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ParticleMan

Government Motors

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http://www.bloomberg.com/apps/news?pid=206...id=ahXd19xtoPx0

une 1 (Bloomberg) -- General Motors Corp., the world’s largest automaker for 77 years, will file for bankruptcy today, and emerge with majority ownership by taxpayers and liabilities reduced by more than 50 percent, the U.S. government said.

The “new GM†will get $30.1 billion in bankruptcy financing from the government, and the Treasury “does not anticipate providing any additional assistance†after that, the Obama administration said yesterday in a statement. The federal government will have a 60 percent equity stake in the retooled automaker, and 12 percent will be held by the Canadian government, which is lending $9.5 billion to the company.

The filing, which GM executives said last year wouldn’t happen, marks the plunge of a company that once made more than half the cars bought in the U.S. The Detroit-based automaker became burdened by higher costs than competitors and a reliance on fuel-guzzling light trucks as gasoline prices rose. GM has been battered by almost $88 billion of losses since 2004.

“GM going through bankruptcy is a very positive thing for the auto industry: They should emerge as a reasonable competitor,†said Len Blum, managing director at investment- banking firm Westwood Capital LLC in New York. “The only thing that’s been holding GM back is labor contracts and relationships with debtors and franchisees. All that should be cleansed in a bankruptcy.â€

GM intends to close 11 factories and idle an additional three, while attempting to reopen one idled facility to build a new small car, the administration said, without estimating how many jobs would be eliminated. The automaker has said it aims to reduce its U.S. hourly workforce to about 40,000 next year from 61,000 at the end of last year.

‘Reluctant’ U.S. Owner

The government is “a reluctant equity owner†that “will protect the taxpayers’ investment by managing its ownership stake in a hands-off commercial manner,†the Obama administration said yesterday in a “statement of principles†for its management of private firms.

President Barack Obama’s administration finds itself in control of an icon of American industry after rejecting a recovery plan filed in February and ousting Chief Executive Officer Rick Wagoner.

The terms of the filing were hammered out by a government task force led by Quadrangle Group LLC co-founder Steven Rattner, which demanded concessions by the company, the United Auto Workers and bondholders.

“The resulting agreement is tough but fair,†the administration said in the statement.

60 to 90 Days

The administration expects the new GM to emerge from bankruptcy in 60 to 90 days, said administration officials, who asked not to be identified in advance of the filing, on a conference call yesterday with reporters.

The U.S. Treasury and GM prepared the way for the bankruptcy filing by getting 54 percent of bondholders to agree to the revised reorganization plan, bondholder representatives said yesterday. GM also got approval in the past week from the United Auto Workers union for an agreement that may save the company $1.3 billion annually.

Al Koch, a managing director at the advisory company AlixPartners LLP in New York, will be GM’s chief restructuring officer, reporting to Chief Executive Officer Fritz Henderson, according to the people familiar with the matter, who asked not to be identified because the plans haven’t been announced.

The process for picking the new board majority is already under way, as chief executives, former chief executives and people with business experience are being examined, one of the Obama administration officials said. The new members will join the revamped company as GM’s desirable assets emerge from bankruptcy, one of the officials said.

$19.8 Billion Already

GM, which has already received $19.8 billion in U.S. Treasury loans, will be the largest manufacturer to file for bankruptcy, surpassing Chrysler LLC. A bankruptcy judge would supervise the sale or liquidation of unprofitable brands, such as Saturn and Hummer, and the 14 factories that would be closed or idled.

The new GM would emerge armed with vehicles from its Cadillac, Chevrolet, Buick and GMC units. It will be built to survive in a market of 10 million annual U.S. car sales, down from 16 million, the Obama administration said.

New cars and light trucks probably sold at an annual rate of 9.9 million vehicles in April, based on the average of 7 analyst estimates compiled by Bloomberg. Sales totaled 13.2 million in 2008 and averaged 16.8 million this decade through 2007.

United Auto Workers

The United Auto Workers’ health trust fund for retirees, which is owed $20 billion by GM, will be replaced by a new entity that will own 17.5 percent of the new company with warrants to purchase an additional 2.5 percent. Bondholders and other creditors would get a 10 percent stake in the new GM, with warrants for an additional 15 percent, in exchange for $27.1 billion unsecured debt.

