Tag Archives | Chapter 11

US Supreme Court Lifts Stay of Chrysler Sale to Fiat; Transaction Can Proceed

By on June 9, 2009 in News

By Chris Haak

06.09.2009

court_front_medLate today, the US Supreme Court lifted the stay that Justice Ruth Bader Ginsberg had placed on the sale of Chrysler’s assets to Fiat, which she placed on the transaction yesterday around 4:00 p.m.  Based on the text of the ruling (available here as a PDF), the reason for the stay granted yesterday had very little to do with the merits of the claims of the three Indiana pension funds, and everything to do with the Supreme Court wanting to take adequate time to decide whether to review the matter.  In the end, the Court decided that it didn’t warrant its review.

According to the per curiam decision (which means one rendered by the court as a whole, acting anonymously) (yes, I had to look it up), the denial of the stay is not a decision on the merits of the underlying legal issues, but whether the applicant [for the stay] has demonstrated reasonable probability that four justices will grant certiorari (meaning that the court would agree to hear the case, and that the case is scheduled for the filing of briefs and for oral arguments).  The Court also looked at whether there was a fair prospect of a majority of justices will conclude that the lower court’s ruling was erroneous, and what the likelihood of irreparable harm would occur if the stay was denied. Continue Reading →

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GM CEO Henderson Says That GM Will Shake Up Management

By on June 5, 2009 in News

By Chris Haak

06.05.2009

Henderson, FritzGM CEO Fritz Henderson said yesterday that the company would have “changes ahead” in senior management ranks, though said that he needed more time to finalize the changes.

Many analysts have noted that it seemed somewhat pointless for the company to keep its management ranks intact, considering that nearly all of the company’s current upper management has been with the company for the past few decades.  In other words, how can the same leadership team that got GM into its current mess have the knowledge, skills, and abilities to pull it out of it?

The company’s problems are cultural and deep-rooted, and while the company has still made some boneheaded moves even to the end, the sense of urgency from 2005 forward as it fought for its survival at least improved quality, fuel economy, appearance, and performance of the products launched after that point.  (For example, refer to the Lambda crossovers, the Malibu, CTS, full-size pickups and SUVs).  TrueDelta.com’s Michael Karesh, in doing his Ph.D. research, witnessed more than 400 meetings within GM and interviewed more than three dozen people, and found a dysfunctional culture (executive summary available here).  While his research occurred more than a decade ago, many of Mr. Karesh’s observations likely still hold true, and won’t be fixed by just lifting some of GM’s enormous debt burden through Chapter 11. Continue Reading →

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General Motors Declares Chapter 11 Bankruptcy

By on June 1, 2009 in News

By Chris Haak

06.01.2009

gm-logo-smallGeneral Motors Corporation, once the world’s largest automaker and (at least for the time being) the largest automaker in the US, filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Manhattan.  (See a PDF of the document here.)  Aside from the obviously humbling news for GM – a company that had been the world’s dominant automaker for much of the past century – the scope of the bankruptcy filing is enormous.  It is the third-largest bankruptcy filing in terms of assets in U.S. history, and the largest industrial bankruptcy in U.S. history.  Chrysler LLC’s bankruptcy filing also occurred in the same court in Manhattan a month earlier; interestingly, Chrysler is expected to emerge from Chapter 11 as early as today (not quite last Friday as Chrysler CEO Robert Nardelli had predicted) just as GM is beginning its bankruptcy reorganization journey.

The government’s plan to restore GM to health is to split the company into two pieces – a New GM and an Old GM.  The New GM (with the name naturally subject to change) will shed a staggering $79 billion in debt, enjoy wage parity with non-UAW-represented transplants such as Honda, Toyota, and Nissan that will save billions per year, will have four fewer brands to feed (say goodbye to Saab, Saturn, Hummer, and Pontiac), and 40% fewer dealers.  It goes without saying, of course, that 50% fewer brands and 40% fewer dealers (not to mention factory closures and employee layoffs) will mean that New GM, in spite of its healthier balance sheet, will be a far smaller company than GM is today.  New GM will be a fraction of the size of the GM of decades past. Continue Reading →

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Chrysler Releases List of 2,392 Dealers Surviving – and 789 Who Won’t

By on May 15, 2009 in News

By Chris Haak

05.15.2009

chrysler-300Bankrupt automaker Chrysler LLC released two lists of dealers yesterday.  One is a list of 2,392 dealers that it would like to retain as it reorganizes in Chapter 11, and the other is a list of 789 dealers who will not make the cut going forward, if the bankruptcy judge approves Chrysler’s motion to terminate their Sales and Service Dealer Agreements effective on or about June 9, 2009.  The copy of the form letter that Chrysler sent to dealers is available here for download; the worst part is that they apparently didn’t bother to mail merge anything other than the name of the dealership at the top of the letter:  “With regret, this letter is to inform you that on May 14th, 2009, we are filing a motion in bankruptcy court rejecting the Sales and Service Agreement(s) between Chrysler Motors LLC and the dealership listed above.”

