Will GM And Chrysler Be Bankrupt in Four Years

Although we work in the Detroit area, we have always felt that the way the GM and Chrysler bankruptcies were handled were atrocious.  Not only was long standing bankruptcy laws and procedures broken but independent business people were put out of business in a very arbitrarily manner.


At this time, we do not want to debate whether the actions should have been taken, that is water under the bridge. However, the manner in which they were conducted is what we want to focus today.  Up to that point in American jurisprudence, a bankrupt company had a pecking order of who gets paid first and so on down the line. Usually secured creditors were first and  unsecured getting what was left over, if anything.


In the case of GM, this model was turned on its head. Unsecured creditors, namely the United Auto Workers (UAW), got the lion's share and secured creditors, bond holders for example, got nothing. The irony was the Delphi (a wholly owned subsidiary) unions also were left out. This is not the way it is supposed to go.  The long established rule of law was thrown out for expediency.


Dealers, which made up the sales force for both companies, have established contracts with the company(s) to be able to sell the products produced by them.  The only cost to the manufacturer to have a dealer is a dealer representative who acts as an intermediary. The company does not finance the dealer's stock, build his building, pay for his advertising (he is reimbursed for some but it is based on sales) or pay for his employees. He is an independent businessman/woman responsible for his business.


So when we heard the disingenuous argument that GM and Chrysler had too many dealers and that they were costing too much, we were flabbergasted.  That was an outrageous distortion of the truth.  


However, the way dealers that were forced to close was another major lie.  It was said that they picked low sales and poor performing dealers to terminate. If that had been true, we could have lived with the decision. 


In the case of Chrysler, most of the dealers that were closed were contributors to Republican candidates or were in areas where "friends of Obama and Clinton" had dealerships.  So much for a unbiased approach. 


The Administration did not release the manner in which GM dealers were closed as there was such a big uproar over the Chrysler dealers. However, based on the stores we saw terminated, the same or very similar procedure was used.


Now we have two companies who brag about all their profits and heck, we could make profits right away if we did not have any debt! However, most people have not even thought that issue through.  Sure you can make money, but if the infrastructure that got you into the mess are still there, how can one expect there be a long term success story.


Our one lone success story has been Ford. They foresaw the issues coming and mortgaged everything including their famous Blue Oval trademark.  They are profitable but still have the drag of the debt payments while their competitors are debt free.  How long will Ford stay viable? We hope for a long time. They have strong leadership and have done a lot of things right.


So will GM and Chrysler be around in four years? Good question. It depends on the election. If Obama is re-elected they will be here but will be run by the Administration. If not, they will not be here but other companies will have bought their assets. There still will be an American car business but it will be different.


Conservative Tom

General Motors: Obamacare Wrapped in Solyndra Inside Some Misery

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• John Ransom
  

 

No wonder Obama likes this company. This is like Obamacare wrapped in Solyndra inside some misery.

Hey quick: Let’s blame Bush.

At issue isn’t so much the stock price of GM but whether or not the company was “built to last” as it came out of bankruptcy.

After a year of intolerable claims of record profits from GM by anyone connected with the administration, the business results are starting to better reflect what investors have been saying all along: GM’s a dog.

Any company can fake profits for a little while when $100 billion in cash is thrown at it.  

Meanhwile, in the real world, General Motor’s profits fell 41 percent in the second quarter of this year.

While the company blames it all on Europe, only $361 million of an estimated $1 billion in missing profits came from Europe. Simple math would tell even Obama that $639 million came from stalling profits from places NOT named Europe.

Hey quick: Let's blame Europe.  

“GM's profit from April through June dropped to $1.5 billion,” reported the Knoxville New Sentinel, “$1 billion less than the same quarter a year earlier. It had a $361 million pretax loss in Europe and $19 million of red ink in South America. In North America, pretax profits fell nearly 13 percent to about $2 billion. International profits, including Asia, also dropped, by 3 percent to $557 million.”

If I were the guys who falsely claimed in 2010 that GM repaid 100 percent of the loans the government gave them and then spent 2011 bragging about how the company made record profits on the strength of turning $100 billion in cash into $29 billion, I’d be puckering up about that class action lawsuit right about now.   

They ought to consider that Obama won’t be president forever, and maybe, just maybe Mr. Romney would join the lawsuit on behalf of the American taxpayers.

GM data by YCharts

Of course the federal government already owns about 60 percent of the stock anyway, so there would never be a need to join the lawsuit. The government can kick out management whenever they want.

And that might be exactly what Mitt does before he dumps 500 million shares of GM.

In February of this year, as GM stock traded between $25-$26, Romney drew the wrath of that great professional investing class, establishment journalists, when he called for the U.S. to divest itself of the GM stock.

“If the government moved now to dump the 500 million GM shares that it still owns, as Romney suggests,” wrote thousandaire or hundredaire mogul investor, CNNMoney reporter Charles Riley, in a typical hit from the establishment press, “taxpayers would be guaranteed to take a loss.”

Good going Charles: Lecture Mitt Romney on investing strategy too.

Because from where I’m sitting, Mitt’s been right all along. On the other other hand, your strategy, Charles, lost taxpayers another $3 billion.   

"If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye," Romney wrote in November 2008 according to CNNMoney. "It won't go overnight, but its demise will be virtually guaranteed."

Over the next year of so the drama at GM should be played out. And  then we'll know one way or another.

But I don't really need to know, to know.

Mitt’s right and Obama’s wrong.

But we already knew that.

You know?