Administration officials said GM will have to comply with executive compensation limits the Treasury announced in February for financial institutions that receive more than $500 million in federal funds, as well as the so-called Dodd Amendment. The provision is named after Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat, who attached the pay restrictions to the $787 billion economic stimulus bill Congress passed on Feb. 13.

Those restrictions place a $500,000 salary cap on the top five executives at banks, and the 20 most highly paid employees below them, and require them to forgo cash bonuses.

Japan’s Toyota Motor Corp. surpassed GM last year as the world’s largest automaker.

Edited by ParticleMan

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Guest มร หล&#3

Particle's, I can't see a deflation now. Not going to happen. They will keep printing and bailing.

????

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Particle's, I can't see a deflation now. Not going to happen. They will keep printing and bailing.

What's inflationary about wiping out GM's equity, suppliers, and dealerships?

Or reducing production targets by 37.5%, for that matter?

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What's inflationary about wiping out GM's equity, suppliers, and dealerships?

Or reducing production targets by 37.5%, for that matter?

Do the words 'supply and demand' mean anything to you? I can't see GM maintaining current multi-thousand-dollar discounts for long if they've cut production, cut dealerships and received a big bailout.

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Guest มร หล&#3
Do the words 'supply and demand' mean anything to you? I can't see GM maintaining current multi-thousand-dollar discounts for long if they've cut production, cut dealerships and received a big bailout.

Exactly Mark.

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Do the words 'supply and demand' mean anything to you? I can't see GM maintaining current multi-thousand-dollar discounts for long if they've cut production, cut dealerships and received a big bailout.

Neither can I.

GM is forecasting a 37.5% reduction in demand (which seems about right).

Also note the conversion of secured, to unsecured debt.

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GM is forecasting a 37.5% reduction in demand (which seems about right).

And they're cutting production to match, so they've no need to keep pushing cars that no-one wants to buy out the door by offering big discounts.

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And they're cutting production to match, so they've no need to keep pushing cars that no-one wants to buy out the door by offering big discounts.

Actually they're changing their production to lighter cars.

People, I knew literacy was an issue in the UK, but... just... wow.

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Actually they're changing their production to lighter cars.

People, I knew literacy was an issue in the UK, but... just... wow.

Yes they changed to produce lighter cars that nobody wants to buy even with big discounts.

Maybe you had not read that?

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Yes they changed to produce lighter cars that nobody wants to buy even with big discounts.

Maybe you had not read that?

Again, how is any of this inflationary?

I'm thrice bewildered that anyone could read the structure above as something which reduces the monetary base's claim on the economy, increases monetary velocities, or in fact is anything other than it is - (a statement of debtor in posesession financing).

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... actually what puzzles me the most is the speed at which merely noting the demise of GM becomes an OMFG!!111eleventy1!! alt.doom.inflation.hyper.die.die.die thread on HPC...

Truly bizarre, and probably a good indication that it's time to stop posting here.

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... actually what puzzles me the most is the speed at which merely noting the demise of GM becomes an OMFG!!111eleventy1!! alt.doom.inflation.hyper.die.die.die thread on HPC...

Truly bizarre, and probably a good indication that it's time to stop posting here.

Hey hang on a minute please!

I was trying to be clever but now had to read the thread! :unsure: So sorry about that.

I agree with you that the answers you are getting have no relationship to what you are talking about.

How did the following occur??

What's inflationary about wiping out GM's equity, suppliers, and dealerships?

Or reducing production targets by 37.5%, for that matter?

Do the words 'supply and demand' mean anything to you? I can't see GM maintaining current multi-thousand-dollar discounts for long if they've cut production, cut dealerships and received a big bailout.
Exactly Mark.

???

But you would need to expand on the following for me to understand what you are saying by it:

Again, how is any of this inflationary?

I'm thrice bewildered that anyone could read the structure above as something which reduces the monetary base's claim on the economy,

What exactly do you mean by something that reduces the monetary bases claim on the economy?

