GM enters bankruptcy, creditors howl
posted at 12:35 pm on June 1, 2009 by Ed Morrissey
Share on Facebook | printer-friendly
The US will end up with a majority stake in General Motors after it exits bankruptcy, if a judge sides with the Obama administration and the taxpayers pony up another $30 billion in subsidies. The Obama administration says that no further bailouts will be required, but the investment will result in the federal government owning 60% of the restructured GM for its total of $50 billion in cash infusions since last fall. Creditors want to derail the plan, not because of the government stake, but because of the UAW’s eventual stake in the company:
Under the proposed restructuring, about 60 percent of the new GM would be owned by the United States, about 12 percent by the governments of Canada and Ontario, a union health trust would own 17.5 percent, and the company’s current bondholders would get 10 percent.
But as the administration builds the case for another massive infusion of government money into the automaker, it is also dealing separately with accusations that its plan unfairly favors the United Auto Workers at the expense of the company’s investors.
The fairness issue will be central as the GM bankruptcy case goes before a judge this week: Does the government-sponsored restructuring plan equitably accommodate all of the company’s stakeholders?
The essential issue isn’t fairness, it’s legal and financial equity. We saw this during the Chrysler bankruptcy as well, when senior creditors got intimidated into accepting far less per dollar than Fiat and the UAW received from the proceeds. The Obama administration did an end run around long-established laws governing the priority of liquidation of assets in bankruptcies, in order to give a big political payoff to the union.
The White House did the same thing with GM. Creditors hold $27 billion in notes, for which they will get 10% of the company, or $2.7 billion for every percent of ownership they receive. The government owns 60% for its investment of $50 billion, a rate of $834 million per percent of ownership. The UAW has a $20 billion stake in the company, but the settlement would replace that with 17.5% of GM along with $9 billion in notes and preferred stock, according to the Washington Post. That puts their investment at $11 billion (what they surrender in this process), making their cost per percent of ownership $629 million — by far the lowest of the three major stockholders.
Obama is penalizing the people who invested in GM by devaluing their stake based on whim, not legal or financial rules. They want to skew the result to favor the union and themselves. It’s another political bankruptcy, rather than a legal dissolution of a private firm according to well-established contract law.
Hugh Hewitt suggests a long-term solution to such blatantly political interference in business law:
I won’t buy a socialist car, which means I won’t be buying a GM or Chrysler car for as long as the U.S. government owns huge blocks of the companies.
Today’s bankruptcy filing by GM will see the end of a once-great car company and the birth of a federal government-union partnership dressed up as a business. It won’t work, even with the $50 billion federal tax dollars plowed into the new entity past and present, and not even with the UAW’s “concessions.” …
Buy Ford. Buy Toyota. Buy anything that isn’t owned and operated by the federal government. There are plenty of great cars out there. You don’t have to buy one that costs not just your cash, but also your commitment to free enterprise and all the benefits that flow from it.
Just say no to Government Motors, and to the rush to corporatism and socialism that the Obama administration has pushed.
Update II: Keith Hennessey has the basics on GM and the deal. Think of it as your personal Presidential briefing; he does a great job of dispassionately laying out the facts.
You must be logged in to post a comment.

















Blowback
Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.
Trackbacks/Pings
Trackback URL
Comments
Comment pages: « Previous 1 2
Never will happen Vashta. There is a little known Government thing called the National Labor Relations Board which has the job of resolving “Unfair Labor Practices” by companies.
I knew a small company owner who had so many labor problems that he could not deliver his product on time and was rapidly losing money. When he announced the closure of his business, the NLRB refused to let him do it until the labor dispute was resolved to their satisfaction. It took years.
Uniblogger on June 1, 2009 at 2:14 PM
Help me to understand this. The purpose of a union is to represent the workers in negotiations with management. So when the union BECOMES management, how can it still function as a union?
As far as I’m concerned, those so-called union employees at GM and Chrysler are no longer represented and should stop paying their union dues.
Dee2008 on June 1, 2009 at 2:16 PM
Do they carry guns?
Vashta.Nerada on June 1, 2009 at 2:17 PM
This year I’ve traded in my Jeep and my wife’s ford. I bought a Toyota and she bought a Honda. My wife’s sister is looking for a car and she is also interested in a Honda.
Nope, not buying anything from Comrade Obama’s Socialist Car emporium.
evilned on June 1, 2009 at 2:27 PM
So as a wife of a retired GM exec what to do? Buy Ford???? Bush made a mistake by loaning them money. They should of gone into Chapter 11 last year so the government would not be involved and now own the company. Unbelievable that a socialist will now be running GM. What a sad day.
