US Government to Give Loans to GM & Chrysler

[Dragon]

http://business.theglobeandmail.com/servle...y/Business/home

WASHINGTON — The U.S. government will provide $17.4-billion (U.S.) in short-term financing to U.S. automakers, the White House said Friday. It expects General Motors Corp. and Chrysler LLC to take advantage of the loans immediately.

The loans will be recalled if the companies are not economically viable by March 31. The companies must accept limits on executive compensation and eliminate certain corporate benefits, such as using private jets.

The government will have the power to block any transactions over $100-million.

A senior administration official, speaking on condition of anonymity because of the sensitivity of the issue, said $13.4-billion in short-term financing will be drawn from the $700-billion Wall Street rescue program, with another $4-billion to be added later.

President George W. Bush will speak about his administration's plan to avoid collapse of the U.S. auto industry at 9 a.m. (ET) at the White House.

The Bush administration had been weighing several approaches to assisting the automakers, including short-term loans. Administration officials said Thursday they were considering an “orderly” bankruptcy process for the troubled companies.

The Bush administration is convinced the ailing economy could not withstand the demise of Detroit's Big Three.

A decision on how to help them is needed quickly as the carmakers suffer from their slowest sales in 26 years and dwindling operating cash.

[Intrepidation]

Someone found a brain today.

So let me get this straight: The Bush administration has decided to use the TARP fund to help teh automakers, as per their original request. Everything else until this point has just been one big drama, for show. Idiots.

At least they're getting it.

[smk4565]

It sounds as if there aren't too many requirements and conditions tied to this, aside from becoming viable and having a positive net present value on March 31. It is doubtful that they will reorganize in 3 months, and be able to prove viability. I think in March we'll be having the same discussion we had this month, and GM and Chrysler will be looking for another loan. They should be forced to bankruptcy on March 31 if they haven't fixed the problems by then. If they just keep kicking the can down the road, they will never fix the true problems.

[hyperv6]

Someone found a brain today.

So let me get this straight: The Bush administration has decided to use the TARP fund to help teh automakers, as per their original request. Everything else until this point has just been one big drama, for show. Idiots.

At least they're getting it.

Did you expect anything less?

The big issue is GM needs to get to 2011 and to do that it needs to sell cars. In a time where Toyota will show a loss the odds og GM getting car slaes back soon are not good.

Time to start making the needed cuts and stick to it. Time to use the economy excuse as the reason to do many of the things needed to have been done 20 years ago.

This is not a time for GM to be conservitive as they always are. It is time to make the needed painful moves.

[CARBIZ]

It sounds as if there aren't too many requirements and conditions tied to this, aside from becoming viable and having a positive net present value on March 31. It is doubtful that they will reorganize in 3 months, and be able to prove viability. I think in March we'll be having the same discussion we had this month, and GM and Chrysler will be looking for another loan. They should be forced to bankruptcy on March 31 if they haven't fixed the problems by then. If they just keep kicking the can down the road, they will never fix the true problems.

This has always been about buying time. Both GM and Ford are well on track to 'fixing' their problems, but the economy has knocked 6 million units out of 2008's sales. How could anyone be expected to survive that? Or have you not heard that Japan Inc is having troubles back home, too?

Despite Washington's (and Ottawa) posturing, this has always been about whether or not North America wants a viable auto industry going forward. Japanese transplants are not a viable auto industry: they are window dressing; they are insurance against future trade wars; they are tokens in the PR war of who is American and who is not.

I followed the electronics wars of the late '60s and the parallels are scary. We are far too complacent about what our trading partners are up to. Just ask any former executives of Zenith or Philco or Magnavox.

[smk4565]

Ford is on their way to fixing problems, they don't need a loan right now and might get $6 billion for Volvo and can keep their focus on the Ford brand. If Ford could shed the legacy costs and get the pay rate (including health care) equal to the foreign transplants they would be in good shape. GM has a lot more problems than Ford right now.

[Robert Hall]

This is an interesting development. I'm a long time Bush hater, but it is nice to see he recognizes the importance of the auto industry and is doing something, while the scum in the Senate from his own party did nothing..

[Intrepidation]

He's got to do something to make himself look like he's not a complete failure.

