Personally, I believe the president when he says he never wanted to be in the car business. I fully expect that the White House will unwind taxpayers from stakes in car companies long before we are completely and safely out of Uncle Sam’s positions in banks and other financial services companies.
Congress on the other hand, these guys scare me.
The great strength of Congress is that local and regional representations may be made concerning public policy. That parochial nature of the legislature is also its greatest weakness. There are some big picture things that we need members of Congress to quash their urges to consider merely on the merits of “How does this affect my district?”
Today the Senate Commerce Committee will hold hearings on U.S. auto dealers affected by right-sizing efforts underway by Chrysler and GM. Autodealers will claim something terrible has happened and Senators – especially those whose campaigns are partially funded by fat cat car salesmen – will wring their hands and agree.
If the politics stops here with a show of indignation and gnashing of teeth, we’ll be O.K. If the show gets a run in the House, then the trouble starts. Members of the House, with their ultra-parochial world view could end up with legislation attempting to reverse dealership closings by the automakers, or worse yet, extending dealers some sort of bailout. The bailouts need to remain at the macro level of the economy. All we need is 435 bailout plans for this and for that.
Reuters reports ahead of today’s hearing what the national organization representing car dealers will say:
General Motors Corp and Chrysler LLC, both bankrupt, will try on Wednesday to ease congressional concern, and in some cases anger, over their plans to slash more than 2,400 dealerships.
Members of the Senate Commerce Committee plan to grill GM Chief Executive Fritz Henderson and Chrysler President Jim Press about the lone aspect of restructuring that has triggered a broad response from Congress since dealers are nationwide.
“Rapid dealer reductions increase unemployment, threaten communities and decrease state and local tax revenue without any material corresponding decrease in an automaker’s costs,” said John McEleney, chairman of the National Automobile Dealers Association who sells vehicles made by GM, Toyota Motor Corp and Hyundai Motor Co in Iowa.
We can’t dispute what McEleney says about the economic impact of auto dealers. I’ve heard reported that the average employment of a new car dealership is around 50 to 60. The point behind the pain being felt by anyone connected with the U.S. auto industry today – from boardrooms to union halls – is that the whole system was bloated. Everyone is taking a hit. If the industry is to regain any semblance of health, everyone needs to take a hit.
Here’s hoping Congress doesn’t try to micromanage the U.S. government’s temporary investment in the auto industry. We elected the president to be the executive and too many competing interests pushing for setting aside the hard choices for interest groups will just water down the whole enterprise. What Congress should be doing is oversight. The auto dealers shouldn’t be on the Hill today, the Administration and the top management of GM should be on the Hill today explaining what this all looks like in six, twelve and 24 months.
For the first time, Henderson said the new GM will accept 4,100 dealer contracts out of 6,000, leaving 2,100 in the old company. GM had sent letters earlier this month to 1,100 dealers, saying their contracts would be ended by late next year.
Henderson said the new GM would sign “deferred termination agreements” with most of the dealers targeted for closure, giving them up to 17 months’ notice, to ease their hardship.
The plan will allow “thousands of dealerships to survive, while providing for an orderly wind-down of those dealerships not being retained,” Henderson said. “The alternative to the exercise of sound business judgment is that the Company would liquidate — and all dealerships would cease to be GM dealerships.”
Frankly, if a company goes bankrupt, I don’t see why the stock isn’t just completely finished. GM’s stock wasn’t finished today though — trading at one point at just over a dollar on the NYSE.
This great article from the Los Angeles Times lays out the details of why stocks trade after a bankruptcy. Essentially it has to do with short sellers needing to cover positions and those unfortunate to be holding for the really long haul needing a place to sell their shares. Who in the hell buys those shares?
At any rate, GM, formerly ticker symbol “GM” on the NYSE, will trade beginning June 2 as GMGMQ on the “penny” stock market at pinksheets.com.
Author of Why GM Matters, William Holstein, took questions today over at the Washington Post. Check out the transcript. Here’s what he had to say about GM’s shareholders:
Washington, D.C.: What happens to GM Stockholders now? I’ve seen a lot of info about bondholders, but that’s not the same (or is it)?
William Holstein: GM stockholders are expected to be wiped out. You get nothing for your shares. They become collector’s items.
The Obama Administration released the following fact sheet at 10 p.m. Sunday night regarding the path forward for GM and the government as 60% owner.
It’s being reported that GM’s bankruptcy filing will occur Monday morning at 8 o’clock. MarketWatch says tonight that the feds will support the company with $30 billion through a 60 to 90 day bankruptcy period.
What I found most interesting in tonight’s story at MarketWatch was this:
As a result of this restructuring, GM will lower its break-even point to sales of 10 million cars per year. Before the restructuring, GM needed to sell about 16 million car sales a year to turn a profit.
The way I read that, GM is either downsizing by about half or cutting its costs by about that much. When you hear all the millions and billions roiling around this story, you sometimes lose the scale of things. Ten million cars per year to break even versus 16 million is a number I understand.
