Archive for the ‘Chapter 11’ Category

Detroit’s Auto Industry, Failure’s a Done Deal

November 18, 2008

“Nothing,” said a General Motors spokesman last week, “has changed relative to the GM board’s support for the GM management team during this historically difficult economic period for the U.S. auto industry.” Nothing? Not even the evaporation of almost all shareholder value?

By George F. Will
The Washington Post
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GM’s statement comes as the mendicant company is threatening to collapse and make a mess unless Washington, which has already voted $25 billion for GM, Ford and Chrysler, provides up to $50 billion more — the last subsidy until the next one. The statement uses the 11 words after “team” to suggest that the company’s parlous condition has been caused by events since mid-September. That is as ludicrous as the mantra that GM is “too big to fail.” It has failed; the question is what to do about that.

The answer? Do nothing that will delay bankrupt companies from filing for bankruptcy protection….

Read the rest:
http://www.washingtonpost.com/w
p-dyn/content/article/2008/11/17
/AR2008111703101.html?hpid=opi
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By Martin Feldstein
The Washington Post
Tuesday, November 18, 2008; Page A27

The Big Three U.S. automakers need more than an injection of $25 billion from the federal government. Because of their ongoing losses, they would burn through that money in less than a year and would soon be back for more.

General Motors, Ford and Chrysler can make excellent cars, but they cannot sell them at prices that are competitive with the prices of cars produced in the United States by Toyota and others or with the prices of cars imported from Europe and Asia. The basic reason is the labor costs imposed by union contracts.

The Big Three pay much higher wages than production workers are paid in the nonunion auto firms and in the general economy. And the health-care costs of current workers and retired union members are an enormous additional burden.

The simplest solution is to allow GM and the others to file for bankruptcy. If the companies file under Chapter 11, they would be able to continue producing cars, and the workforce would remain employed while the firms reorganized. The firms would also be able to get short-term credit under bankruptcy protection.

The bankruptcy court could require the unions to rewrite contracts, bringing wages down to levels that would allow the firms to compete and therefore to maintain employment. Scaling back employee and retiree health benefits would further improve price competitiveness and allow better cash wages. The firms’ bondholders and other creditors would have to take losses. Shareholders’ fate would depend on how firms responded to this restructuring.

Read the rest:
http://www.washingtonpost.com/w
p-dyn/content/article/2008/11/1
7/AR2008111702917.html?hpid=
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Commentary: Say no to the auto bailout

November 13, 2008

General Motors, Ford, Chrysler and the United Auto Workers union are pouring millions of dollars into a lobbying campaign for a taxpayer bailout.

The money devoted to influence peddling in Washington would be better spent on improving quality and finding ways to reduce a bloated cost structure, but both management and UAW have decided that fleecing taxpayers is a better option.

A taxpayer bailout would be a terrible mistake. It would subsidize the shoddy management practices of the corporate bureaucrats at General Motors, Ford and Chrysler, and it would reward the intransigent union bosses who have made the synonymous with inflexible and anti-competitive work rules.

Perhaps most important, though, is that a bailout would be bad for the long-term health of the American auto industry. It would discriminate against the 113,000 Americans who have highly-coveted jobs building cars for Nissan, BMW and other auto companies that happen to be headquartered in other nations.

These companies demonstrate that it is possible to build cars in America and make money. Putting them at a competitive disadvantage with handouts for the U.S.-headquartered companies would be highly unjust.

A bailout also would be bad for General Motors, Ford and Chrysler. The so-called Big Three desperately need to fundamentally restructure their practices. More specifically, the car companies need to endure some short-term pain in order to restore long-term viability. But that won’t happen if politicians raid the treasury.

From CNN

Read the rest:
http://www.cnn.com/2008/POLITICS/11/13/mitchell.
auto/index.html

Some Say Let GM Fail; Others Want Bailout

November 13, 2008

Momentum is building in Washington for a rescue package for the auto industry to head off a possible bankruptcy filing by General Motors, which is rapidly running low on cash.

By Micheline Maynard
The New york Times

But not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.

GM logo

Although G.M.’s labor contracts would be at risk of termination in a bankruptcy, setting up a potential confrontation with its unions, the company says its pension obligations are largely financed for its 479,000 retirees and their spouses.

Shareholders have already lost much of the equity that would disappear in a bankruptcy case. Shares of G.M. rose 16 cents Wednesday, to $3.08, but they have fallen 90.5 percent over the last 12 months, amid sharply lower auto sales and fears about G.M.’s future.

And as companies in industries like airlines, steel and retailing have shown, bankruptcy can offer a fresh start with a more competitive cost structure to preserve a future for the workers who remain.

Read the rest:
http://www.nytimes.com/2008/11/13/business/economy/
13bankruptcy.html?_r=1&hp=&adxnnl=1&oref=slogin&adxnnlx=122
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