[Z-06]

Ford is on their way to fixing problems, they don't need a loan right now and might get $6 billion for Volvo and can keep their focus on the Ford brand. If Ford could shed the legacy costs and get the pay rate (including health care) equal to the foreign transplants they would be in good shape. GM has a lot more problems than Ford right now.

Dude get your facts checked. Go to GM.com - click investors relations - click quarterly reports for 2007. You will see how restructuring got them profits for Q1 and Q2. GM's plan was working till the market hit the stone on their head. Ford is just better because it is smaller and got some good change this year by selling LR and Jaguar.

Edited December 19, 2008 by smallchevy

[Intrepidation]

smk? Check facts? Surely you jest.

[hyperv6]

Ford is on their way to fixing problems, they don't need a loan right now and might get $6 billion for Volvo and can keep their focus on the Ford brand. If Ford could shed the legacy costs and get the pay rate (including health care) equal to the foreign transplants they would be in good shape. GM has a lot more problems than Ford right now.

The truth is Ford just got their 20 billion dollar loan 2 years ago because they were in worse shape after Bill Ford got done playing.

They put their plants up for collateral.

[Chicagoland]

GM is going to have to use some of the Billions to close redundant dealers, there are just too many competing for the same pickup, mid size and compact car buyers. Some compare G5 to Cobalt or GMC vs. Chevy p/up and get the one that is $50 less.

No need for Chevy to have some dealers a few miles apart in many suburbs.

[turbo200]

it'll be interesting to see how the requirements work out for the loans. i believe they have to get their balance sheet to the positive, which means clearing over $70billion of debt, by March 31st, or the loans will be canceled.

obviously, I am happy to see GM live to survive another day. the purpose of the loans within GM appears to be to keep the lights on and weather this tough economic time for the auto business. somehow, I believe this will not be enough.

watching the press conference I get the feeling that the national press corps, and the casual observer of the public at large is going to get the same laissez faire feeling from the leaders at GM that has seemed consistent over the years. though I want to beleive in them and I do see there is a lot of good work going on, I wish they could give more concrete answers or at least appear a lot more serious on the issues that we see as the fundamental problem. on the UAW/wage competitve question it was a wait and see answer. on the sale and redefinition of the brands it was a wait and see approach. i have a lot of faith in this company, I hope they work it out is all I can say. from their own presentations though, it's easy to see why the national media slams them in my book. they in no way compare to the leaders from JP Morgan for example.......on too many fronts they seem inadequately prepared or comprehensive.....but that's okay, we will wait and see....yet again

[network engineer]

it'll be interesting to see how the requirements work out for the loans. i believe they have to get their balance sheet to the positive, which means clearing over $70billion of debt, by March 31st, or the loans will be canceled.

obviously, I am happy to see GM live to survive another day. the purpose of the loans within GM appears to be to keep the lights on and weather this tough economic time for the auto business. somehow, I believe this will not be enough.

You're right. I think the total cost could be closer to $100 Billion. They'll just take the money out of our hands of course. The plan has some nice stips though.

They must:

Demonstrate financial viability by March 31st or pay the loans back (If they can't it's CH11 then)

Open their books to the manufacturers and allow the government to block transactions over $100 Million

Limit executive pay and eliminate bonuses.

No dividends on stock until the government has been paid back.

Pay the unions retirement funds with 50% equity(stock)

Eliminate paying union workers when they're not working. So if GM idles a plant for 30 days because of excess capacity, no one gets paid. And no

jobs bank.

And have union costs and rules competitive with foreign automakers by Dec 31, 2009. (the sticking point for the Senate)

Oh and the government says they will examine the financials of the companies. Which must mean they haven't already?! So we're pitching nearly $20 Billion into GM and don't know how deep the hole their in is?! What?!

Edited December 19, 2008 by network engineer

[turbo200]

i'm gonna guess it's that they will assume responsibility of examining financials going forward...since technically we have a stake in them now. i've been reading plenty of articles about how the administration was going over the 'books', financials, all over the past two weeks. you're right, those are great stipulations.

