Myths Busted: New GM FAQ

[Mustapha Mond]

Here's hoping that now that the reset button has been pressed they can move forward and be a corporation we can all be proud of again. I further hope that they are able to pay back the American and Canadian people early. That would shut up a lot of critics and naysayers and would help restore the good faith of the car-buying public, if not those who drew the short straws in this reorganization.

I also look forward with eager anticipation to the new products that will be coming into the marketplace in the next several years. If GM is to succeed they need to dazzle us with cars so irresistable we won't even consider anything else when it comes time to buy. I know they will and I can hardly wait to see them
-Elliott

[Uzzy]

Originally Posted by plane

But doesn't this mean that the government will actually be running General Motors?
And after all, everything the government touches screws up.
For example, stop lights, the Hoover dam and public libraries.

Honestly, I sit poised on the edge of my seat just waiting for the next itinerant poster to scribe those very same words.

You got a problem with the Dewey Decimal System there, fella?

Originally Posted by TAMark

Can you give some detail on who lost what in wiping out over 100 billion of liabilities? White collar pensions reduced? Everyone on here is celebrating this but no detail or concern on the poor folks that got screwed.

I was wondering the same.

Pay no attention to the rug with the giant lump under it...



Otherwise, it was a good, informative article. It answered many questions I had.

[dannyg]

Originally Posted by Orbit

There will be no real "profit" until GM repays the hundreds of billions in loans paid to the company by federal government. Without the sufferance of US taxpayers, GM would not exist, so there should be no tooting of the horn about "profits" until its still-massive obligations to the public are settled.

I agree! But one correction, the loan is about $50B not "hundreds of billions".

http://www.dailyfinance.com/2009/06/...-billion-loan/

Let's say we taxpayers only get 50% of that $50B back. That's $25B down the toilet, versus, say, Bush's $19B bailout of the airlines after 9/11.

http://www.propublica.org/special/government-bailouts

[nsap]

Originally Posted by Orbit

There will be no real "profit" until GM repays the hundreds of billions in loans paid to the company by federal government. Without the sufferance of US taxpayers, GM would not exist, so there should be no tooting of the horn about "profits" until its still-massive obligations to the public are settled.

There is only $11 Billion in actual debt owed to the US/Canadian governments. The rest is repaid through their respective equities in the new company.

[ronald mcretard]

so what exactly does the old GM consist of? and who owns it?

is Hummer part of new GM or old GM? what about Saab and Saturn? and when they get sold, what happens to the proceeds?

[nsap]

Originally Posted by ronald mcretard

so what exactly does the old GM consist of? and who owns it?

is Hummer part of new GM or old GM? what about Saab and Saturn? and when they get sold, what happens to the proceeds?

Old GM is owned by the government and bondholders I think.

The companies being sold off are still owned by new GM.

[cyclone]

I thought it was General Motors Company LLC. Thanks.

[PhishPhood]

Originally Posted by TORRED1

Yes almost 130 billion into thin air, who is paying for it, where did it go, some specifics please.

That would be part of the bankruptcy proceedings. That's public record. Typically losses are written off against profits. Simple example..

An investment fund ( and its shareholders ) takes a $10 billion loss on GM bonds in 2009.
Let's say that that investment fund normally would have made $4 Billion this year and $4 Billion next year and $4 Billion the year after that.
Normally that investment fund would have had to pay Uncle Sam $2 Billion in taxes on the $4 Billion profit.
This year it can balance $4 Billion of that loss against the $4 Billion profit thus breakeven and pay no taxes.
Ditto next year.
But two years out it can only use the remaining $2 Billion in losses to balance against the $4 Billion in profits.

Essentially in a bankruptcy the IRS pays about 50% of the losses. The companies taking the losses only lose about 50% of the face value of the losses.

Further explanation...

Part of the losses in the unsecured bonds were lost by the old GM itself over the last 10-15 years. Another simple example.

In 1999 a wealthy investor purchased $10 million worth of 20 yr GM bonds for $9.5 million at an interest rate of 5%. ( the same as you borrowing $1000 from your brother )
Every year since then that investor has received $500,000 in interest payments from GM.
However as GM has weakened progressively the market value of its bonds has fallen from $950 / $1000 to $800 to $500 to $400 to $150 to $25 / $1000.

To answer your question the market took away the entire value of this investor's holdings over the last 10 yrs. After he loaned GM the money and purchased the bonds nobody was willing to pay him more than his original purchase price.

[Rocket 88]

So with the help of a blood sucking Union GM goes bankrupt and magically tells the owners of the company (Stockholders and Bondholders) YOU GET NOTHING.

Taxpayer (including the stockholders and bondholders) get to pony up $ 60 Billion to "save" GM, which emerges with a new name (GM) and almost no debt. Bloodsucking Unions who would normally be screwed in bankruptcy are fine, and secured creditors are told to pound sand.

Next Year GM (the new company) will have an IPO to invite all the suckers back to the table to see if they'd like to buy Stocks & Bonds! Government will be repaid. Taxpayers get to keep paying taxes unless they are now unemployeed in a crappy economy.

BRILLIANT!

