Tag Archives | bankruptcy

Geithner Claims “Reasonable Chance” GM and Chrysler Will Repay Aid

By on April 30, 2010 in Editorials, News

But of course, there’s a catch.

By Chris Haak

US Treasury Secretary Timothy Geithner told the Senate Appropriations Subcommittee that taxpayers were still at risk of loss from the investments that the US government made in GM and Chrysler, but that any potential loss would be just a fraction of the original amounts feared.  He also said that there was a “reasonable chance” that both GM and Chrysler would be recouped.

However, it’s important to hone in on specifically what he said.  He said there was a “reasonable chance now that we will recover all of the dollars we put into these companies” since January 2009.  Of course, on January 20, 2009, the Obama administration took office.  The key phrase (which I italicized above) is “since January 2009.”  (Alternately, “we put into these companies” would work, if “we” in that context is the Obama administration.

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Is GM Overhyping its “Loan Repayment?”

By on April 23, 2010 in Editorials

By Chris Haak

Since Wednesday, GM has been making a big deal about its repayment of the remaining $5.8 billion balance of government loans ($4.7 billion to the US and $1.1 billion to Canada).  GM Chairman and CEO Ed Whitacre had this to say.  “GM is able to repay the taxpayers in full, with interest, ahead of schedule, because more customers are buying vehicles like the Chevrolet Malibu and Buick LaCrosse we build here in Fairfax.  We are now building some of the best cars, trucks, and crossovers we have ever built, and customers are taking note.  Our dealers are increasing their sales, we are investing in our plants, and we are restoring and creating jobs.”

That’s all well and good, but the reality of the situation – reinforced by an audit report provided to Congress this week by the TARP inspector general, Neil Barofsky – is the GM repaid the money with “other TARP funds currently held in an escrow account.”

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Congressional Panel Calls for GMAC Breakup

By on March 15, 2010 in News

By Chris Haak

The Congressional Oversight Panel, created by Congress to oversee the Treasury’s spending of Troubled Asset Relief Program (TARP) money, said late last week that GMAC could have been required to undergo a quick-rinse bankruptcy similar to what GM and Chrysler did last year. Bankruptcy would have allowed GMAC to shed itself of the millstone of its troubled non-core ResCap division, which continues to lose considerable amounts of money thanks to bad mortgages that it assumed during the real estate boom years.

The panel, chaired by Elizabeth Warren – an attorney and Harvard law professor – also criticized Treasury for not requiring GMAC to have a viable business plan in place going forward, despite receiving its first bailout money more than a year ago. To date, GMAC has received more than $17 billion USD from the US government to prop up the company’s finances. Both Treasury and the company assert that it is now solvent and will not require any additional bailout funds, but the Office of Management of Budget estimates that the government will never recover $6.3 billion USD of the money given to GMAC.

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GM Will Reinstate 661 Rejected Dealerships

By on March 5, 2010 in News

By Chris Haak

The saga of rejected dealerships – a fallout of the bankruptcies last year of both GM and Chrysler – took another dramatic turn in the past 24 hours. GM announced this afternoon that the company will immediately reinstate 661 of the 1,160 rejected dealerships that have applied for arbitration concerning the loss of their franchises. This means that more than half of the rejected dealers who applied for arbitration will be reinstated without question by GM. The remaining dealerships that have sought arbitration will continue to go through that process, or GM will attempt to settle with them outside of arbitration. Altogether, GM rejected 1,350 stores last year during its trip through bankruptcy.

GM held a dealer briefing at 2:00 p.m. today, and GM North America president Mark Reuss and head of marketing Susan Docherty held a press conference at 3:00 p.m. on the subject of “an update on the dealer arbitration process,” when the company announced the news.

