UAW to get 39% of GM, Obama administration 50% …

posted at 10:06 am on April 28, 2009 by Ed Morrissey

Imagine you’re one of the bondholders of GM, the people who bought the automaker’s debt in order to invest in the company and keep it running over the last several years.  Now that the company is near collapse, the Treasury offers you this deal.  Even though you own $27 billion in GM bonds, you’d get 10% of the company.  The UAW, which has a claim on $20 billion for its health-care and pensions obligations, would only have to sacrifice half of that to get 39%.  The feds, who will invest another $9 billion to bring their total investment to the same level as your bonds, wants 51%.


Meanwhile, however, bondholders pose a major stumbling block to the restructuring. Under the proposed offering which GM filed with the Securities and Exchange Commission, investors holding $27.2 billion of GM bonds would swap those bonds for 10 percent of the equity shares of the restructured company. The United Auto Workers would get up to 39 percent of the company in return for half of the $20 billion GM owes to a health fund for retired workers. Current shareholders would get 1 percent of the new shares.

The Treasury said that to meet restructuring goals and to fulfill bond covenants, the restructuring proposal must win the support of 90 percent of the bondholders, an uphill battle because bondholders and analysts said the union had received more favorable terms even though its legal claim in bankruptcy court would be equal to the bondholders’. Investors who bought GM bonds in 2003 are particularly upset at being portrayed as obstacles because those bonds were used to provide funds for GM workers’ pension plan.

“We are deeply concerned with today’s decision by GM and the auto task force to offer only a small, inequitable percentage of stock to its bondholders in exchange for their bonds,” advisers to an ad hoc group of bondholders said in a statement last night. “We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another.”

Some advisers said that GM bondholders, if they are patient, might get more money from a bankruptcy proceeding than they are being offered under the new restructuring plan.

Does anyone at the Treasury do math any longer?  The total sacrifice of all three parties would be $64 billion, of which the federal government and the bondholders are contributing the same percentage: 42.2%.  The UAW will contribute about 15.6%.  Why would the Obama administration expect bondholders to contribute 42% of the solution in order to gain 10% of the company?  Granted, GM wasn’t exactly the best-run business, but only a bureaucrat would take that kind of offer — or be arrogant enough to make that kind of offer.

Small wonder the bondholders are balking at this proposal.  They’d be better off in bankruptcy court, where their claims would get equal weight on a cost basis with the UAW and Treasury.

This is not just mere mathematical incompetence, however.  Obama and his team want to engineer a political bankruptcy and dismantling of GM in order to pick their own winners and losers.  Granting the UAW almost 40% of the company on a 15% investment makes no sense outside of Obama’s need to keep unions on his side while GM commits to much-needed downsizing and brand consolidation.

The Obama administration claims that the de facto nationalization of GM through their own claim on a majority stake in the company is an unhappy coincidence, but few are buying that explanation:

“Government ownership is an unfortunate outcome of this, not a goal,” said one person familiar with Obama administration deliberations and who spoke on condition of anonymity in order to preserve his relationships with officials. He said the government “could have gotten nothing for something, or something for something” and that it insisted on a 50 percent stake to leave open the potential to recover some of the $18 billion the Treasury Department has already lent GM and the additional $9 billion that it would inject under the new plan.

Some members of Congress and economists expressed concern that the government was effectively nationalizing GM and might exert influence over company decisions, despite its denials. Luigi Zingales, a finance professor of finance at the University of Chicago, said it would be “irresistible for the political system not to exercise some pressure. Do you not think they will push GM to make green cars? Maybe that’s the right thing to do and maybe not. But it shouldn’t be decided by Congress.”

The clear goal from the Obama administration is nationalization, in order to protect their relationships with unions, starting with the UAW.  The green-car motivation plays a role as well.  Obama talked often of the need to overhaul the American auto industry in order to produce energy-efficient cars on renewables.  If he owns a majority stake in GM, Obama can make those decisions himself, along with the Democrats in Congress.  The federal government never fails to exercise power it grants itself, and anyone who thinks that Obama would not take advantage of that majority position is either drinking the Democratic Kool-Aid or simply hasn’t paid attention.

If they didn’t want the majority position, why did they demand it in this offer to the bondholders, especially since they’re not investing any more than the private sector did?  They didn’t demand that power just to leave it on the sidelines.

Addendum: I can’t resist pointing out the Department of Redundancy Department moment in the WaPo’s piece: “Luigi Zingales, a finance professor of finance at the University of Chicago …”

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“See the USA in your Chevrolet…” man that has a sci-fi post apocalyptic feel to it now…

I really wanted to buy the new Camaro…

Skywise on April 28, 2009 at 10:50 AM

Yup. Gives that “Like a Rock” thing a new twist too.

MikeA on April 28, 2009 at 6:01 PM

I assume that in the future, federal tax rebates will be payed with coupons good at any of the nation’s fine GM dealerships.

DngrMse on April 28, 2009 at 6:12 PM

How long until they rename GM “Twentieth Century Motor Company?”

Ray Flicker on April 28, 2009 at 6:21 PM

It won’t work in the long run. They will make cars people don’t want, these in turn will end up becoming the fleet for the US government. Expect military contracts to follow to the rump company known as GM. PEOPLE OVER PROFITS!

rob verdi on April 28, 2009 at 6:37 PM

OK folks, how does it feel to fight communism for nearly 50 years just to have it move to your backyard and take over your government and your country . . . with of course the enlightened consent of all the nation’s liberal, left wing voters?

rplat on April 28, 2009 at 10:59 AM

Not good.

