Automaker Bankruptcy Could Be "Prepackaged" By Obama Administration

President-Elect Barack Obama`s transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry's financial crisis, according to a person familiar with the matter.

Obama's team has already contacted at least one bankruptcy- law firm to say that Daniel Tarullo, a professor at Georgetown University's law school who heads Obama's economic policy working group, would call to discuss the workings of a so-called prepack, according to this person.

U.S. lawmakers yesterday postponed until December a vote on whether to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout as an alternative solution. Automakers such as GM could use court protection to reduce debt and reject unfavorable contracts.

``It creates the environment to deal with GM's problems but limits government financial commitment,'' said bankruptcy lawyer Mark Bane of Ropes & Gray in New York.

Read the whole story here.

Comments

[ArturoYee]

Getting a little confused here - is it true or not (President-elect supporting pre-pack)?

http://www.reuters.com/articlePrint?articleId=USTRE4AK3VM20081121

I thought he was supporting it!

[tanstaafl2008]

Seems to be a small disconnect here ... "General Motors to Invest $1 Billion in Brazil Operations -- Money to Come from U.S. Rescue Program"
http://www.laht.com/article.asp?ArticleId=320909&CategoryId=12396
And this will save American jobs?

[leftLibertarian]

Don't worry Detroit you'll get your 25 Billion and when that's all gone by next month and you're still in deep sh**, you ask for more and more.

And then CitiGroup will ask for their share, sniff sniff for they too are too big to fail

and on
and on
and on
and by that time the FED will have to buy more printing presses...

[cindyfromfalls]

how great is is that we finally have a President who is on the job.....I truly feal confident that Mr. Obama will solve the mess we are in!

[onenation]

At these prices, can the UAW buy GM? They could then declare bankruptcy and void all the employment contracts of the execs. This is a real test for Obama. The financial troubles SUDDENLY appear?? The engineers and plant managers and line workers can build the cars of the future. The idiot supposed management is going for union busting. That is apparent from the financial "experts" and talking heads (mostly republican) who promote that course of action.
The Mine workers and the unions that followed created the middle class. The money people do not respect the democracy of the middle class.
Somehow auto workers just make too much. But the talking heads "earn" all they and their friends can get.
How much would it cost, at $3 per share, to buy GM lock, stock and jerks?

[flabingo]

It would seem a prepackaged bankruptcy is the simplest and best. The concern of buying a car from a company in bankruptcy is bullshit.

[OnePartyEqualsTyranny]

I would have to agree, what"s a 48-60 month warrantee supposed to mean?

[jsarets]

"``I look at the Republicans that say it shouldn't be saved and should be in Chapter 11, and I agree with that,'' said James Harris, President of Seneca Financial Group Inc., a restructuring advisory firm in New York. ``I look at the Democrats that say these businesses are very important to the economy, and I agree with that, so the logical step is a prepack,'' with some government financing, he said."

This guy's got the right thought process... and so does Obama.

[sunshinerain]

Check out, now Citibank is in line for a bailout - why - because they want to avoid "the chaotic aftermath" resulting from Citibank's failure - but I guess the chaotic aftermath after Big 3 fail is just okay-dokey.

Citibank - isn't that a company that's been bleeding borrowers dry with exorbitant fees and rates and shell-games and manipulation, that the Federal Reserve HAD plans to reign in....and now they are crying poor with their pockets turned inside out?

It just gets more outrageous everyday. Dick Cheney is sitting there chuckling behind his hand at all the trouble stirred up and ready to hand over to Obama.

[tomas0808]

Citibank is scum. I got so many credit card offers from them in the mail when I was student and didn't even have a job. I knew enough to throw them out. The American people need to figure out that companies that aggressively advertise and liars and thieves

[strangerinthenight]

The prepackaged bankruptcy has been proposed weeks before by William Ackerman and I suspect James Harris and the Congress picked on that idea.