Bullhead on June 1, 2009 at 2:30 PM
This guy could build better cars for 50 million bucks. And they’d probably be much better cars.
What about Aptera Motors: they would definitely appeal to the green crowd. Heck, for 50 million, I’d start my own company (I’ve got a few ideas, just no money).
I’d consider Switzerland. No cap and trade laws, no BS, and in 10 years they’d get to call themselves a swiss car company…
And everyone knows the swiss make good stuff.
Chaz706 on June 1, 2009 at 2:34 PM
“The Obama administration did an end run around long-established laws governing the priority of liquidation of assets in bankruptcies, in order to give a big political payoff to the union.”
I wonder if this is why they forced Souter to retire when he is still fairly young. He’s looney, but the knee-breakers determined he wasn’t looney enough to overturn contract law that is hundreds of years old.
notagool on June 1, 2009 at 2:42 PM
http://www.youtube.com/watch?v=HQ7R_buZPSo&eurl=http://www.autoblog.com/2009/06/01/video-ken-blocks-gymkhana-two-more-sideways-thrills-sillier/&feature=player_embedded
Unrelated, but cool.
More Ken Block doing things with I car that our wives (or husbands) would kill us over.
Chaz706 on June 1, 2009 at 2:43 PM
Is it still wrong to like a corvette?
FontanaConservative on June 1, 2009 at 2:57 PM
Creditors: $2.7 billion investment for every percent of ownership they receive.
Taypayers: $834 million investment per percent of ownership.
UAW: $629 million investment per percent of ownership
It’s nice to be able to quantify the end of capitalism, isn’t it?
And by the way, when Nasser and Chavez did this, wasn’t it called nationalization, a means to a state socialist end?
Scranton on June 1, 2009 at 3:05 PM
Michael Moore can now gloat over the carcass of GM. Then he will demand government payouts and support for tha UAW thugs that destroyed GM.
Kuffar on June 1, 2009 at 3:06 PM
Nope. One thing he will do is manipulate gas prices to be so high that people will be forced to buy govt. clown cars in order to afford to drive anywhere.
Obama has a plan, and I’m sure has wargamed several contingencies in order to get what he wants, which is complete dictatorial power. There is no way in hell he is going to let the American public have any “choices” that can derail his objectives.
Puddleglum on June 1, 2009 at 3:06 PM
Now that the government (apparently) is majority owner of GM, what will happen if that company continues to tank? Will taxpayers continue to pay for workers and other costs while private automobile companies have to cut cost and restructure at their own expense? Will the government impose higher tariffs on foreign (Japanese, Korean) cars to prioritize their product?
I’ll still buy GM cars if the quality is there, but I don’t anticipate that under govt. control. John Stossel likes to point to the East German Car “Trebant” as a prime example of government products that fail miserably. Maybe that’s the name of the newest line of GM cars. “The Trebant”
Mad Kimchi on June 1, 2009 at 3:21 PM
There was also the “Yugo” manufactured by the Yugoslav government. The next GM car should be called the “Yugo Broke”.
Steve Z on June 1, 2009 at 3:28 PM
Well I like the Ford Edge and Toyota puts food in my Families mouths…so sad I USED to like GM. Gubmint Motors will go the way of Amtrack I suspect
NY Conservative on June 1, 2009 at 3:33 PM
nottakingsides on June 1, 2009 at 3:34 PM
anyone noticing the Government Motors ads all over HotAir today? otherwise known as “ALLY”
Kaptain Amerika on June 1, 2009 at 3:40 PM
It’s not America anymore.
It’s now the USO – Union States of Obama
izoneguy on June 1, 2009 at 3:58 PM
My 92 year-old mother-in-law depends on a GM pension. You may justifiably boycott Government Motors products but the end result will be for thousands of GM retirees and employees to wind up on welfare or worse. My suggestion is to continue buying GM and replace the idiots in congress and this administration that are dragging us into fascism during the next available election. We still have that option… dont’ we?
NNtrancer on June 1, 2009 at 3:58 PM
I wonder if Hannity & Levin will keep airing GM ads??
izoneguy on June 1, 2009 at 3:59 PM
just as an FYI…the hedge fund I work for is up 40% since March 31. Gotta love Junk Bonds.
beefytee on June 1, 2009 at 4:24 PM
Rush Limbaugh and Hannity are running GM adds. They either won’t get paid or their ad agency will pay the advertising and get clobbered when Obama doesn’t pay the agency. Ooops. It will end in a week or two.
seven on June 1, 2009 at 4:27 PM
In his speech today about the GM proceedings,the “One” said that our lives will not be getting better, that we all must sacrifice so our children and grandchildren will have a better life.
