How are they going to save General Motors?

Rumors are abounding that the Obama Administration is telling General Motors to prepare for bankruptcy filing by June 1. The goal is to prepare for a fast “surgical” bankruptcy. General Motors, which has been granted $13.4 billion in federal aid, insists that a quick restructuring is necessary so its image and sales are not damaged permanently.

The driver for this bankruptcy strategy is:
1. The $28 billion in debt to bondholders. So, this strategy is laying the groundwork at assuring a General Motors bankruptcy filing is ready should the company be unable to reach agreement with bondholders.
2. The union agreement that seeming can’t be changed. In the past, the United

Auto Workers union has balked at granting concessions without sacrifices from bondholders. This may be the key to opening the door.

The real problem with this strategy is that Obama was elected with strong backing from the auto workers union. Now, Obama may be seen by union members as siding with management rather than labor. Does he want this image? Time will tell.

One plan the rumor included is to create a new company that would buy the “good” assets of General Motors immediately after the carmaker files for bankruptcy. What those “good” assets are has not been identified. But, most likely the good assets are Cadillac, Chevrolet, Buick and GMC. The bad assets could be Hummer, Pontiac and Saturn. They hope to get an offer soon to sell the Saturn division.

Less desirable assets, including unwanted brands, factories and health care obligations, would be left in the old company, which could be liquidated over several years. What a strategy. Sounds like this strategy was created in a dream.

General Motors' European operations are on the block to sell. Opel/Vauxhall is said to be available for $650 million. That's what General Motors paid for it originally. And, they give away Saab free if someone will take it. Otherwise it's in bankruptcy. Their China operations are partnered with Fiat and SAIC. They'll want to move this as fast as possible, even though China is the future in the car market. General Motors can't afford to be everywhere any more.

Another downfall associated with this strategy is what effect it will have on suppliers. Some with loose out because of debt in the bankruptcy and some will lose out because their customer will disappear. It’s a big risk for the suppliers.

Reaction to all this – some say this will allow GM to ditch their debt, financially destroying their creditors in the process; they will emerge as a new company with the same old cars that people won’t buy in sufficient quantities to prevent the very same debt cycle from reoccurring. I say, off with their heads.

Others say it’s an excellent idea. The UAW’s membership is getting exactly what they deserve for betraying the Industrial Unionism for the sake of craft unionism and supporting Obama and his financier pay masters. Let them rot!

General opinion - Government and Secured Bond holders will get 100 cents on the dollar. Pensions and Unsecured Bond Holders will get ~30 cents on the dollar. And stockholders will get ZERO.