By Chris Haak
General Motors Corporation, once the world’s largest automaker and (at least for the time being) the largest automaker in the US, filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Manhattan. (See a PDF of the document here.) Aside from the obviously humbling news for GM – a company that had been the world’s dominant automaker for much of the past century – the scope of the bankruptcy filing is enormous. It is the third-largest bankruptcy filing in terms of assets in U.S. history, and the largest industrial bankruptcy in U.S. history. Chrysler LLC’s bankruptcy filing also occurred in the same court in Manhattan a month earlier; interestingly, Chrysler is expected to emerge from Chapter 11 as early as today (not quite last Friday as Chrysler CEO Robert Nardelli had predicted) just as GM is beginning its bankruptcy reorganization journey.
The government’s plan to restore GM to health is to split the company into two pieces – a New GM and an Old GM. The New GM (with the name naturally subject to change) will shed a staggering $79 billion in debt, enjoy wage parity with non-UAW-represented transplants such as Honda, Toyota, and Nissan that will save billions per year, will have four fewer brands to feed (say goodbye to Saab, Saturn, Hummer, and Pontiac), and 40% fewer dealers. It goes without saying, of course, that 50% fewer brands and 40% fewer dealers (not to mention factory closures and employee layoffs) will mean that New GM, in spite of its healthier balance sheet, will be a far smaller company than GM is today. New GM will be a fraction of the size of the GM of decades past.
By Kevin Miller
Government officials working for the Obama administration have confirmed that General Motors will file for bankruptcy protection today. The filing is expected to occur in a New York court, before the financial markets open for the day, with President Obama expected to detail the steps for GM’s turnaround by noon. On Sunday evening, the White House issued a statement, which proclaimed “Today will rank as another historic day for the company – the end of an old General Motors, and the beginning of a new one.”
The US government plans to grant the company $30 billion in loans, and will then gain a sixty percent stake in the restructured automaker. The governments of Ontario and Canada plan to provide an additional $9.5 billion dollars, and in return will themselves get a 12.5 percent stake in the company. Rounding out the ownership will be the UAW with 17.5 percent ownership, and bondholders with a ten percent share.
GM bondholders agreed to a debt-to-equity swap, which, gives them ten percent equity in the company, rather than the one percent they had been offered last week. There is the possibility of an additional fifteen percent equity stake in the company depending on its recovery and financial performance. Existing owners of GM stock will be left with no equity.
According to media reports, the plan is for a much smaller GM to emerge from bankruptcy proceedings, in just sixty to ninety days. The company’s bankruptcy filing is the third-largest in US history, and will lead to closure of eleven plants, and idling of three additional plants.
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By James Wong
It all happened in a whirlwind. Sitting on the plane en route from Milan to Singapore, reminiscing about my trip, I can scarcely believe I had covered slightly more than 1,000km in ten days through Italy’s greatest cities, and, without a doubt, its most spectacular roads. I did this in nothing more than an inconspicuous Fiat Panda 1.3 Multijet. How I managed to garner enough courage to navigate a manual budget diesel hatchback in a left-hand drive foreign country (my home country is right-hand drive) remains a mystery to me even up till today. But it is my pleasure to recount and share with Techshake readers about my experience, and let’s start with the first day in the ancient city of Rome, where we first picked up the car…
It was 5pm and we were still in the midst of Vatican City, just about finishing up with the tour of St. Peter’s Basilica, the Sistine Chapel and the Vatican City grounds. Our pick-up time set for the car from the rental company at Rome’s main railway station was at 5:30pm. Something told me we weren’t going to make it.
After finishing up the tour, careful not to miss out on any detail of what is possibly one of the most awesome historical sites in the civilized world, we made hurried pace to the railway station. Rome is one city you cannot navigate in without maps or at least a good memory from previous experience. Tracing our steps back to the railway, a part of me felt as if I was a character in one of Dan Brown’s Angels & Demons, racing against time to reach a destination that seemed so distant and inaccessible. Small cobbled streets are adjacent to main multi-lane thoroughfares; roads twist and turn to places unimaginable; one is given the impression of orchestrated chaos as cars weave in and out of traffic. The clock continued to tick as we boarded the train toward Rome Termini Station, where all the car rental companies are located. Our hearts raced when we finally reached the station, 10 minutes late. Running like there’s no tomorrow, we prayed that they would still be open, as ours was the last pick-up slot. Passing neighbouring rental companies, all of the usually bright signboards were unlit. Things were not looking good when, finally reaching Auto Europe’s desk, we spotted a man holding a briefcase and wearing a trench coat just about to lock up the office. We heaved a sigh of relief as the man agreed to release us the car, albeit not without some combination of resentment and derision as he was probably on his way home. Well, talk about an adventure.