[thenewdamage]

I followed the electronics wars of the late '60s and the parallels are scary. We are far too complacent about what our trading partners are up to. Just ask any former executives of Zenith or Philco or Magnavox.

As a kid back in the 60's I heard people saying that 'sure, Japan is building cheap radios but they cant build decent televisions'. Then it became cars, then home appliances, then computers, now I hear that they cant design decent software.

Japan is a lot like Microsoft in that regard. They arent that strong at break through research (yet). But they are hell on wheels at refining other peoples work.

I talked to a Japanese engineer for NEC years ago about copyrights. He said that Americans would copyright a 'car'. But the Japanese would copyright a 'blue car' then a 'red car' then a 'green car' etc. I have always remembered that and how it shows a very different focus in thought processes.

[carman21]

We'll I know that paying for liposuction(superficial restructuring of GM or Chrysler) for a patient without removing their brain tumor(the UAW) is a futile task.

[buyacargetacheck]

This is good news for millions of workers during the holidays, but it's just a stopgap. Consider this:

There are many parallels between the American economy in 2007-2008 and the Japanese economy in 1990-1991. Both were facing massive asset deflation pressures, a housing crash, large banking failures, widespread lack of confidence in the financial system and a hope that 0% short term interest rates would remedy the economy.

Domestic Japanese auto sales declined for most of the 1990s and are still down over 30% from the 1990 peak (source: Japan Automobile Manufacturers Association):

1987 6,018,399

1988 6,721,004

1989 7,256,673

1990 7,777,493

1991 7,524,759

1992 6,959,073

1993 6,467,279

1994 6,526,696

1995 6,865,034

1996 7,077,745

1997 6,725,026

1998 5,879,425

1999 5,861,216

2000 5,963,042

2001 5,906,471

2002 5,792,093

2003 5,828,178

2004 5,853,382

2005 5,852,068

2006 5,739,506

2007: 5,353,645

2008: 5,110,000 (estimated)

2009: 4,860,000 (projected)

A 30% decline from our peak of around 17M light vehicle sales puts sales in and around the 12M range for years to come. At that level (or less) just how many car factories and manufacturers can make money and survive?

Edited December 19, 2008 by buyacargetacheck

[97regalGS]

I stumbled across this. It's an interesting read and there are articles that go back to June.

http://www.christonium.com/automotive/ItemID=12296890443662

here's a snippet.

December 19, 2008

With GM and Chrysler in dire need of cash, President Bush announced a little after 9:00 this morning a bailout for both auto companies. The President said given the current state of the auto industry a disorderly failure was not an option given the potential fallout to the already fragile US economy. Under normal economic conditions, the President would have preferred a Chapter 11 bankruptcy restructuring.

Blame was also placed on Congress for not acting earlier and as a result the President will allocate money from the Troubled Asset Relief Program (TARP) to prevent a collapse of the industry.

The auto companies will get 3-months to develop and present plans to restructure. If not, the loans will be called and the companies will face certain bankruptcy............

Entire contents © 2008 The Automotive Lyceum All Rights Reserved

Edited December 19, 2008 by 97regalGS

[CARBIZ]

As a kid back in the 60's I heard people saying that 'sure, Japan is building cheap radios but they cant build decent televisions'. Then it became cars, then home appliances, then computers, now I hear that they cant design decent software.

Japan is a lot like Microsoft in that regard. They arent that strong at break through research (yet). But they are hell on wheels at refining other peoples work.

I talked to a Japanese engineer for NEC years ago about copyrights. He said that Americans would copyright a 'car'. But the Japanese would copyright a 'blue car' then a 'red car' then a 'green car' etc. I have always remembered that and how it shows a very different focus in thought processes.

Not quite what I meant. Hitachi, Sanyo and others are guilty of dumping televisions on our shores in the '60s and '70s until one by one all the American names were gone, except Zenith which held out until '01 but then went bankrupt and was absorbed by LG. Where is all that technology now? Where are all those patents? Who owns them? We won't be seeing any American made TVs any time again, will we?

That's okay, the Pentagon can always order their screens from Korea.

