS. That news conference was a joke. What are the chances that the press will call him out on it tonight?