By Brendan Moore
In surprising news, Bob Nardelli, current CEO of Chrysler, told reporters late yesterday that he expects the sale of most of Chrysler’s assets to Fiat to be consummated today.
According to reporters that were there at the press conference and some of the other participants in the hearing, most of the people that heard Nardelli’s statement were surprised by the news. An attorney from one of the pension funds trying to block the sale immediately asked Nardelli if he meant that the sale would close today with the required federal antitrust approval. Nardelli replied in the affirmative.
People scoffed when the US Treasury Department set a 30-60 day target for Chrysler to emerge from bankruptcy, but if Nardelli is correct, they will make that goal easily. Of course, it’s worth noting that the federal government provided all the early financing, the bankruptcy financing, and, shoved Chrysler towards Fiat, a maker of small, fuel-efficient cars. The Treasury Department, the Obama Administration’s proxy in this matter, has definitely had it their way so far. If the federal bankruptcy court approves the sale of Chrysler assets to Fiat today despite the objections heard so far and the hundreds of objections still scheduled to be heard in the future, that is quite a victory for the government and Fiat-Chrysler.
If the sale looks as if it will actually close tomorrow, you can be certain the hundreds of attorneys on the opposing side will ask the judge to postpone the sale, If that doesn’t work, you can bet there will be many appeals after the sale is completed.
The roster of those opposing the sale includes suppliers, debtholders, retirees, and of course, the almost 800 dealers that Chrysler wishes to shut down, who want the state dealer franchise laws to supersede federal law. The appeals will be filed immediately after any action by the court that gives Chrysler the right to move forward and discharge the bankruptcy.
Chrysler says it needs to go through bankruptcy in order to shed $6.9 billion USD in debt and some very expensive retiree benefits. It will gain small-car technology and a worldwide retail network through its “merger” with Fiat.
The entities objecting to Chrysler’s bankruptcy/sale are not opposed to Chrysler’s bankruptcy, per se. In the case of the debtholders, suppliers and the retirees, they are opposed to Chrysler not paying them. Their point of view is, “do whatever you want, but honor your obligations to us”. The dealers, meanwhile, are all for Chrysler’s bankruptcy as long as they’re invited to the party. Since they’re not, they want the bankruptcy court to prevent Chrysler from dropping them.
However, that’s what bankruptcy is for – casting off debt obligations, unwanted contracts, etc. It’s hard to see at this point how Chrysler (with the US Treasury Department backing them) will not prevail in their efforts to successfully discharge their bankruptcy and merge with Fiat.
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By Roger Boylan
The statement Credo quia absurdum, or “I believe because it is absurd,” often attributed to the Christian Roman theologian Tertullian (ca. 160-220 A.D.), is, most probably, a misinterpretation of the original Latin, but it can still serve nicely as an introduction to this review of the Jeep Grand Cherokee SRT8. Consider an SUV that, in these times of economic hardship, fluctuating oil prices, and grassroots anti-SUV, pro-hybrid sentiment, costs north of $40K, gets a posted 14 mpg, pumps out 420 horses, and does 0-60 in 4.7 seconds. Absurd, no? Which is precisely why, at the end of a week with the brute, I grudgingly came to admire, even covet it: because it’s absurd.