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GM’s CFO Says Company Will Skip $1 Billion June 1 Debt Payment

By on April 22, 2009 in News

By Chris Haak

04.22.2009

gm-logo-smallGM’s Chief Financial Officer, Ray Young, told reporters at a Chinese auto summit in Detroit (how appropriate!) today that GM would not be making a $1 billion debt payment that is due on June 1.  Instead, he said that GM would either have completed a debt-for-equity exchange or would be in Chapter 11 bankruptcy protection by then.

So this is it.  GM’s end game.  Feel free to insert any necessary sports analogy that you see fit here, but the fact remains that GM doesn’t expect the government to give it any more money after the end of May (when its 60-day lifeline expires) and that its survival will take one of two paths:  either Chapter 11 bankruptcy or strong-arming the bondholders into accepting pennies on the dollar for the debt that GM owes to them, plus equity that is already nearly worthless (and would be completely worthless in Chapter 11).

The “B word” – bankruptcy – has gone from being flatly denied at GM as impossible, unlikely, and a death blow if you look back just three years ago to something that now both the CEO and CFO have said is “probable.”  At least they’re being honest about the company’s prospects.  The debt-for-equity swap isn’t likely to get much traction, either – the company has been trying for a long time to get bondholders (namely large Wall Street firms, but also thousands of individual, small-potatoes investors) to accept its proposal to give them nearly-worthless GM shares and a small amount of cash in return for forgiving the debt.  Chrysler had a similar problem earlier this week, when the US government tried to get Chrysler’s debt holders to reduce the company’s $7 billion debt to $1 billion.  The lenders’ counteroffer was to reduce it to $4.5 billion, and give them a third of the company’s equity as well. Continue Reading →

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GM Tells Government It Won’t Need $2B Loan Installment for March 2009

By on March 12, 2009 in News

By Chris Haak

03.12.2009

gm-logo-smallIn a very rare bit of good news for GM, the company has told the Obama Administration’s auto task force (the Presidential Task Force on The Auto Industry) today that it will not yet need the $2 billion loan installment that it had originally said in its February 17 viability report to the administration by the end of March.  While this is something of a piece of good news, it’s not quite as good as it sounds.

GM attributes its non-need to cost-cutting moves and spending deferrals that are starting to take hold.  Basically, most new-vehicle development programs are on hold with the exception of a few high-profile ones (Volt, Cruze) and those already more or less out the door (Camaro), so the “spending deferrals” aren’t much more than slowing investment in new vehicles to a trickle – not a viable long-term strategy by any stretch.

Also, GM made clear that the company will probably still need all of the billions that it requested throughout 2009, but just doesn’t need them in March.  In fact, it’s quite likely that GM will need to receive another few billion dollars from the government in April.  Aside from navigating through any obstacles set forth by the Presidential Task Force, GM needs to worry about two major negotiating problems. Continue Reading →

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Auditors Raise Doubts on GM’s Ability to Survive

By on March 5, 2009 in News

By Chris Haak

03.05.2009

deloitteWe mentioned just last week in our “Check Your Mirrors” news summary that GM’s auditors, Deloitte & Touche, were likely to slap the company with a statement that raised doubts about the company’s ability to continue as a going concern.

Today, GM filed its 10K with the SEC, and indeed, that statement is in there.  It reads, in part:

There is substantial doubt about our ability to continue as a going concern.

Our independent public accounting firm has issued an opinion on our consolidated financial statements that states that the consolidated financial statements were prepared assuming we will continue as a going concern and further states that our recurring losses from operations, stockholders’ deficit and inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern. Our plans concerning these matters, including our Viability Plan, are discussed in Note 2 to the accompanying audited consolidated financial statements. Our future is dependent on our ability to execute our Viability Plan successfully or otherwise address these matters. If we fail to do so for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the U.S. Bankruptcy Code.

