Bailout Update

From an analysis at thedeal dot com by David Elman, the Prepack option is not feasible for such a huge corporation as GM:

"Why no prepack? GM simply lacks the time to prepare a prepack, where a company works with lenders, creditors and shareholders to craft a reorganization plan and then solicits votes, all before entering bankruptcy. A prepack would require a "bajillion" creditors to buy in, says veteran auto industry attorney Jean Robertson of Calfee, Halter & Griswold LLP, an inordinately lengthy process when GM is burning through roughly $1 billion in cash a month.

According to James Wilton of Ropes & Gray LLP, who was debtor counsel to auto parts maker Holley Performance Products Inc., a complex case such as GM's would require negotiation after filing instead of before. A free-fall bankruptcy, however, with no planning whatsoever would be catastrophic. In such a case, constituencies from unions to creditors to shareholders would grapple for information and spend a lot of court time -- and, by extension, money -- battling to increase their recoveries. Every day spent trying to diffuse the situation would be one not spent fixing operations.

So GM prenegotiates a deal with creditors only."

From the article:

[Bush] said he also felt an obligation not to saddle President-elect Barack Obama with "a major catastrophe" on his first day.

Obviously a typo. I distinctly heard him say "... with yet another..."

You really should be embarrassed to claim you are pro-union.

"Prepack" sound like the best temporary solution. Leaves unaddressed, however, the long term consequences of competing with China. For ex.:

http://tinyurl.com/3n9xsx

5 Things You Should Know about the FD3M, China's First Mass-Produced Electric Plug-in Car

This week, China's first mass-produced plug-in hybrid car went to market, produced by relative newcomer BYD. The car costs about $22,000, and can run up to 60 miles on a battery charged by a normal electrical outlet. Here are a few things you should know about the F3DM:

It may beat American plug-ins to the market. The F3DM may come overseas as soon as 2010. The United States is currently examining the F3DM to see if it is up to standards for the market. If it checks out OK, it would narrowly beat the Volt - and cost almost half as much.

We have to get US wages down to where they will be competitive globally, about $0.09 / hr. We need something like Martinez-Hagel to bring in 400-500 million low wage immigrants and guest workers.

Bad unions are like cancer. Bankruptcy is the cure.

So....if the US govt loans the auto companies $15B the worse that could happen is that we citizens could lose $15B. The best? That the companies get through this recession & prosper & profit & pay back the loan.

Why would you make a different bargain with the manufacturing companies than you would with the financial companies.

On it's face, it's being put forward by those that want to break the UAW. See it for what it is, not for some pie in the sky it isn't.

R L Guthrie, in case there was a misunderstanding, I was directing my sentiments towards Kevin.

You really should be embarrassed to claim you are pro-union.

Because I don't understand how he can keep saying both that he is pro-union and that he is pro bankruptcy for the carmakers.

GM and Chrysler have been heading in somewhat different directions lately and it's not clear that the two should be treated comparably - other than that the failure of one could precipitate the failure of the other, which admittedly is a pretty big if.

Cerebus has been siphoning money out of Chrysler to the extent that they could. Doing it by cutting expenditures of things like R&D. Chrysler is probably a walking corpse. They have virtually nothing in the pipeline for new models that would generate any excitement and any profits. And Cerebus appears to have no intention of addressing that situation. Taking over Chrysler and leaving Cerebus with the biggest possible loss would be my preference.

GM, however, might be viable in the long-term. There's been much criticism of their vehicles and of their management team, but at least the owners and management appears to care enough not to have gutted those expenditures that would allow them to exist 5 or 10 years down the road. Waggoner isn't particularly my favorite manager, but much of the legacy costs that are crushing GM were occurred long before he took over.

The bottom line though is that the demand for vehicles in the short term has fallen through the floor and the big vehicles which generated virtually all the profits have absolutely cratered. Without some rebound, prepackaged bankruptcy does nothing except buy time. (Even Toyota is not in particularly strong shape.)

I'm not enthused about a bailout. But the primary question at the moment is how to ensure that the recession doesn't become a depression. (And I'm not sure that outcome can be avoided.) And on that basis, I think there's a strong case for the prepackaged plan.

I must also respectfully disagree with the notion that prepack isn't viable. Generally, that would be true. Larger firms with lots of stakeholders and a brutal deadline don't make good prepack candidates. However, this case is high profile enough that I doubt any individual creditor wants to stand up and object. Shelby or DeMint are reasonably insulated from pressures and play to a very different political audience. But if one of those "bajillion" creditors doesn't buy in and gets identified, they're toast and they know it!

Bush is likely to either stall 'til they go bankrupt or run some idiotic prepackaged bankruptcy plan through (to make him look like he tried) and have them still go belly up.

The result of this will be a huge unemployment of union workers (and quite a few white collar people too). I suggest that anyone who supports this or votes for such a plan should hand over their retirement pensions and health care plans to those union workers who paid into the funds for decades (in many cases). To do otherwise is simply to mug them and steal their life's work.

THEN, I can ask rhetorically, as I have since the late 1980s, NOW can we fix the retirement system in America?

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