This just 2 days after he spent our money to keep a personal promise to his wife. Just what the f#$k is he sacrificing?
oldernwiser on June 1, 2009 at 4:31 PM
I’m with Hugh Hewitt. I’ve been buying Big Three cars almost exclusively for the last 40 years. I may buy a Ford in the future, but nothing from GM or Chrysler. Even if they become private again, I’m not buying.
Buford Gooch on June 1, 2009 at 4:52 PM
If I heard one more vacuous baritone on TV telling me that “the people” now own most of GM, I might well have done something rash. “The people” have as much say in Obama’s bribe-the UAW deal as they do in The People’s Republic of China.
Paul_in_NJ on June 1, 2009 at 4:55 PM
Or buy Honda. They also have manufacturing plants in the USA, and hire American workers. They also make good cars–I had one for 13 years, drove it 160,000 miles, then sold it for $600.
Steve Z on June 1, 2009 at 4:59 PM
They should pull those ads and offer Ford, Toyota, and Honda (private carmakers in the USA) the ad time. Also pull the ads for Ditech.com, which is part of GMAC Financing.
Steve Z on June 1, 2009 at 5:02 PM
Would you buy a car from DeNiro like this ?http://www.youtube.com/watch?v=iN65mEhgpqQ
I’ve polled family, friends and coworkers and ask them all the same question: “If you were to have to buy a new American car today, what would it be?”
Results: 99% (30+ questioned) all say Ford. The other 1% was a dumbass who didn’t have a clue to what was going on with the bailout/buyout.
Obamamobiles are all over the place here where I live. These little death crates are pretty cute, they’ll be cuter when a Schwinn hits one and kills everyone on board.
“Save gas, lose your ass!”
ted c on June 1, 2009 at 5:27 PM
Saw something on instapundit last week (unfortunately, can’t find the link). The manufacturer of the Yugo is now in a partnership with… Fiat… Chrysler’s new partner.
From Jeeps to Yugos.
Toyota, Honda, Ford, Hyundai.
No Gubmint Motors cars for me.
either orr on June 1, 2009 at 5:45 PM
I have 2 Fords (Focus and F-350) and the newest car is a Hyundai Santa Fe Limited. That’s a sweet car. It’s loaded with features, and it was inexpensive when you put it next to the Lexus, Honda, or any other similar car in it’s class.
I wonder what Dear Leader’s next move is to put the competitors out of business?
kirkill on June 1, 2009 at 6:14 PM
Hang on to your big cars people. They’ll ahve us driving death traps here pretty soon. I’ll stop driving and take the bus.
johnnyU on June 1, 2009 at 7:35 PM
I just thought I’d share a few pearls of wisdom from Michael Moore, along with some helpful commentary from yours truly:
Well, when your overpaid labor goons on the assembly line are eating up the majority of your costs, and any attempt to rein in labor costs gets you debilitating strikes and riots, how the hell else are you going to turn a profit?
Again, you idiot…when your choice is between assembly workers getting above-market wages and gold-plated benefits that exist nowhere else but government, and Mexican workers who will happily take a market-wage job as opposed to seeing their family starve, who is any half-intelligent businessman going to pick? Perhaps if the unions came down to earth for once they might actually be competitive with cheaper Mexican labor.
So the champion of the poor, tread-upon union worker wants to see them all out of a job. The hypocrisy is staggering.
And magic unicorns that fart Skittles that grow cars that run on sunshine and corporate executive blood. Did this guy get hit over the head at age five and is now mentally stuck there?
So let’s take a workforce that only knows how to build cars, put them to work in factories that are only designed to produce cars, and have them build technology THAT DOESN’T EVEN FRIGGIN’ EXIST YET.
Yes, only a few short years of skyrocketing food prices, mass starvation and 40% unemployment because no one can afford to transport anything, anywhere…while we develop a technology insufficient for the needs of our economy. If this guy wasn’t as big as Mars I’d say he’s from there.
Goodbye airline industry. Goodbye trucking industry. Hello food shortages. I wonder how much we’ll manage to collect from this awesome new tax when NO ONE WILL BE BUYING ANY FRIGGIN GASOLINE?!
And in 2009 we won’t have to be convinced. We’ll just stop driving cars at the point of a gun and the threat of unaffordable, inefficient “clean” cars. Of course, we’ll still need those heavy-duty limos and SUVs to cart Mike’s big ass around, but you see…he’s the champion of the people. We can forgive his carbon footprint.