Doesn’t sound good, does it?  There’s more with the next paragraph in the 10K; all of this is found in the “Risks Related to us and our Automotive Businesses” section of the 10K, on page 20 of the document. Continue Reading →

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Check Your Mirrors

By on February 27, 2009 in News

By Chris Haak

02.27.2009

Already-reeling Saab had to halt production this past week when a wrinkle occurred between a supplier of parts imported to Sweden and Swedish customs.  Originally, the news indicated that the issue was between Saab and Swedish customs, but apparently, the issue has been resolved.  Still to be resolved is a “considerable” sum of money for spare parts and inventories in two customs-operated warehouses.  This sum is due to be paid no later than March 4, or apparently, production would have to again halt.

Ford CEO Alan Mulally, in spite of not agreeing to work for $1 per year as GM CEO Rick Wagoner and Chrysler CEO Bob Nardelli have done, has agreed to a 30% pay cut for 2009 and 2010 in an effort to win concessions from hourly workers represented by the UAW.  Further, Ford has eliminated performance bonuses for salaried employees and senior executives in 2009.  Ford’s Board of Directors also decided to forgo any cash compensation during 2009.  Mulally took home $21.67 million in 2007, most of which was in the form of equity awards and bonuses (includign a sign-on bonus to replace compensation that he left on the table when he departed Boeing).

General Motors had about as bad a week in terms of financial news as could be imagined.  On top of the news of Saab’s reorganization (also known as bankruptcy), GM announced that it’s slashing its marketing/incentive budget by $800 million in 2009.  That move surely won’t mean new GM cars and trucks will be flying off dealer lots.  Then GM’s European subsidiary saw its annual loss in 2008 quadruple over its 2007 results, to a pretax loss of $1.6 billion (from a $55 million profit a year earlier).  Then GM announced its fourth quarter results, in which it burned through $5.2 billion in cash and posted a $30.9 billion loss for the year and a $9.6 billion loss for the fourth quarter alone.  The annual loss was the second-worst net loss in GM’s 100-year history, behind only the $38.7 billion loss in 2007, just one year earlier.  Finally, GM announced that its auditors are reviewing whether the company is viable enough to be considered a “going concern.”  If its outside auditors rule that it is not, then the company would be in violation of some of its debt covenants.  Not a good week for GM. Continue Reading →

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GM No Longer Considers Chapter 11 Filing Off The Table

By on February 16, 2009 in News

By Chris Haak

02.16.2009

With the economy in the US and globally showing no signs of improvement, and the new-vehicle market showing no signs of life, the cash situation at GM has become even more desperate, if that’s to be imagined.  The company that had previously not even uttered the word ‘bankruptcy’ except to say that it was out of the question and not an option is now making noise that in spite of all of the negatives that go along with declaring bankruptcy, it’s very much on the table unless the company gets more money from the US government, and quickly.

The Treasury Department believes that GM needs at least another $5 billion from the government in order to survive beyond the first quarter of 2009.  So far, the company has received $9.4 billion.  The Wall Street Journal reported over the weekend that the usual “people familiar with the situation” indicated that GM is going to present the government with two alternatives – that the government must either commit additional billions to keep the company afloat, or commit additional billions for debtor-in-possession financing because those funds (far more money would be required for that than has already been committed to keep the lights on thus far) would likely be unavailable from anywhere in the still credit-frozen and shell-shocked private sector. Continue Reading →

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On-Again, Off-Again GM-Chrysler Merger Talks Are On Again

By on December 18, 2008 in News

By Chris Haak

12.18.2008

The Wall Street Journal reported today that the merger talks between GM and Chrysler – which have been publicly acknowledged at least three times by my count – have again restarted.  Though neither company has yet commented on the development, the Journal cited the usual “people familiar with the matter” when reporting the story.

The closest the companies have probably come to merging was in October, when GM COO Fritz Henderson was leading a team to explore the purchase of Chrysler from Cerberus, only to disclose with the release of some ugly third quarter 2008 financials a few weeks later that the company was abandoning the pursuitto focus on near-term liquidity challenges.  During the automakers’ Congressional testimony, CEO Rick Wagoner of GM and Bob Nardelli of Chrysler agreed to reconsider the possibility of a merger, particularly if it was a condition of receiving government assistance. Continue Reading →

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