According to multiple news sources, GM has filed for Chapter 11 Bankruptcy protection at 8:00 AM this morning. It should also be noted that even before this filing, GM was negotiating with the various stakeholders for agreements for who will own how much of the “new” company after it emerges from bankruptcy. The news that is being reported has the following highlights:
- 11 plants are to close, with 3 to be idled. (specific plants to be announced later)
- 21,000 employees will be cut (34% of the workforce).
- The US Government will own 60% after “contributing” another $30.1 Billion
- The UAW will own 17.5%.
- Canada will have a 12% stake after loaning $9.5 Billion to the new company.
- GM Bondholders will have 10% with the possibility of owning up to 25%.
- Four brands (Saturn, Saab, Hummer and Pontiac) will be discontinued.
- Approximately 2,600 dealers will be closed.
An additional note is that the Administration has stated that the government will not interfere in day to day operations. What the Administration has not stated is that they would stay out of the direction of the new company. And that doesn’t bode well for the car-maker and for the taxpayer.
We have all heard of the new CAFE standards that were “agreed to” by the automakers. I thought that Jerry Flint put it best with this:
Most amusing is the government’s estimate that it would cost $1,300 or so per car to accomplish this. It’s always wonderful how our government, which paid $7,000 for a coffee thermos and $240 million for a fighter airplane and $3 billion for a new presidential helicopter–money it doesn’t have–always figures that private industry can produce miracles for next to no cost.
Here are a few points to remember:
It’s seven years to 2016 and there will be a new president and a new Congress and a different economy by then. Many rules change over time.
There’s always a possibility that we will have no domestically owned auto industry by then, so no one will be upset about kicking foreign automakers who can’t meet our rules.
And there’s usually a fine for those who can’t meet the requirements. If you figure a $3,000 per vehicle fine for each one missing the target–and that’s a modest number–that’s $45 billion in fines in a 15 million-car year if they all miss the target. That’s enough to build four $250 million “Bridges to Nowhere” in every state. That might appeal to Congress.
And well all know how fiscally responsible our government is, so we shouldn’t worry, right?
Of course, the whole deal smells of politics to high heaven, and we have to remember – the companies will not pay the increased costs, the consumer (you) will.
That is, of course, if we still have jobs to buy these vehicles…
On a related note, the bankruptcy judge has approved the sale of Chrysler to Fiat. How Fiat is going to buy Chrysler without putting any cash down is a mystery to me…