[network engineer]

I keep hearing about the millions of jobs this will save, but if I'm not mistaken, the industry is expected to continue downward in sales. If that happens more and more autoworkers are going to get let go. So this is more like putting a tourniquet on. You're going to lose the limb but keep the victim alive right? GM will shed thousands of jobs but hopefully come out smaller and profitable.

[enzl]

I keep hearing about the millions of jobs this will save, but if I'm not mistaken, the industry is expected to continue downward in sales. If that happens more and more autoworkers are going to get let go. So this is more like putting a tourniquet on. You're going to lose the limb but keep the victim alive right? GM will shed thousands of jobs but hopefully come out smaller and profitable.

Yes.

If US market 'recovers' to 14m vehicles/yr., you still need to take the capacity for 2-3million cars out of the system---a majority of those will be Domestic nameplates, although there's sure to be others that feel some pain.

Even Japan's market has shrunk precipitously---as well as a Euro slow down---mean they'll be lots of blood shed in the next 12-18 months.

[ZL-1]

becoming viable and having a positive net present value on March 31

It's very easy to do using just a few spreadsheets. The problems start when reality sinks in, LOL.

[Teh Ricer Civic!]

Wow, a band-aid for a deep cut.

How effective. I would rather have seen an organized bankruptcy.

[ZL-1]

These should be, in essence, the bridge loans they asked for. It's the money they need to survive until a new Administration is in place and they can negotiate real restructuring finance.

[ShadowDog]

A government loan by the Bush administration has little to do with the care for the auto industry, but of the economic impact to the country to be without a major industry that provides income to hundreds of thousands of citizens. I don't believe this loan will provide any measure to make a dent in the future viability of the company; however, the stipulations imposed upon the company empower them to make changes that would normally be inappropriate to the union and the creditors. In a nutshell, it provides an excuse.

"Tough times call for tough measures. We're 'forced' to make these changes as a condition of our loan agreement. You have a problem with that? Take it up with the government."

Do not mistake this loan as a patriotic nod, one coming from kindness or a pat on the back to say, 'We give a crap about your cars.' No, this is done in the interest of the economy and politics.

I should also point out that the $3B+ the Canadian government and the province of Ontario are kicking in to the Canadian industry has been specifically said to assist in preserving income-stream and the economy.

Edited December 19, 2008 by ShadowDog

[Oracle of Delphi]

Really? Who knew??? :rotflmao:

[FUTURE_OF_GM]

on the UAW/wage competitve question it was a wait and see answer.

I hope not...

on the sale and redefinition of the brands it was a wait and see approach.

I think this is a wise move.

Gm's brands are their best asset and if they get to a point in a year or two where they can begin to utilize all of them again, then it'll make for a stronger company.

i have a lot of faith in this company, I hope they work it out is all I can say. from their own presentations though, it's easy to see why the national media slams them in my book. they in no way compare to the leaders from JP Morgan for example.......on too many fronts they seem inadequately prepared or comprehensive.....but that's okay, we will wait and see....yet again

I agree...

They do seem clueless most of the time. I don't know if that's actually the case or an intentional front.

[Robert Hall]

I saw Rick & Fritz on CSPAN this afternoon... was interesting, they talked about the timeline over the last couple of days when talked w/ the White House.

[enzl]

This was the world most expensive punt.

I really hope GM & Chrysler can do something with their second chance (and third, come the spring.)

Anyone here genuinely confident that those involved in guiding this--between management & the government--can make this work?

When I think transformational abilities, the Federal Gov't and/or Auto execs aren't the first people that spring to mind.

[network engineer]

This was the world most expensive punt.

I really hope GM & Chrysler can do something with their second chance (and third, come the spring.)

Anyone here genuinely confident that those involved in guiding this--between management & the government--can make this work?

When I think transformational abilities, the Federal Gov't and/or Auto execs aren't the first people that spring to mind.

I am confident this plan will work as designed. I believe it's designed for them to fail. What they must achieve in 3 months is very difficult, especially for a slow moving company like GM. The UAW has promised to fight any wage concessions. The debtors will not want to swap for equity in a company that might not be here in 6 months. And GM hasn't been profitable for 4 years and have been increasing their loses every year. Now they're going to magically produce a plan in 3 months that will get them back to profitability? I'm pretty sure this plan is designed for them to fail and be forced into an organized bankruptcy. Mark my words, GM will file bankruptcy before the summer and end up better for it.