Of course, GM is downsizing and cutting costs. But that number brings it home — GM, for the time being will be a smaller footprint on the trail of the U.S. economy. What’s to become of that old saw, “As GM goes, so goes the nation?”
Combined, GM and Chrysler have over 9,000 franchised auto dealerships. If the information below pans out, that’s a third of their combined franchises to be shuttered …
General Motors Corp and Chrysler aim to drop as many as 3,000 U.S. dealers and are expected to begin sending notifications as early as Thursday, three people briefed on the still developing plans said.
GM, facing a U.S. government-imposed deadline of June 1 to restructure or file for bankruptcy, is expected to send termination notices to up to 2,000 dealers — a third of its roughly 6,000 U.S. dealers, the sources told Reuters.
Chrysler, which filed for bankruptcy on April 30, will also tell up to 1,000 of its 3,189 U.S. dealers it is terminating their franchise agreements, according to the sources who asked not to be identified because the controversial closure plans have not been yet announced.
Chrysler – New Lease on Life
(Source: White House Press Office)
THE PRESIDENT: Hey, guys. I know you haven’t seen enough of me lately, so — (laughter.)
One month ago, I spoke about some of the problems that have led to the crisis in the auto industry, and about what would be required to ensure that General Motors and Chrysler emerged from their current troubles stronger and more competitive. My team will continue working with General Motors as they strengthen their business plan and move towards restructuring that’s consistent with the principles that I’ve laid out.
And today, after consulting with my Auto Task Force, I can report that the necessary steps have been taken to give one of America’s most storied automakers, Chrysler, a new lease on life.
President Obama: Please, be seated. Before we begin tonight, I just want to provide everyone with a few brief updates on some of the challenges we’re dealing with right now.
First, we are continuing to closely monitor the emergency cases of the H1N1 flu virus throughout the United States. As I said this morning, this is obviously a very serious situation, and every American should know that their entire government is taking the utmost precautions and preparations.
Our public health officials have recommended that schools with confirmed or suspected cases of this flu strongly consider temporarily closing. And if more schools are forced to close, we’ve recommended that both parents and businesses think about contingency plans if their children do have to stay home.
(Source: NBC’s Meet the Press)
MR. DAVID GREGORY: … (Intro Deleted) Can General Motors be saved? With us, the new CEO, Fritz Henderson. … But first, we’re joined live from Detroit this morning by the new CEO of General Motors, Fritz Henderson.
Welcome to MEET THE PRESS.
MR. FRITZ HENDERSON: Good morning, David.
MR. GREGORY: The administration’s auto task force tasked General Motors with the idea of coming up with a viability plan. The company did that and the White House rejected it flatly. There were some stinging rebukes embedded in that report. Here’s just a sampling: “General Motors’ plan is not viable at is, at is–as it is currently structured. The assumptions in GM’s business plan are too optimistic. Progress has been far too slow.” Pretty harsh reaction from the Obama White House. How did the company get it wrong?
From NYT live blogging of Fritz Henderson, GM’s new CEO, press conference this a.m.:
In his strongest language of the news conference, Mr. Henderson says bankruptcy is now “more probable” for G.M. than in the past. Mr. Henderson said circumstances may drive G.M. into bankruptcy “as the strategy that we need to deploy.” He said, “If I didn’t want to be part of a bankruptcy, I would have said, no, I don’t want to be part of it.” He said he was asked to do the job and make G.M. successful, whatever it takes.
Full Text: President Barack Obama Statement on GM & Chrysler Bailout Status – Auto Task Force – March 30
(Source: White House Press Office)
Good morning, everybody.
One of the challenges we’ve confronted from the beginning of this administration is what to do with the state of the struggling auto industry. In recent months, my Auto Task Force has been reviewing requests by General Motors and Chrysler for additional government assistance, as well as plans developed by each of these companies to restructure, to modernize, and to make themselves more competitive. Our evaluation is now complete. But before I lay out what needs to be done going forward, I want to say a few words about where we are and what led us to this point.
Great graphic from the New York Times. Go read the story, U.S. Moves to Overhaul Ailing Automakers.
I guess we’ll get more of the story tomorrow, but tonight from Politico:
The Obama administration asked Rick Wagoner, the chairman and CEO of General Motors, to step down and he agreed, a White House official said.
On Monday, President Barack Obama is to unveil his plans for the auto industry, including a response to a request for additional funds by GM and Chrysler. The plan is based on recommendations from the Presidential Task Force on the Auto Industry, headed by the Treasury Department.
The White House confirmed Wagoner was leaving at the government’s behest after The Associated Press reported his immediate departure, without giving a reason.
The New York Times is reporting that on Monday the Obama Administration will announce more aid to two of the Big Three, GM & Chrysler. Apparently strings will be attached in that the automakers are being told to press the gas with bondholders and unions to come to agreements which will forestall sending either one of the two companies into bankruptcy. If either company goes into bankruptcy protection, pensioners healthcare gone and bondholders once AAA-rated investments will be worth nothing.