But it’s also a superbly crafted machine as well as something of a paradox, a combination of seemingly irreconcilable opposites that Chrysler’s Street and Racing Technology (SRT) engineering division somehow managed to reconcile. They started with a respectable family hauler, the Grand Cherokee, one of the industry’s most venerable SUVs, with bloodlines that go back to the ancient Wagoneer and beyond, with all-wheel-drive (this is the first all-wheel-drive SRT product) and room for a family of five and their belongings. They juiced it up with a 420-hp Hemi V-8 (and matching 420 lb.-ft. of torque), twin center-mounted chrome rear exhausts (where the tow hitch in a more banal JGC would go), a yawning front air dam, matte-black mesh grille inserts, sport-tuned suspension, modified steering, and 20” forged aluminum five-spoke wheels, sheathed in 20″ runflat tires and coyly displaying between their spokes the glossy red calipers of Brembo anti-lock brakes. Result of all the foregoing effort: a comfortable, solid road monster that, with the ease of a lion on the veldt, can devour Mustang GTs and the like for lunch, but needs a stiff drink afterward. Estimated mileage is 14 on the highway. I managed a little more, 16 or so, by dint of (mostly) steady driving and judicious application of cruise control, when possible. In town, you’ll get a little less. But this is a performance car, and a pretty magnificent one, so who cares?
GM will likely file bankruptcy in the next 48 hours
By Brendan Moore
GM has been trying to get bondholders to participate in a debt-to-equity swap, and those efforts were pronounced a failure late yesterday. GM hoped that 90% of the bondholders would forgive debt in exchange for a 10% ownership in the restructured company. Reports indicate that interest in the plan among the target population was approximately 8% of all the bondholders.
A resounding defeat, but it’s worth noting that no one thought that GM’s plan would succeed. It is obvious that GM was merely going through the motions of introducing the exchange offer and then recording the results so that they could get on with Plan B.
GM did reach an agreement with the UAW today that greatly reduced the company’s labor and pension/healthcare costs. Which, just as a heads-up, is exactly what happened immediately before Chrysler filed bankruptcy. In addition, and perhaps more importantly, the new agreement restructured GM’s payments to the trust fund which funds retiree health care.
The UAW did not really have much choice. They certainly didn’t hold back in their assessment of GM.
“GM today stands at the very brink of bankruptcy,” the union stated in a handout distributed to GM workers that was designed to inform members of the new terms of the labor agreement and the trust fund payments.
The GM shareholders that have remained were treated even worse in the GM offer – their outstanding shares would be a mere 1% of the proposed new company. If GM declares bankruptcy, their shares will have no value.
There is some good news for GM’s secured lenders, however. According to the Wall Street Journal, the bankruptcy plan that is being finalized as I type this grants the secured lenders a full recovery of their various loan amounts.
The plan also calls for GM to emerge from bankruptcy with approximately $11 billion USD in debt. GM currently has around $88 billion USD of debt.
By Chris Haak
My, how the mighty have [nearly] fallen. The self-promoting “most profitable automobile company in the world” that owns a controlling interest in Volkswagen AG and had to only recently change its plans for world German auto industry domination from a takeover of VW to just a merger, apparently had an extremely close call with bankruptcy in March 2009. German magazine that from March 22 through March 24, the company had to scramble so fervently to shore up its finances that German Chancellor Angela Merkel had to intervene on the company’s behalf.
According to Spiegel, the crisis in March was triggered by the impending expiraton of a €10 billion loan at midnight on the 24th. As Porsche sought to get an extension of the loan’s terms, it met with unexpected resistance on the part of the financial community. After several days of meetings, some banks agreed to extend additional credit to Porsche, while Volkswagen itself gave Porsche €700 million in bridge financing. Even those concessions weren’t all that was needed, so Porsche CFO Holger Härter went through his Rolodex until 11:00 p.m. on March 24th – just one hour before the deadline – until he had secured the necessary funding.
By Chris Haak
Ask nearly any American to think of the word ‘hybrid’ in any context – including outside of the scope of the auto industry – and odds are that they’ll tell you that they have the Toyota Prius in mind, not some sort of horticultural creation. The Toyota Prius, just entering its third generation, is the car that out-sells every other hybrid vehicle on the market by a large margin. The Prius has practically become a mainstream vehicle,yet one that moves a little more slowly uses far less fuel than any other four-wheeled, mass-produced passenger vehicle sold in the US.
Ever since I attended the launches of both the 2010 Toyota Prius and the 2010 Honda Insight at the 2009 NAIAS in Detroit this past January, I’ve been anxious to drive both cars. I spent a week with a barely-broken-in 2008 Prius a year ago, and wasn’t crazy about its looks, performance, or passenger space, so I really wanted to see if Toyota was able to address those issues in the new version. A half-hour first drive isn’t the best way to get a feel for a car, but it at least gave the car a chance to make a first impression on me.