[evok]

I am confident this plan will work as designed. I believe it's designed for them to fail. What they must achieve in 3 months is very difficult, especially for a slow moving company like GM. The UAW has promised to fight any wage concessions. The debtors will not want to swap for equity in a company that might not be here in 6 months. And GM hasn't been profitable for 4 years and have been increasing their loses every year. Now they're going to magically produce a plan in 3 months that will get them back to profitability? I'm pretty sure this plan is designed for them to fail and be forced into an organized bankruptcy. Mark my words, GM will file bankruptcy before the summer and end up better for it.

I do not think you understand the situation.

First off Chrysler and GM are bankrupt today. Chrysler is valued at nothing by Damiler and GM's stock price is trading accordingly. In addition GM's debt has been rated at junk since 2005.

For all practical purposes GM and Chrysler are about to enter into bankruptcy proceeding with the government providing the DIP financing.

GM will enter into the equivalent of Chapter 11 restructuring with Chrysler entering Chapter 7 liquidation.

In GM's case, the loan conditions place by the Treasury are reasonable and very consistent with what a bankrupcy judge would impose on suppliers, bond holders and labor. The value of current share holders will be wiped out as GM is force to dilute the shares for the above in addition to the warrants to be issued to the government.

Also the loan money allocated to GM is consistent with the money they requested in their plan submitted to congress earlier in the month. I read the plan and believe it is reasonable and will get them through 2009.

If GM cannot meet the conditions spelled out, they will enter Chapter 7 liquidation and the union, bond holders and money owed to the suppliers will be wiped out.

As far as GM requiring additional money well that is possible and dependent on the state of the economy. That goes for every car company right now.

More money was not put into the pot because the Treasury I believe is out of TARP money and congress needs to authorize the remaining $350 billion. That will not happen until Obama is sworn it.

Chrysler? As I said in an earlier thread is done for.

BTW on page one of this thread - regal posted a link to a good series of articles on what has been happening.

Edited December 20, 2008 by evok

[FUTURE_OF_GM]

Chrysler? As I said in an earlier thread is done for.

And on that note... I hate to say it, but mission accomplished by the anti-Detroiters. Ford is now virtually non-existant and will probably be liquidated in 5-10 years. Chrysler IS being liquidated and GM is likely to be liquidated next year.

Wow. Looks like the media tirade worked.

[smk4565]

Wow, a band-aid for a deep cut.

How effective. I would rather have seen an organized bankruptcy.

Agreed. This doesn't solve the problem, it just delays the day of reckoning.

What if they haven't become "viable" by March 31st and the government recalls the loan, there is no way they will be able to pay it back then.

[smk4565]

I agree Chrysler is done for and headed to Chapter 7 liquidation. Wagoner even admitted that in 2007 GM spent $8 billion on labor costs, while Toyota spent $4.5 billion. UAW contract is a problem that needs torn up.

[haypops]

What if they haven't become "viable" by March 31st and the government recalls the loan, there is no way they will be able to pay it back then.

Isn't the March 31 deadline subject to(and likely to) change by the next congress and administration?

[network engineer]

I do not think you understand the situation.

I do and I understand what you're saying. The bailout proposal is essentially a government funded bankruptcy. It's not going to work though. GM will not get the concessions it needs and they will need to file ch 11 in order to get their contracts rewritten. I believe this will happen to GM in March. I believe that Chrysler will file chapter 7 at that point. I also believe the administration is aware of this and planned this regardless of what they've said.

Actions speak louder than words.

[Teh Ricer Civic!]

Isn't the March 31 deadline subject to(and likely to) change by the next congress and administration?

You think Obama would do more? What do you want him to do? Nationalize the companies?

[haypops]

You think Obama would do more? What do you want him to do? Nationalize the companies?

Sure he would do more; specifically not pull the plug on GM if they only "come close" to published goals.

[evok]

I do and I understand what you're saying. The bailout proposal is essentially a government funded bankruptcy. It's not going to work though. GM will not get the concessions it needs and they will need to file ch 11 in order to get their contracts rewritten. I believe this will happen to GM in March. I believe that Chrysler will file chapter 7 at that point. I also believe the administration is aware of this and planned this regardless of what they've said.