In Chrysler’s own words, they explained why the decision was made. “It is with a deep sense of sadness that we must take steps to end some of our Sales and Service Dealer Agreements,” said Steven Landry, Executive Vice President, North American Sales and Marketing, Global Service and Parts. “The decision, though difficult, was based on a data-driven matrix that assessed a number of key metrics. In total, 789 dealers, which represents 14 percent of our sales volume, will be rejected and, subject to the court approval, they will discontinue selling Dodge, Chrysler or Jeep vehicles on or about June 9.

The 789 dealers represent just under 25% of Chrysler’s total current dealer population of 3,181 dealers.  Obviously, the fact that losing 25% of the dealers only cuts 14% of the company’s sales volume, shows that those who didn’t make the cut weren’t performing as well in terms of sales volume relative to those that Chrysler would like to keep – at least on an average basis. Continue Reading →

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General Motors’ Bankruptcy Imminent Within 30 Days

By on April 28, 2009 in News

By Chris Haak

04.28.2009

gm-logo-smallI really don’t enjoy writing about bad news.  I’d much rather rave about how the exhaust note of a Corvette at full bore made the hair on my arms stand on end, or how passers-by waved and gave me the thumbs-up as I rumbled by in a Dodge Challenger SRT8.  I also pains me to chronicle the end of General Motors as we know it.  I grew up in pretty much an all-GM household.  When I was born three [and a half] decades ago, my father’s job was selling new Chevrolets and Cadillacs.  My first ten or so cars (the count is difficult to keep, since my father is now self-employed in the car business and the line between “my car” and “a car in inventory that I drove for a while” was pretty blurry at times) were all GM vehicles.  Then, the first three new cars that my wife and I bought were, in order, a Honda, a Nissan, and a Toyota.  Last summer I came back to the GM fold for my own car, a 2008 Cadillac CTS.  Bottom line:  I’ve always held a soft spot in my heart for this company, in spite of some of the absolutely dreadful products that they’ve sold to the public over the years.  But why would I?

GM is already just a shell of its former self.  The company is already very much under the control of the federal government, as evidenced by the way the government showed the door to former CEO Rick Wagoner, and more recently, by the way GM’s latest debt offering proposed giving the government a 50% stake in the company in return for forgiving $10 billion in loans, but giving bondholders a measly 10% stake in return for forgiving about $24 billion in debt.  That last part is what has bondholders up in arms; they rightfully feel that they are being treated unfairly, and are quite unlikely to accept the terms of GM’s debt-for-equity exchange offer by the deadline at 11:59 EST on May 26, 2009.  The US Treasury (of course) will have the final say, but GM believes that ninety percent of outstanding debt by value will have to be tendered for the offer to be considered a success.  That is extremely unlikely to happen. Continue Reading →

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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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Nardelli Tells Chrysler Employees They’re Likely to Get New CEO

By on April 17, 2009 in News

By Chris Haak

04.17.2009

chrysler-logo-smallChrysler CEO Robert Nardelli released a letter to all Chrysler employees that outlined the company’s progress in its rush to complete its merger with Fiat by April 30 and prove its viability to the Federal government by that point.  Most of the letter’s contents are pretty unremarkable, but he does shed some light into what will happen in the board room should the Fiat alliance come to fruition (and if it doesn’t, there will be some very different, yet dramatic, boardroom discussions).

To: Chrysler Employees and Contractors
Subject: A Message from Bob Nardelli To All Chrysler Employees

I’d like to give you an update as to where we stand in our restructuring process, since we expect the next two weeks to be very busy as we move toward our April 30 deadline. As you know, significant concessions from all Chrysler constituents are a requirement of our government loans and a condition of our alliance with Fiat. President Obama himself acknowledged this in his March 30 address on the auto industry: Continue Reading →

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The Shape of Things Yet to Come

By on April 13, 2009 in Editorials

By J. S. Smith

04.13.2009

bankruptcyWhat happens if GM goes bankrupt? The question is no longer all that theoretical. Wilbur L. Ross gives GM a 50% chance of entering bankruptcy court. Moody’s put the odds at an even more sobering 70% back in February, before President Obama’s issued a 60-day drop-dead date on April 1. And 76% of the American people don’t care if it happens.

News reports leaking out of the RenCen give an idea of what GM would look like. According to CNN, the idea is to split GM in two, creating a “good GM” and a “bad GM.” Good GM would, not surprisingly, be composed of Chevrolet and Cadillac, teamed with the stronger overseas units. Bad GM would comprise Saturn, Saab, Hummer, presumably joined with the weaker overseas units, and saddled with the older, inefficient factories and crushing debt obligations of the parent.

The idea would be for Good GM to be sold to a new entity (GM Plus?) and quickly emerge from bankruptcy. Meanwhile, Bad GM would languish in bankruptcy court, as bondholders and the pension plan take massive hits.

The pension plan would likely dump its obligations onto the Pension Benefit Guarantee Corporation (PBGC). According to Bloomberg, “As many as half of GM’s 670,000 pension-plan participants might see their benefits trimmed.” In the interests of full disclosure, those getting “trimmed” would include four members of this author’s family. This could take blue-collar pensions down from a livable $36,000 per year down to a less palatable $18,000 to $21,000 per year. 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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