Big3's debts, pension and Union contracts are unsustainable. GM is trading at $2-3/share, entire company's assets less debts is about 3 billion. No one has step up to buy them, not even Buffet.

[Viper]

So we cut the pensions of retired people who then do what?

To we reduce the starting UAW pay to below 12 bucks per hour? Thats abput 2 bucks more than the 1996 Min Wage adjusted for inflation. Its lower than the wages in Japan and germany. But then they protect their markets and the government pays their healthcare...

Regards

[Erdgeist]

Bankruptcy is only a temporary measure that doesn't address the real problem. Essentially, the Bush Administration has been bailing out the supply-side. But the real economic Zen koan is how do we get the demand side going? because if we have demand people will normally buy lots of things including cars and trucks.

[general45]

sesli chatsesli sohbetsesli chatsesli sohbetsesli chat ,sesli sohbetsesli sohbet

thank you very much

[AmySue]

I'm okay with their bankruptcy, I can wait to buy another car until they come out with a nice big selection of eco-friendly gas efficient vehicles. Oh no.... I think we need more SUV's on the road while the gas prices are down! How soon we forget

[Hawka]

Meh, Obama doesn't forget though and he's made that perfectly clear in his interviews like in 760 minutes. Plus, this'll be good if he manages to get through his infrastructure plan which should prove to be a big help.

[Slapmewhenitsover]

BROTHER CAN YOU SPARE A BILLION (OR TWO)!!!

Let's see if we can figure this another way.

Donation list:

Bill Gates - 2 billion

Warren Buffett - 2 billion

The Waltons - 2 billion each (8 billion) (John Boy - 50 cents)

Sheldon Adelson - 2 billion

Lawrence Ellison - 2 billion

Larry Page - 2 billion

Charles Koch - 2 billion

David Koch - 2 billion

Michael Dell - 2 billion

Paul Allen - 2 billion

Kirk Kerkorian - 2 billion

Steve Ballmer - 2 billion

Abagail Johnson - 2 billion

Then 1 billion each from the next 50 richest in the USA, and we have what is needed for a bailout with a substantial surplus for when they come back in six months.

Don't tell me how hard these people worked for their money either.

Why has giving back to the system that made you rich become such a taboo issue?

I am completely disgusted by these citizens' lack of responsibility toward their government.

They certainly enjoy exploiting the free market system, yet they have great difficulty in remembering from whence they came.

[KillTheMessenger]

Pssst... that is exactly what taxes are supposed to do. All you have to do is to raise the tax rate.

But Americans are so well "adjusted" by GOP speak that they have to think about something that looks like a tax, works like tax and is a tax without ever mentioning the word "tax".

:-)

[ObjectiveRealist]

Patriot Donation

[canucklivinginUSA]

Seriously, you guys really need to break off that bad habit. Americans don't pay high taxes compare to other countries like Canada. In Canada, you not only pay 50% taxes(don't really know if that involves both federal and provincial) but also you have to pay 13% sales tax. In America, you got it easy. This tax scare crap really need to stop, if you want to get things done in this country

[Slapmewhenitsover]

What has been happening in the USA for the last umpteen years is nothing short of profiteering.

Raising taxes on people who do not have much to begin with is no solution.

You cannot finance these bailouts through taxing the POOR. That is certainly not a solution; it only prolongs the problem.

What happens when 50% of the population winds up homeless after trying their best to make a life for themselves?

There is a huge inequity that taxes will not solve, and that is the very issue to be resolved.

I am not jealous of the uber-wealthy; however, I am disgusted how they run and hide when their help (and yes their money) is needed to support the same system that made them rich to begin with.

[Natureguy]

It's got to be prepackaged with, once underway, minimal involvement by the so-called professionals. Otherwise, the lawyers, accountants and investment bankers will milk it to death. Think 40% off the top and years in the making. This is in no one's best interest (save for the aforementioned professionals).

[KillTheMessenger]

Well, as always in life one can be cheap or right, but not both at the same time.

