Big Three Automakers: Recapitalization or Bankruptcy?

[Hurricane]

Big Three Automakers: Recapitalization or Bankruptcy?

by: FP Trading Desk posted on: July 11, 2008

America’s Motor City automakers are experiencing one of the most severe downturns in history, one that will require more cash and more time for them to adjust to the new realities of gasoline above $4 a gallon and rising prices for steel and other commodities. But in the event that Ford Motor Co. (F), General Motors Corp. (GM) or Chrysler LLC is unable to shore up more liquidity, the automakers could be more likely to try a recapitalization than a bankruptcy protection filing, argues Citigroup Global Markets analyst Itay Michaeli.

"The carmakers would likely see more harm than good done to enterprise value during the Chapter 11 process, as one cannot predict consumers’ predilection for buying vehicles from a bankrupt automaker."

Any meaningful loss of market share that could come from such a consumer abandonment would likely hurt all stakeholders, including bondholders, unions, shareholders, captive finance companies, alliance partners and existing customers, he argues.

"Ironically, because one [automaker’s] bankruptcy filing could potentially provide some volume improvements to the others, domestic [manufacturers] may shun strategic filings in order to ‘outlive’ their competitors."

Rather, Mr. Michaeli argues that the option of a distressed workout scenario would likely be more palatable. He says such a workout could involve such actions like balance sheet recapitalizations through debt-equity exchanges, further labor concessions, alliance or merger and acquisitions options, or fresh debt financing.

"In GM’s case, we could envision a scenario where the company restructures its unsecured debt while simultaneously negotiating better labour terms and new financing, possibly with a strategic partner."

Such talks would be complex, he says. But the alternative – seeing so many customers abandon you that you can’t recover – may be worse.

More here: http://seekingalpha.com/article/8453...y?source=yahoo

[Ambalanche]

Wake me up when this is over!

[BigThreeForever]

An interesting and intelligent article, with some real insight, and a refreshing change from most of the media and financial "commentary" in recent days.

That's the big question: the prediliction of customers buying cars from a bankrupt company. Will they, or won't they?

Whilst there may be a short-lived boom in sales, similar to the one which accompanied BMW's dumping of Rover Group in 2000, prospective customers must be asking themselves what will happen to resale values and servicing facilities in the future.

The big one, though, is the likely stigma of buying such a big-ticket item as a car or truck from a bankrupt company, and thus allying oneself with failure as opposed to the never-ending success that is Toyota/Honda, etc.

[ericmvest]

When General Motors ran into trouble in 1909 and 1920 they recaptialized with the help of New York bankers and the DuPonts, respectively.

A creditable article on General Motors potential liquidity problems is in today's Detroit News, "Wagoner Seeks to Quell General Motors Bankruptcy Speculation." David Cole, chairman of the Center for Automotive Research in Ann Arbor, states that the probability of a GM bankruptcy is "low but it's not zero," "There are a lot of cards they can play," and "They have extremely valuable assets; they have a lot of arrows in the quiver."

[vxl]

Originally Posted by BigThreeForever

That's the big question: the prediliction of customers buying cars from a bankrupt company. Will they, or won't they?

Would you?

[wescoent]

Originally Posted by vxl

Would you?

If they had the car I wanted, without a doubt.

Toss me the keys to that $20,000 ZR1, thank you. I'll fix it with Ferrari parts.

[osv_alero]

Bankruptcy would not mean the end of GM, just a reorganization and a drop in their debts.

The problem is not whether people will buy from GM rather it is the unknown of how many people won't just because of the bankruptcy. Besides, shooting for bankruptcy is just not good business practice. It not only hurts stock holders and the company it also hurts hard working tax payers.

[AMERICA 123]

All this negative crap about GM is written as fairly and in the manner of the question -

'Did you stop beating your wife yet' ?

Toyota and some of it's more athletic - supporters must be really nervous about something.

[big swede]

Originally Posted by osv_alero

Besides, shooting for bankruptcy is just not good business practice. It not only hurts stock holders and the company it also hurts hard working tax payers.

Exactly! But you have to remember that only in American can you get paid millions to run a company into the ground that makes things that most people must have and then actually have support from people who make relatively little money (taxpayers) on a bail out.

[skylark68]

Originally Posted by AMERICA 123

All this negative crap about GM is written as fairly and in the manner of the question -

'Did you stop beating your wife yet' ?

Toyota and some of it's more athletic - supporters must be really nervous about something.

I agree, I have a feeling that at least some of the issue is due to fear of the Volt.

[Stéphane Dumas]

Originally Posted by ericmvest

When General Motors ran into trouble in 1909 and 1920 they recaptialized with the help of New York bankers and the DuPonts, respectively.

It would be interesting to see the DuPont company reinvesting, however what I saw at Wikipedia's Dupont entry

However, in 1957, because of DuPont's influence within GM, further action under the Clayton Antitrust Act forced DuPont to divest itself of its shares of General Motors.

I wonder if it possible to remove the Clayton Antitrust act or finding a loophole in it, so DuPont could re-invest in GM?

[Member17739]

Originally Posted by Stéphane Dumas

It would be interesting to see the DuPont company reinvesting, however what I saw at Wikipedia's Dupont entry


I wonder if it possible to remove the Clayton Antitrust act or finding a loophole in it, so DuPont could re-invest in GM?

Why would Dupont want to invest in GM? The company is worth less than $10B, there are hundreds of corporations out there capable of buying GM on any given day and nobody is knocking on the door.

[2002 Caddy]

Originally Posted by osv_alero

Bankruptcy would not mean the end of GM, just a reorganization and a drop in their debts.

The problem is not whether people will buy from GM rather it is the unknown of how many people won't just because of the bankruptcy. Besides, shooting for bankruptcy is just not good business practice. It not only hurts stock holders and the company it also hurts hard working tax payers.

It will hurt LOTS of people... Yes share holders will be near the top of the list in terms of "hurt" but so will bond holders, the banks, suppliers, employees, local, state, federal government and of course the dealerships.

The only person who will skate through Chapter 11 mostly unhurt is Rick... His pension is guaranteed REGARDLESS if GM is solvent or not.

[2002 Caddy]

Originally Posted by Member17739

Why would Dupont want to invest in GM? The company is worth less than $10B, there are hundreds of corporations out there capable of buying GM on any given day and nobody is knocking on the door.

Less then $10B!?? Dude where have you been... We haven't been worth 10Billion for weeks!

By the end of next week we will be worth less then $5Billion...

This morning the market cap was BARELY over $5.1 Billion.

For a company with 150Billion in assets 5.5Billion is a give-a-way price... you just have to ignore the 184Billion in liabilities and the monthly net operating loss of almost a Billion.

[1931Chevy]

Originally Posted by wescoent

If they had the car I wanted, without a doubt.

Toss me the keys to that $20,000 ZR1, thank you. I'll fix it with Ferrari parts.

and throw in the mix a $15,000 Escalade and they can have my business