Chrysler, GM Bankruptcy Looming in Detroit

The government may force General Motors and Chrysler into bankruptcy to assure the taxpayers get back their $17.4 billion in bailout loans.

The car companies, of course, say such a move would destroy them.

Bankruptcy may be necessary, because, as Bloomberg points out:

U.S. taxpayers currently take a backseat to prior creditors, including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to loan agreements posted on the U.S. Treasury's Web site. The government has hired a law firm to help establish its place at the front of the line for repayment, two people involved in the work said last week.

If federal officials fail to get a consensual agreement to change their place in line for repayment, they have the option to force the companies into bankruptcy as a condition of more bailout aid. The government would finance the bankruptcy with a so-called "debtor in possession" or DIP loan, a lender status that gives the U.S. priority over other creditors, said Don Workman, a partner at Baker & Hostetler LLP.

The possible bankruptcy isn't news to Congress. According to a document unearthed by The Truth About Cars, Congress had received a report back in December detailing how the bailout would likely fall short.

A bankruptcy of the Big 2 could also spell disaster for Ford. According to BloggingStocks, a Chapter 11 filing would mean that many auto part suppliers would only be paid a portion of what they were owed, and would themselves be forced into bankruptcy. This would hurt Ford, because many of the firms from which it receives its components will be wiped out.

Comments

[BobinPgh]

Axtually, I am hoping GM might go bankrupt: There will be bargains on all their cars and we won't have to pay so much for them.

[BMissy]

Check out the air car

http://zeropollutionmotors.us/

[DLBSR]

Roger that! Nice ride.

[DLBSR]

We, the taxpayers should have bought GM and Chrysler for $5B, loch stock and barrell, the collective value of both at the time Bush approved the $17.4B loan. By the way, GM and Ford, including GMAC have been back to the trough since the original $17.4 was initially loaned. Todays total is more to the tune of $24.9B. We could have consolidated, restructured, and retooled the industry utilizing the difference between the real collective value and the original $17.4B loan. A model was developed to do just this, but it was ignored by both the Congress and the Bush administration. We could have designed the leaner and greener cars America wants and needs. At the very least, the taxpayers would be holding real assets with real value. The model called for using future earnings from the new taxpayer-owned industry to help earn our way out of this crisis and to potentially pay a large portion of the healthcare costs for many Americans w/o health insurance. Think about it, we own the industry whose earnings are directed toward helping all Americans. Who would you buy your next car from, yourself or and import? Market share would have improved overnight, putting more Americans to work instead of the industry layoffs we are now seeing. By the way, the model did address the bankruptcy issue as well.

[DLBSR]

Sorry. I of course meant to say GM and CHRYSLER. Ford has not yet requested any bailout funds, but that will change. We could have purchased the Big Three, including Ford for less than $8B, or roughly $25 per each person in this country.

[MuchMadness]

Alarmist headlines aside, this story makes no sense. Congress is currently debating an $800 billion economic recovery package, all of it financed by selling U.S. Treasury obligations. So why on earth would the government force GM and Chrysler into bankruptcy to recoup a measly $17.4 billion, especially considering the negative impact that would have on industrial employment?

[BMissy]

Uhh...cuz nobody wants their cars???? and there is some guarantee of creditors getting $$ back in a restructuring.

[BMissy]

and...no one can get a loan to buy a car!!

[MuchMadness]

Believe me, the government decision makers will be thinking about votes, not about the creditors. After all the fussing and fighting, the Detroit Three did get their loans, didn't they? There is no way that a Democratic administration and congress are going to stick it to Michigan, Ohio, Indiana, and Missouri. The Democrats want to increase their majority in congress in 2010.

[rockyersocksoff]

Are the Amish hiring?

I could totally do the buggy thing.

And horsies are cute.

[OlderBudWeiser]

And, the exhaust is bio degradeable.

[BBackSoon]

If I remember it is 10 pounds and 3 gallons a day. If you live in the city that might be a problem.

[BMissy]

Exon is perfectly capable of bailing out the auto companies.

Nationalize the banks and let's get on with it.

[rockyersocksoff]

You're actually right.

Exxon alone has made over 50 billion in profits over the last couple of years.

They could buy ALL the Big 3 with very little leverage.

God help us if they do...

[BMissy]

air car

[rockyersocksoff]

I don't know what you mean, but I keep chuckling every time I read it.

[BMissy]

air car

http://zeropollutionmotors.us/

[Luvial]

We should only be investing in electric cars. Euthanize the petroleum guzzlers.

[Pquilson]

When they make one that will go 75 miles per hour for 400 miles, I will consider it. If, and this is a big, huge if, it is reasonably priced.
By the way, how are you going to make the electricity to run them? Air, wind? Won't make enough. How?

[rockyersocksoff]

They can run on unicorn burps.

[ptsd6869]

i hope i don't live to see the day we have to have M1ABRAMS tanks built in CU CHI, VIETNAM!

[argyle]

Never going to happen.

[michmudder]

No shortage of schadenfreude here.

[PaloAltoPunk]

...and spite. Dostoevsky would be amazed at what we've become.

[wagthedog1001]

Give $1 BILLION each to each startup "green" car company and let's see what happens.

[rockyersocksoff]

"see what happens.'

I predict one half a billion dollars each will disappear like a pallet of cash dropped into the US Embassy in Baghdad.

[tailgateshirts]

Even if they fail they still had to buy stuff and pay people... and the one that wins wins BIG

[RationalDubSteppa]

GOOD!!! It's about time!!!! We need some new blood replace these ageing cynical, talentless and wasteful companies.

[rpahk]

Why not the same conditions for the banks??

[research]

Bankers OWN the USA.

[chelliza]

For those of you that say we should let the car companies fail, what exactly does America make that we can use to build back up our economy? Economies are built by production, not by consumption.

[RationalDubSteppa]

Yes absolutely, GM and Chrysler should fail. And you know what will replace them better younger companies built by vibrant young individuals with a real eye to the future; not old greying dinosaurs that still don't know how to send email and still refer to online life as "The Internets"

[Pquilson]

Well, everyone can't be as cool as you!

[mk16000]

I love your comments. The President has an eye for the future-the 21st century. Unfortunately, Congress-R­epublicans and Democrats alike still use strategies and tools in the 20th century. They do the same thing and get the same results-this type of person is usually called a Fool. The Republicans-bunch of fossils are commited to fighting the President as they resist any change. They use old strategies for new challenges. The best thing the American people can do is call for Term Limits in Congress. There needs to be an aggressive movement for this.

[tailgateshirts]

alot of dems are just as bad, they just are more open to change and trying something new

[instagladiator]

"Economies are built by production, not by consumption."

What is THAT suppose to mean? Please explain that.

[Pquilson]

very simple. If no one makes anything, they cant sell it. if no one buys anything, there is no commerce. Simple enough for you?

[Luvial]

Electric cars, windmills, photovoltaics, universal healthcare, universal college educations for starters.

[Luvial]

Legalize industrial hemp.