TheMightyMonarch on June 1, 2009 at 7:47 PM
I work for Toyota and am thankful the are a stabile Co. What a lot of people are missing is the auto suppliers in North America are intertwined and this will hurt Ford and to a smaller extent Toyota in getting parts as suppliers go ot of buisness and consolidate.
Kevin in Southern Illinois on June 1, 2009 at 8:26 PM
3 other points. Obama says government fleet vehicles will come fro GM to help it get going. Doesn’t this violate a law about open bidding of government contracts?
He isn’t allowin GM to import more efficient models they buiuld overseas. Isn’t this protectionism and might we see a backlash by our goods being boycotted in other countries?
And finally the thing with a free market is yo have to build a product people want to buy. Who says people will buy more efficient vehicles even if GM cold deliver them tomorrow, which they can’t. They lead time on this is several years. You can’t legisl;ate new technology into existence.
Kevin in Southern Illinois on June 1, 2009 at 8:31 PM
Unfortunately, people like your mother have been screwed by the excesses of the unions. Sad to say, no matter how sorry you mother’s story is, I can’t afford to support her (and thousands like her); I have my own family to take care of.
mr.blacksheep on June 1, 2009 at 8:47 PM
I think that’s the bit Oboingo doesn’t quite comprehend.
mr.blacksheep on June 1, 2009 at 8:49 PM
Don’t like this? Support, fight for The Federalism Amendments.
njcommuter on June 1, 2009 at 9:23 PM
Now that GM is finally the kind of company that Michael Moore approves of, they will no longer make cars big enough for him to fit into, or with enough torque to get his fat a$$ up the ramp of the average parking structure. Congratulations Mikey!
smellthecoffee on June 1, 2009 at 9:47 PM
The only way to corrupt this further would be to give Fwank & Dodd oversight and to bring in Hugh Rodham as chief negotiator. Then Mark Rich could easily buy his way into becoming Gummint Motors Chief of Foreign Sales.
viking01 on June 1, 2009 at 10:58 PM
This is sad, truly sad.
If anyone thinks the government isn’t going to give preferential treatment to GM from fleet needs to using super secret military power and navigation technology, then you need to wake up a bit.
How do you oppose it? As usual, we end up at the stinky end of the stick.
Legislation will favor GM. They will get a heads up on what is coming from Fed. regulations.
As someone pointed out tonight, the union contract is due about campaign time. Is there anyone left that has the balls to fight the union when ‘we’ own 60%+ of the company?
At the end of the day, we will get another gubbmint program that we “can’t live with, can’t live without” because if GM continues to lose money, then we can’t give up on them, and if they make money, the argument will be we take the profits and stay in the car business.
Gotta pay for health care, ya know!
cntrlfrk on June 1, 2009 at 11:04 PM
Yeah,, that is good Marxist talk for the ignorant masses.
Translation,,,, We’re taking them over because we can and no one is going to stop us so screw you. GM is mine. I won. It belongs to me. You’re next!
JellyToast on June 1, 2009 at 11:40 PM
Contract law? We don’t need no stinkin’ contract law.
Johan Klaus on June 2, 2009 at 2:47 AM
All those people you listed are the reason why we now have a totalitarian demagogue in the White House and the Corruptocrat party in control of the legislative branch. They are also the main reason why both GM and Chrysler could not compete thanks to their greedy union contracts that added $1,500 to the cost every car those companies made.
The union thugs have spent decades at the trough like greedy pigs. They also got what they wanted with the 0bamamessiah and the Corruptocrats, now they can pay the price for it.
I have absolutely no sympathy for any of them.
Nahanni on June 2, 2009 at 3:55 AM
Personally I’d be happy to take their money. I’d not give them a red cent.
{^_^}
herself on June 2, 2009 at 4:34 AM
Me neither. I would never buy a GM car. All you would do is perpetuate the gravy train for Union Goons. Unions have destroyed industry and education, among other things.
Geochelone on June 2, 2009 at 7:10 AM
Let the bumper stickers begin.
BOYCOTT GOVERNMENT MOTORS
J in STL on June 2, 2009 at 8:01 AM
Buy Ford or buy used.
Now,, I have been thinking,,, Ford could end up being the true new GM. I heard on Rush today they have actually expanded their production. If they played their cards right,,, they could end up taking every single customer Government Motors loses,,,,, unless Obama directly tries to interfere with Ford taking over the market.