Alana on April 28, 2009 at 6:37 PM

If this goes through, it’s 4% market share by 2020 and continued shoveling of tax dollars into the bottomless pit. GM will exist to build cars for Federal fleet purchases and they’ll figure out how NOT to tell us what they’re paying for them.

In fact, I’d bet within a year they’d figure out how to make it a crime to disclose how much money the treasury’s shoveling into the union’s pockets.

JEM on April 28, 2009 at 7:12 PM

What does this do to Ford?

TXMomof3 on April 28, 2009 at 7:14 PM

This is just wonderful, been in the car business most of my life and you can bet I WILL NOT BUY a GM product again. Go under please, you too UAW.

foxone on April 28, 2009 at 7:32 PM

I said it a couple of months ago, and I’ll say it again.

I’ll never buy another American car again… ever!

madmonkphotog on April 28, 2009 at 8:16 PM

When I was (much) younger, it used to be said that if GM sneezes, America catches a cold.

GM, meet swine flu.

OldEnglish on April 28, 2009 at 8:54 PM

the sad truth, the people who run our wonderful goverment will NEVER be able to run GM, it is truly sad that we AMERICANS let the elected officals run our lives and one day we may do something about it. But, I guess not today, I am so sorry for all of use, so sorry.

foxone on April 28, 2009 at 9:03 PM

Americans being rebellious and doing the oposit of what the feds want will leave gm with nothing but some federal a$$HOle to buy junk for the fed fleet. Rest of us will buy what we want
The power of the consumer has yet to really hit the morons in DC. We are all going Galt and will be dammed if we get baracked.
This man is a disaster makes Jimmah look good.

Col.John Wm. Reed on April 28, 2009 at 9:19 PM

I’ll never buy another American car again… ever!

What about FORD ????

Col.John Wm. Reed on April 28, 2009 at 9:21 PM

What about FORD ????

Just because Ford is not broke does not mean they will escape. The UAW will now be bold enough to go after Ford with the knowledge that the feds will back their every move. They’ll break Ford and any other corporation that trys to remain a capitalist entity.

MikeA on April 28, 2009 at 9:29 PM

So, GM makes Democrat cars now.

They have lost half of their potential customers, at least. That’s not even counting the effect of their crappy product to potential customers.

GM, The American Yugo.

Moesart on April 28, 2009 at 9:34 PM

I own a GMC now and actually like it a lot. But never again will I buy another vehicle made by GM.

angryed on April 28, 2009 at 9:39 PM

Wow. It’s wrong.

tartan on April 28, 2009 at 10:29 PM

This is SOCIALISM. How can the poll numbers be so high approving the direction of the country?

Phil Byler on April 28, 2009 at 10:40 PM

Workers Unite!

Obama’s first truly pure socialist edict.

PattyJ on April 28, 2009 at 10:56 PM

Now when I tell GM to f’off, I get the added bonus of telling the POTUS too and the UAW.


“F’off GM!”

I swear the next UAW guy I meet I will read him the riot act.

They are only one step above serial killers in my world now.

Sapwolf on April 29, 2009 at 12:27 AM

This is SOCIALISM. How can the poll numbers be so high approving the direction of the country?

Phil Byler on April 28, 2009 at 10:40 PM

Maybe because the polls are also done with union labor?

MikeA on April 29, 2009 at 7:10 AM

As someone whoes family has only owned a Pontiac since 1985, I am already having to shop around for a new car line. Luckly I got a pre bailout collecter’s item this past summer. If Government Motors becomes fact I will a Ford or US made foreign car.

cobrakai99 on April 29, 2009 at 7:42 AM

As someone whoes family has only owned a Pontiac since 1985, I am already having to shop around for a new car line. Luckly I got a pre bailout collecter’s item this past summer. If Government Motors becomes fact I will a Ford or US made foreign car.

cobrakai99 on April 29, 2009 at 7:42 AM

Just tryin’ something on for size here …

Since two of the “big three” will now be controlled largely by the UAW …

1. If workers have a grievance against the company, uhm – doesn’t that mean they have a grievance against their own union?

2. Ford is now the only NON-Union owned car company now isn’t it? So, uhm – let’s see, the UAW are NOW their competitors in GM and Chrysler – but Ford employees are UAW aren’t they? So the people they are competing against are actually BUILDING their cars? This makes no sense whatever. It’s an incestuous nightmare.

3. Ford is competing against the Government too – because the Government still owns shares in GM and Chrysler no? Does anyone besides me find this to be horrifically unfair?

HondaV65 on April 29, 2009 at 7:43 AM

HondaV65 on April 29, 2009 at 7:43 AM

You are right. They Gov/UAW will have to take Ford out at some point. Sad, but it will happen. Watch for Ford to get hit with some trumped up government charge, safety regulation or EPA mandate that will cripple them.

MikeA on April 29, 2009 at 8:14 AM

As the caller on Rush said yesterday; “It is now un-American to buy an American made car.” (i.e. GM or Chrysler)

Dasher on April 29, 2009 at 9:19 AM

I’ll bet you guys that the media will now stop bad-mouthing GM cars while praising Toyota and Honda. And if a recall occurs it won’t be the top story of the news day.

JeffVader on April 29, 2009 at 2:12 PM