Actions speak louder than words.

No - you do not get it as GM is finished otherwise. The UAW and GM will live or die accordingly. In order for GM to file Chapter 11 they need a DIP and there is no one who will provide GM the money. The banks are not exactly lending money right now.

First, IIRC 2003 or 2004 bond offering was convertible to equity. Currently the value of the bonds are trading 30 vents on a dollar. Formally transfering this unsecured debt to equity should be doable at 2/3rd.

Second, GM is about to enter into a legal agreement with the Federal government with either the head of the Treasury or some car czar in charge. Beyond any rhetoric, the UAW gets it.

With the unemployment rate approaching 10%, Obama would not side with the UAW and attempt last minute changes in the agreement as labor rate and legacy obligation paridy with the transplants is key for GMs survival. Insstead of waiting until 2010, it has to happen now. GM does not have the cash for the healthcare VEBA. Personally I believe at least 1/2 of GM's obligation backed by stock is very generous of the government. GM goes tits up the UAW gets nothing.

Do you really think the UAW wants to walk into court and present their case to a bankruptcy judge? They do not have a leg to stand on. They are well aware of this because they see what happened over at Delphi. Delphi is still in bankrupcy over 3 years later because they cannot get the financing they need and may never get out of it.

You can continue to believe what you want but I assure you, you do not grasp the nuances of the situation.

[network engineer]

No - you do not get it as GM is finished otherwise. The UAW and GM will live or die accordingly. In order for GM to file Chapter 11 they need a DIP and there is no one who will provide GM the money. The banks are not exactly lending money right now.

The federal government would be very likely to step in with the DIP financing. This was even one of the options the President was considering. The next 3 months will give the automakers adequate time to organize their affairs. They can either turn themselves around or be prepared for a pre packaged ch 11. Why wouldn't we provide the DIP financing?

[smk4565]

Bottom line is the date on the bankruptcy filing will read March 30, 2009 rather than December 30, 2008.

[evok]

The federal government would be very likely to step in with the DIP financing.

They just did!

This (chapter 11) was even one of the options the President was considering.

Read between the line and factor in additional statements Bush made.

"Under normal economic circumstances." I.e. no available credit, the economy in the Great Recession.

The private sector would provide the DIP and the Judiciary branch of the Federal government would oversee the restructuring under a normal Chapter 11.

The next 3 months will give the automakers adequate time to organize their affairs. They can either turn themselves around or be prepared for a pre packaged ch 11.

They automaker just entered chapter 11 "in practice" with the executive branch of the government its bankruptcy judge, setting the terms. The only difference is the automakers do not face the stigma of being in "bankruptcy" since the public does not understand the word.

Why wouldn't we provide the DIP financing?

The executive branch of the federal government just did under its TARP authority.

If the conditions outlined in the agreement are not met, the government would call in the loans with the next likely step being Chapter 7 (In practice) as there will be no one else to step in to provide the DIP.

I will steal a banking term as the government is "the lender of last resort".

Edited December 21, 2008 by evok

[evok]

Another reason why a GM bankruptcy is not a reasonable option, their debt is insured by CDSs. Someone (banks) would be on the hook to cover billions of GMs debt. Just think what Lehman did to the financial markets when it tumbled. We are all still paying for that.

NEW YORK, Dec 19 (Reuters) - The cost to insure the debt of General Motors Corp (GM.N) and Ford Motor Co (F.N) and their finance units fell after President George W. Bush announced a $17.4 billion government loan program on Friday to bail out ailing U.S. carmakers.

Credit default swaps insuring GM's debt fell to an upfront cost of 76 percent the sum insured for five years, in addition to annual payments of 5 percent, from 81 percent upfront on Thursday, according to CMA DataVision.

That means it costs $7.6 million paid upfront to insure $10 million in debt, in addition to payments of $500,000 per year.

Ford's credit default swaps also fell to 68 percent upfront, from 70 percent on Thursday, CMA data shows.