I repeat,,
Obama will fail unless he takes over the whole car market, not just a portion of it. It is like squeezing a balloon, Obama squeezes a part of the market. But as he squeezes one part, the market will naturally expand in another part. What Government Motors can not deliver, Ford and other car makers will. Unless they are interfered with by Obama. What will Obama do, if, as GM continues to lose sales, Ford and others who are giving people the cars they want have their sales expand?
That will be the thing to watch. Will he attempt another takeover? He will have to stop them. He must and he has to know this. A good Marxist either controls all of the market, or he controls none of it
JellyToast on June 2, 2009 at 8:15 AM
Whats with the ’secret buyers’ and ’secret recipients’ of funds and pieces of these companies now? I see Hummer was sold to an undisclosed buyer. This is crime people. The secrecy against who? US the citizens! WHy secrecy? Secrecy means someone is doing something they shouldn’t be! Where’s the outrage?!!!
johnnyU on June 2, 2009 at 9:55 AM
For all practical purposes the UAW has become a public service union. Such entities can only increase arithmetically in size and geometrically in cost and have eternal life. The only true solution to the problems caused by these entities would be an omnibus bill or, if absolutely necessary a constitutional amendment, banning the unionization of public service employees.
Annar on June 2, 2009 at 10:03 AM
Do you realize GM’s domestic vehicle sales were about 3 million vehicles last year? The government infusion of $50B works out to about $17,000 per vehicle sold domestically last year. Imagine if that money had been directed into real stimulus of the economy instead of down the rat hole that is GM.
I am 100% convinced that politicians are either completely ignorant when it comes to economics, are are so jaded that they don’t give a damn about the welfare of the people.
Snidely Whiplash on June 2, 2009 at 1:42 PM
Obama and the rest of the liberals will have you all driving cars that will resemble the Yugo when their through.
TrickyDick on June 2, 2009 at 1:44 PM
Terry_Dyne on June 2, 2009 at 1:56 PM
Problems with Government Motors
1 Except for some cosmetic changes at the top , the same failed executives and overpriced union feather bedders (albeit fewer of them) are still in place.You don’t rehire the arsonists who burned down the barn to rebuild it.
2 The government’s past attempts to manage business-most notably the post office and Amtrak and (kinda sorta) the Fannies and Freddys -have been total disasters.The legal profession and business management mix like baking soda and vinegar.
3 There is suspicion that the Obama Administration could care less whether government’s usurping of business prerogatives is successful or not. It could be only a ploy to accrue socialistic or fascistic power and, once you’ve got 51% of the electorate not paying taxes, a permanent power grab.
MaiDee on June 2, 2009 at 4:21 PM
Problems With Government Motores Deux
4 If the government is truly sincere in wanting to make the new GM competitive, congress could give special rebates and carbon tax credits, etc. incentives to buying a government owned car. Example: a $2000 tax deduction for anyone buying a government built car. Or, how how about the government purchasing fleets of only GM made cars and, if the cars aren’t competitively priced-the suckers-er, taxpayers can make up the different. It could go as far as to instruct police and tow cars to ticket or drag away drivers using non-government made vehicles. The list of options is endless. EG increased property taxes for dealers selling competitive vehicles or more “unfavorable” inspections for these same dealers. Not to forget a “mysterious” fire destroying a rival dealership. Use your imagination.
Through a campaign of favoritism, intimidation, tax incentives (bribery) and economic terrorisms the public will be driven to buy only Government Motors made vehicles.
MaiDee on June 2, 2009 at 4:38 PM
Obama was foolish enough to assume his name on Chrysler would not see a sales drop. chrysler will not get back to previous market share evah. They are still no less than many weeks away from ere opening any factories.
seven on June 2, 2009 at 5:47 PM
MB4 at 1:03
Consumer Reports seems hyperliberal but certainly does not know what they are talking about with automobiles in particular.
Try JD Powers and the results differ. A lot.
However, I still would have let GM go down. Then made trade and government regulation sane.
BTW, I am so glad socialism turns all you intellectuals off. But you love foreign products. Real Americans.
Just check out Germany and Japan. I am going there (Germany) next week and I can send you info on their healthcare, ownership and boardmembership by unions, vacation time and other items that make the whole business look like The One’s GM. But it may wake you up.
IlikedAUH2O on June 2, 2009 at 8:10 PM
P. S. I have no relationship to any auto firm. I did, shall we say, high tech metal work during the Reagan years and came to appreciate American industry. Even with its flaws.
I can add that the auto industry does add an industrial plant, technology and skills which have defense applicability. In addition, every foreign product you buy does little to aid our trade deficit and notes payable to every nation on earth.
IlikedAUH2O on June 2, 2009 at 8:44 PM
Comment pages: « Previous 1 2