Ta.

Edited by aliveandkicking

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... actually what puzzles me the most is the speed at which merely noting the demise of GM becomes an OMFG!!111eleventy1!! alt.doom.inflation.hyper.die.die.die thread on HPC...

Truly bizarre, and probably a good indication that it's time to stop posting here.

Hold on. The OP was a news snippet with not a bean of comment by the poster in the thread.

If you had a slant or wanted a theme for debate, you must at least to attempt to stir one.

Simply leaving a burning bag of dog shit on a front step is not enough. You also have to ring the doorbell, and run like hell.

Be nice.

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Will their operation change though, producing and selling shit cars based on cheap finance as a model has been a total fail. Somehow I doubt it.

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Ok, got me, pre-coffee early morning grouchy; apologies all.

And hands up too to the flaming edgar, rightly spotted there too.

So - GM, ding dong the witch is dead; going to be a busy conference call with ISDA, I'd imagine. :)

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Hold on. The OP was a news snippet with not a bean of comment by the poster in the thread.

If you had a slant or wanted a theme for debate, you must at least to attempt to stir one.

Simply leaving a burning bag of dog shit on a front step is not enough. You also have to ring the doorbell, and run like hell.

Be nice.

Maybe that is it!

Inflation has been dumped on the doorstep and nobody wants to play by stepping in it?

All answers are then a method to maintain the integrity of the thread without getting into inflation or deflation?

I still dont get it though. :blink:

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Will their operation change though, producing and selling shit cars based on cheap finance as a model has been a total fail. Somehow I doubt it.

Depends on who these new equity holders sell their stake to I'd imagine (I can't see either of them being new beneficial dictators^wlong-only's in the grand scheme of things).

In terms of auto market pressures, as with the airline bankruptcies I'd imagine the real hurt will now be "on" for those who haven't refinanced (GM's competitors); an essentially debt-free GM will be able to chase demand to newly lower levels, if it chooses - and with the state's blessing, too.

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What's inflationary about wiping out GM's equity, suppliers, and dealerships?

Or reducing production targets by 37.5%, for that matter?

increased government borrowing

hyperinflation is a currency event not due to an increase in trade

In addition, a GM bankruptcy would be unprecedented as the federal government would pump billions more into the company.

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In terms of auto market pressures, as with the airline bankruptcies I'd imagine the real hurt will now be "on" for those who haven't refinanced (GM's competitors); an essentially debt-free GM will be able to chase demand to newly lower levels, if it chooses - and with the state's blessing, too.

true maybe Ford previously had a chance of survival

not now

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Depends on who these new equity holders sell their stake to I'd imagine (I can't see either of them being new beneficial dictators^wlong-only's in the grand scheme of things).

In terms of auto market pressures, as with the airline bankruptcies I'd imagine the real hurt will now be "on" for those who haven't refinanced (GM's competitors); an essentially debt-free GM will be able to chase demand to newly lower levels, if it chooses - and with the state's blessing, too.

And what about about all the remaining car companies? How do they compete with both a state subisdized and state owned business?

This is just bad all around. Governments and politicians do not have the ability to run a profitable enterprise. GM cars will be expensive, crap, on a huge waiting list, and a hard sell(even more so than they are now, I might add!). The state will introduce draconian tariffs on the competator to force people to buy the GM tat.

It is all going to end in tears I'm afraid.

Edited by cashinmattress

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I thought factories in the US were already lying idle in series records

"The capacity utilization rate for total industry fell further in April, to 69.1 percent, a low over the history of this series, which begins in 1967. "

http://www.federalreserve.gov/releases/g17...ent/default.htm

The falls have not even filtered through fully to total finished products yet , So I think this will feed through for many months to come.