GMAC LLC's credit default swaps dropped to 46 percent upfront from 49 percent on Thursday, and Ford Motor Credit Co fell to 35 percent upfront from 37 percent, CMA said.

(Reporting by Karen Brettell; Editing by Chizu Nomiyama)

http://www.reuters.com/article/marketsNews...20081219?rpc=44

Edited December 21, 2008 by evok

[network engineer]

They just did!

Read between the line and factor in additional statements Bush made.

"Under normal economic circumstances." I.e. no available credit, the economy in the Great Recession.

The private sector would provide the DIP and the Judiciary branch of the Federal government would oversee the restructuring under a normal Chapter 11.

They automaker just entered chapter 11 "in practice" with the executive branch of the government its bankruptcy judge, setting the terms. The only difference is the automakers do not face the stigma of being in "bankruptcy" since the public does not understand the word.

The executive branch of the federal government just did under its TARP authority.

If the conditions outlined in the agreement are not met, the government would call in the loans with the next likely step being Chapter 7 (In practice) as there will be no one else to step in to provide the DIP.

I will steal a banking term as the government is "the lender of last resort".

You're assuming that GM will meet the terms the government has set. We shall see. After watching GM for the last 8 years, I don't believe they're going to do it. The UAW is going to stick to their guns, now more than ever. The government has no authority to rewrite the contract for them. And I simply don't see people with INSURED debt on GM swapping out their insured money for equity that could become worth less than their debt or potentially nothing.

[haypops]

You're assuming that GM will meet the terms the government has set.

Are you assuming the government won't change those requirements if necessary. PE Obama just announced he was increasing the jobs cretion/retention goal.

[evok]

After watching GM for the last 8 years, I don't believe they're going to do it.

That is the significant difference between your "opinion" and my "insight".

Edited December 22, 2008 by evok

[network engineer]

Are you assuming the government won't change those requirements if necessary. PE Obama just announced he was increasing the jobs cretion/retention goal.

Yes. I am assuming that the government will be concerned about public reaction. Most of the people I've talked to think that the $14B is it, and we won't need more money. They're surprised to find out that the companies will blow though this money by March and then need billions more. I think that much of the public will be enraged if we have to continue pumping money into this company. Especially after the government has proved they don't know what they're doing in the financial industry.

[haypops]

Yes. I am assuming that the government will be concerned about public reaction. Most of the people I've talked to think that the $14B is it, and we won't need more money. They're surprised to find out that the companies will blow though this money by March and then need billions more. I think that much of the public will be enraged if we have to continue pumping money into this company. Especially after the government has proved they don't know what they're doing in the financial industry.

I assume that GM won't "miss by a mile". Of course if the economy sours even more, then adjustments in expectations will need to happen. Leadership may be necessary to "move" the public. If GM makes considerable progress but doesn't fully meet requirements, it should be no big deal.

[evok]

I assume that GM won't "miss by a mile". Of course if the economy sours even more, then adjustments in expectations will need to happen. Leadership may be necessary to "move" the public. If GM makes considerable progress but doesn't fully meet requirements, it should be no big deal.

On or before March 31, 2009, the Company shall submit to the President’s

Designee a written certification and report detailing the progress made by the

Company and its subsidiaries in implementing the Restructuring Plan. The report

shall identify any deviations from the Restructuring Targets and explain the

rationale for these deviations, including an explanation of why such deviations do

not jeopardize the Borrower’s long-term viability. The report shall also include

evidence satisfactory to the President’s Designee that the following events have

occurred:

1. Approval of the Labor Modifications by the members of the Unions;

2. Receipt of all necessary approvals of the VEBA Modifications other than

regulatory and judicial approvals, provided that the Company must have filed

and be diligently prosecuting applications for any necessary regulatory and

judicial approvals; and

3. The commencement of an exchange offer to implement the Bond Exchange.

The President’s Designee will review the Restructuring Plan Report and other

materials submitted by the Company to determine whether the Company and its

subsidiaries have taken all steps necessary to achieve and sustain the long-term

viability, international competitiveness and energy efficiency of the Company

and its subsidiaries in accordance with its Restructuring Plan. If the President’s

Designee determines that these standards have been met, he will so certify (the

“Plan Completion Certification”).