[TORRED1]

Originally Posted by Rocket 88

So with the help of a blood sucking Union GM goes bankrupt and magically tells the owners of the company (Stockholders and Bondholders) YOU GET NOTHING.

Taxpayer (including the stockholders and bondholders) get to pony up $ 60 Billion to "save" GM, which emerges with a new name (GM) and almost no debt. Bloodsucking Unions who would normally be screwed in bankruptcy are fine, and secured creditors are told to pound sand.

Next Year GM (the new company) will have an IPO to invite all the suckers back to the table to see if they'd like to buy Stocks & Bonds! Government will be repaid. Taxpayers get to keep paying taxes unless they are now unemployeed in a crappy economy.

BRILLIANT!

Yup, yup & yup. Except that this time I won't be buying any GM stock.

[TAMark]

Originally Posted by PhishPhood

To answer your question the market took away the entire value of this investor's holdings over the last 10 yrs. After he loaned GM the money and purchased the bonds nobody was willing to pay him more than his original purchase price.

Wait a minute. I'm no financial person but your illustration was a GM Bond. Yes he was receiving interest yearly but once the bond matures he was expecting to get his principal back in full from GM regardless of what the market was for GM bonds right? That money is now gone curtesy of GM's BK. Yes and everyone will jump in and say that's the risk he took. Yes it is but it's still an example of an individual losing big money. Many people look at this BK as just a big paper shuffle with no pain to individuals.

[PhishPhood]

Originally Posted by Rocket 88

So with the help of a blood sucking Union GM goes bankrupt and magically tells the owners of the company (Stockholders and Bondholders) YOU GET NOTHING.

Taxpayer (including the stockholders and bondholders) get to pony up $ 60 Billion to "save" GM, which emerges with a new name (GM) and almost no debt. Bloodsucking Unions who would normally be screwed in bankruptcy are fine, and secured creditors are told to pound sand.

Next Year GM (the new company) will have an IPO to invite all the suckers back to the table to see if they'd like to buy Stocks & Bonds! Government will be repaid. Taxpayers get to keep paying taxes unless they are now unemployeed in a crappy economy.

BRILLIANT!

Hello, welcome to the world of business. When I was VP for what is now the largest steel company in the world this exact situation occured 5-10 times a year - every year - just within our own customer base. This is part of business. Nice of you to join the business world.

[PhishPhood]

Originally Posted by TAMark

Wait a minute. I'm no financial person but your illustration was a GM Bond. Yes he was receiving interest yearly but once the bond matures he was expecting to get his principal back in full from GM regardless of what the market was for GM bonds right? That money is now gone curtesy of GM's BK. Yes and everyone will jump in and say that's the risk he took. Yes it is but it's still an example of an individual losing big money. Many people look at this BK as just a big paper shuffle with no pain to individuals.

Yes you're right he was expecting ( actually he was hoping ) to get his full face value back when the bond matured. But that's why every prospectus has the risk disclaimer. He knew what he was doing. He actually loaned GM the money based on a promise.

That's why I used the example of you borrowing $1000 from your brother.

The investor's bonds carried the same weight as you borrowing that $1000. If you don't repay it to your brother when in BK then he can't come back at you in any way and you don't have to repay him. It won't make your relationship very smooth but there's nothing he can do to force you to pay him.

It is just a paper shuffle because the $10 million investor simply gave GM that money based on a promise. GM used his money over the subsequent 10 yrs to pay dividends, buy machinery, pay wages, etc, etc, etc. but they had no responsibility to pay him back.....unless the bonds went to maturity. If the bonds did go to maturity and assuming BK did not intervene then what GM would do ( as every company does ) is go into the bond market and borrow more money!!! The new borrowings would be used to retire the 20 y.o. debt and for additional corporate purposes ( common terminology in prospectuses ). Basically they were rolling the old debt forward another 20 yrs. This is called leverage.

[CaptainDan]

Originally Posted by ZR2BlaZeR2

....I do worry that this sets a president that could be abused in the future......

He gets abused enough NOW!

[TORRED1]

Originally Posted by PhishPhood

Yes you're right he was expecting ( actually he was hoping ) to get his full face value back when the bond matured. But that's why every prospectus has the risk disclaimer. He knew what he was doing. He actually loaned GM the money based on a promise.

That's why I used the example of you borrowing $1000 from your brother.

The investor's bonds carried the same weight as you borrowing that $1000. If you don't repay it to your brother when in BK then he can't come back at you in any way and you don't have to repay him. It won't make your relationship very smooth but there's nothing he can do to force you to pay him.

It is just a paper shuffle because the $10 million investor simply gave GM that money based on a promise. GM used his money over the subsequent 10 yrs to pay dividends, buy machinery, pay wages, etc, etc, etc. but they had no responsibility to pay him back.....unless the bonds went to maturity. If the bonds did go to maturity and assuming BK did not intervene then what GM would do ( as every company does ) is go into the bond market and borrow more money!!! The new borrowings would be used to retire the 20 y.o. debt and for additional corporate purposes ( common terminology in prospectuses ). Basically they were rolling the old debt forward another 20 yrs. This is called leverage.

Thank You for some good examples, I guess simply put, is that the whole stock market is just one big paper shuffle.