Table 3Motor Vehicle AssembliesMillions of units, seasonally adjusted annual rate--------------------------------------------------------------------------------------------------------------------------------------------                                                  |  2008 |   2008                    2009 |   2008            2009                         Item                                              |Average|     Q2      Q3      Q4      Q1 |   Nov.    Dec.    Jan.    Feb.    Mar.    Apr. -------------------------------------------------------------------------------------------------------------------------------------------- Total                                            |  8.67 |   8.76    8.60    7.27    4.52 |   7.31    6.67    3.86    4.77    4.93    5.04     Autos                                         |  3.78 |   3.63    4.13    3.34    1.62 |   3.34    2.95    1.33    1.66    1.87    1.84     Trucks                                        |  4.90 |   5.12    4.47    3.94    2.90 |   3.97    3.72    2.52    3.11    3.05    3.20        Light                                      |  4.67 |   4.89    4.27    3.74    2.75 |   3.78    3.51    2.38    2.94    2.92    3.05        Medium and heavy                           |   .22 |    .24     .21     .20     .15 |    .19     .21     .14     .17     .14     .15                                                   |       |                                | Memo:                                            |       |                                |    Autos and light trucks                        |  8.45 |   8.52    8.39    7.07    4.37 |   7.12    6.46    3.71    4.61    4.79    4.88 --------------------------------------------------------------------------------------------------------------------------------------------     Note.  Seasonal factors and underlying data for auto, light truck, and medium and heavy truck production are available on the Board's web site,www.federalreserve.gov/releases/G17/mvsf.htm

If the factories are closed, and the workers unemployed, and they don't buy goods and the factory closes, Isn't that the start of a deflationary spiral. Unless you QE it which

doesn't seem to be working. The consumers are always overlooked yet we direct where money goes in a amounts that dwarf terms like trillions.

Either way I'm not really sure what will happen but it seems there has to fear of inflation in the public as soon as possible.

Edit: If you look closely, consumers are spending money on food, fuel, clothing etc non durable, and deciding not to buy durable goods like TVs, Cars, refrigerators, sofas

604880890872.gif

The consumer has withdrawn from the market.

Edited by Tom Peters

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increased government borrowing

hyperinflation is a currency event not due to an increase in trade

If the government borrows a zillion USD and pumps a zillion into the economy it has made no difference other than ensuring a zillion is spent at a time when a zillion is not being spent that would be spent if there was no need for the government to spend the zillion.

It is more or less zero sum. It is only related to velocity.

A hyperinflationary event requires unbounded QE with no limits placed on the feds balance sheet.

As it is the USD can still strengthen from here because as number one reserve currency this is the most borrowed currency and the most levered currency and all the entities that have lent out their credit created USD now need to back that credit with real hard cold USD that more or less do not exist. In this kind of scenario the USD will swing backwards and forwards as strength enables more QE and more government spending and in turn USD weakness will then create a bit more reluctance to spend and when finally it comes that the economy has life of its own and is not on life support and wants to breath on its own and expand on its own, then all of those assets on the balance sheet can be sold very quickly to prevent explosive inflation caused by massive monetary life force.

Edited by aliveandkicking

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And what about about all the remaining car companies? How do they compete with both a state subisdized and state owned business?

This is just bad all around. Governments and politicians do not have the ability to run a profitable enterprise. GM cars will be expensive, crap, on a huge waiting list, and a hard sell. The state will introduce draconian tariffs on the competator to force people to buy the GM tat.

It is all going to end in tears I'm afraid.

It's certainly going to get pretty unpleasant (and as a poster above says, Ford management must be donning the brown undies and "plan B"'ing it right about now too); however - considering who's actually gained market share, it seems reasonable to me to guess that (in no particular order of importance)

1/ Supply-side costs of US-based production will fall vertically up/down and horizontally across the whole industry

2/ Foreign producers will adjust to the new pricing and source greater levels from these newly cheaper sources of supply

3/ The gift that keeps on giving - "spare capacity" will be given right back to the exporters who need it least right now

4/ There's now some prospect that in some low volume high margin verticals, less costly supply combined with less (loss-making) competition might permit new market entrants (it could be an interesting season or two in NASCAR for instance - but this should also ripple outside the auto industry completely as the strength of any bid GM or supply chain have been making in any market diminishes)

Those on forum looking for a reset button - I think a mini-me version of it's just been pressed, for the auto industry and the supply chain surrounding (which is truly staggering); bad luck to those economies overly-dependant on current price levels...

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