[Natureguy]

Fair enough, but in this case time really is of the essence and, at least outside the financial services industry, the taxpayers are becoming more careful about how their money is spent. Adequate time spent on the front end here is key; management will have to find ways to be patient.

[opticsopen]

I just don't understand how the automotive industry can not be making a profit after seeing this video:

http://info.detnews.com/video/index.cfm?id=1189

and they still want 25 billion of my tax money.

Maybe the real problem is that no one has the money to buy one?

[KillTheMessenger]

I got money to buy half a dozen. But I only need one. Is that a problem?

[strangerinthenight]

Blame it on UAW. This model plant is in South America where the work force is non-union.

[JessWonderin]

But how many of these non-Union workers have a chance to BUY one of these car they assemble or have anything to look for in case they are injured or decide to retire after 30 years putting seats in???

Blame OUR government that allows other counties to provide "free" quality health care universally for their work force in the auto industry, and subsidizes R&D while BUYING U.S. technology to beat us at our own game. It's nice to "blame the UAW" unless you are one of those members sitting at 65 with nothing left except a greeter job to cover Medicare co-pays . . . . and the UAW didn't lead the industry into providing the vehicles "America wanted" . . . .

[Slapmewhenitsover]

Before blaming a union, read up on your American history. The likes of the Morgans, Rockefellers, Carnegies, et. al. spent years exploiting US workers to the point where organizations like the Knights of Labor were necessary to prevent them from making people work 14 hour days, compete with 12-year-olds and get a friggin day off each week.

The union is there for a purpose and that is specifically to keep the profiteers from abusing workers as they are so apt to do.

There would be no need for unions if the companies had acted responsibly at the outset.

Greed has always been and still is the problem.

[hollybork]

What an amazing thing to have a president elect who is not only an activist to save middle class jobs, but is a brilliant lawyer and creative legal thinker.

Chapter 11 would give the car agencies powers to re craft contracts which have become as cumbersome and obsolete as an SUV that gets 9 miles to the gallon. As part of the restructuring, the auto makers can partner with the United States Dept of Energy or Dept of Transportation. The federal government could provide medical insurance to the auto industries to alleviate the huge costs of that burden, and can guarantee a certain amount of auto manufacturing work by ordering green cars to replace a percentage of the federal fleet of cars each year for the next 8 years. There are more ways than one to skin a cat.

[profpm]

Again this comes down to the fact that most people don't fee that the American cars are any good. Walking through my condo parking lot last night I saw 4 American makes among 60 cars. The rest were Japanese or German.

Without the car companies building cars that we want to buy, and shedding the multiple clones (Ford - Lincoln - Mercury) the big 3 will inevitably fail.

[StellaDuBois]

GM is hands down the sales leader in the US.

http://www.freep.com/apps/pbcs.dll/article?AID=2008811170379

[KillTheMessenger]

If you lose money on every car you sell, you would better be not be selling... and that is GM's problem.

[strangerinthenight]

Very true. My Dad has a relatively small engineering firm. He mass traded 12 GM trucks, purchased new 12-17 Toyota Tundras, and another 8 on the way. He cant depend on GM trucks. The maintenance and repair are too costly, quite disruptive for a business that depends on loading construction equipments. With new contracts with DOT for 4 counties, he needs reliable trucks. So he negotiated a mini-Fleet purchase with the bank. His employees and those full time support bees are slowly shedding all American cars. They asked my Dad the possibility of the company negotiating with the bank at a better rate, they all want to discard their junks Big3 cars in favor of the Tundras or Toyota's Prius or Nissan.

The bank gladly sent a loan officer to assist with the purchases. No more calling "my car is in the shop", or "somebody pick me up I stuck on 95".

This big shift to buy Japanese, Korean and German cars is the problem for the Big3.

[Emlyn]

And they caused that problem themselves.

[itschuck2c]

Good thing he didnt do that a few years back..toyota recalled them all..frames breaking in half.