[Hurricane]

General Motors Playing Chicken
By Rich Duprey
September 22, 2008

Initiating what seems like a game of chicken with Congress, General Motors (NYSE: GM) has announced that it intends to draw down the remaining $3.5 billion on its revolving $4.5 billion credit line to boost its liquidity. While tapping the funds will provide the company with necessary capital for short-term needs, it also ensures that the carmaker has few if any places to turn to once that well runs dry. In other words, it might just be CEO Richard Wagoner's way of telling Congress: Give me money or give me death!

Along with Ford (NYSE: F) and Chrysler, the automaker has been pressing its case hard for a $25 billion bailout from taxpayers, and in light of the bailouts for other ailing businesses, it might have a point: Why not us, too?

For a moment, the Lehman Brothers (NYSE: LEH) twist in the wind seemed to dramatically diminish the probability that automakers would get a handout. Taxpayers' purse strings were drawing tight. I'm sure Wagoner and Ford CEO Alan Mulally were feeling bleak.

That display of backbone lasted all of about a day, when the government decided it wanted to be in the insurance business and seized American International Group (NYSE: AIG), in effect nationalizing the insurer. Of course, that created the impression that the sky was falling, and the markets all turned south in a hurry, leading to the equally dramatic pronouncements heading into the weekend that a major bailout was in the works. You could almost hear the automakers' engines purring.

GM will use the money from its credit facility to retire some $750 million in debt coming due in October, as well as to assist parts supplier Delphi with its $1.2 billion reorganization. Right before the credit markets turned topsy-turvy, GM had agreed to help Delphi get its act together and emerge from bankruptcy protection. Both may now engage in a drag race to the finish line of solvency.

Back in June, GM had said that drawing down its credit line might send the wrong message to investors. Now that it is tapping every last bit of credit left to its name, it may also be trying to send Congress a not-so-subtle message: When you're done handing out the big bucks to banks, don't forget the pittance the automakers are asking for. General Motors might also have just set itself on a collision course with oblivion.

More here: http://www.fool.com/investing/general/2008/09/22/general-motors-playing-chicken.aspx

 

[fp115]

Bailout money? Guess thats what you get when the post comes from FOOL.COM

 

[Bokl]

Sure lets take out more loans and worry about paying them later. Lets not worry about making money, it is easier just to borrow. Does this sound like All of those people that purchase their house and now they can not afford to pay it? should we give them more loans so that way they can pay for their house? This is what Detroit 3 want. So why not do the same for Americans who can not pay their house. Give them more loans and hope that they will pay you back one day?

 

[01IntrigueGX]

Sure lets take out more loans and worry about paying them later. Lets not worry about making money, it is easier just to borrow. Does this sound like All of those people that purchase their house and now they can not afford to pay it? should we give them more loans so that way they can pay for their house? This is what Detroit 3 want. So why not do the same for Americans who can not pay their house. Give them more loans and hope that they will pay you back one day?

At least it is not a bailout of the banks. My argument is, the heck with the loaning, if you are bailing the banks, then bail out the Big 3. However, with a loan, at least GM, Ford, and Chrysler would be bound by contract to repay the funds granted to them by the government. An argument could be made that these bank bailouts are also "bailing out" the housing market and the invariable stupidity of the consumer who has Cadillac tastes, but an Aveo budget. But, that is another story.

 

[Bokl]

At least it is not a bailout of the banks. My argument is, the heck with the loaning, if you are bailing the banks, then bail out the Big 3. However, with a loan, at least GM, Ford, and Chrysler would be bound by contract to repay the funds granted to them by the government. An argument could be made that these bank bailouts are also "bailing out" the housing market and the invariable stupidity of the consumer who has Cadillac tastes, but an Aveo budget. But, that is another story.

I agree with you. Only thing when gov. gives these loans they will be like 100 year loan with no interest. So that is a bail out. But like you said. Banks should not be getting our money either. Why should i pay for peopel that made bad decisions. Same with banks and detroit 3 well you made stupid decisions well go out of business. That is the way free market is. best one will survive.

 

[MadTruckMan]

First, i love these media outlets calling this 25billion a bailout. The terms that the big 3 are asking for are completely different than what the banks are asking for in their 700billion they might get. Second, there was an article in the NY post yesterday about how the market was about 500 trades away thursday from a complete meltdown, like a loss of over 3000 points in one day. The article was called almost armageddon?. The timing of this draw on the credit seems to coincide with those events. Think about this: Lets say your american express card has a 5000 limit, but one day all of a sudden american express doesnt have 5000 bucks to give you. I think GM did this draw on their credit just to make sure they had access to that money. If they do it now, then they can just sit on it if they like, or use it. At least now they can use it. Who knows if in 6 months that money would have even been there. I dont think there is much to worry about GM for the time being financial-wise. Things are just as bad as they were 3 months ago, waiting for 2010...

 

[ogg vorbis]

at least an interest free loan won't stay on the books as a debt forever. a 20 year loan should be more than enough time for gm to repay. gm may turn profitable within 5 years.

using tax payer money to buy a business makes it the taxpayers...right? shouldn't we all be receiving dividends from our business? will the government pay off the debt with aig's profits, or more tax payer money?

 

[zete]

I guess GM should just call themselves a "bank" and stand in line for that $700B.

I also can't comprehend why some folks confuse what GM and Ford are asking for -- guaranteed loans -- with what's being provided to the fools on the Street -- bailouts.

I also remain completely confused as to how bailing out those "banks" on the Street will actually help anything. If the paper backing the companies is worthless, pumping more money into the situation hardly seems a viable move. It looks like a simple delay of the inevitable. I'd let the investment firms collapse. Wall Street needs to learn a lesson, and this would be a great one to learn.

Not sure if anyone saw this, but exactly how do the clowns at Lehman in New York deserve $2.5B in bonuses?

Fury at $25B Bonus for Lehman's New York Staff

 

[2002 Caddy]

I love how these threads always degenerate into cool-aid drinkers spinning "Hey its not a bail out...its only a loan guarantee"

Hands up, Who got a mortgage at about 1/2 the prime rate when they bought their house with a guarantee from Uncle Sam that if you default, he will make it good...



Ya, me neither.

If this isn't a bail out... What is?

This is FREE money from the government. Just 'cause there is a promise to pay it back doesn't make it any less of a bailout.

The government stepping in to prop up Freddy and Fannie... are also bailouts just as the latest plan to "absorb" all of the bad debt is a bailout.

GM has got themselves to a point where they are SO risky right now that NO bank will offer them a loan at any form of reasonable rate... Their only hope is government help.

 

[zete]

I love how these threads always degenerate into cool-aid drinkers spinning "Hey its not a bail out...its only a loan guarantee"

Hands up, Who got a mortgage at about 1/2 the prime rate when they bought their house with a guarantee from Uncle Sam that if you default, he will make it good...



Ya, me neither.

If this isn't a bail out... What is?

This is FREE money from the government. Just 'cause there is a promise to pay it back doesn't make it any less of a bailout.

The government stepping in to prop up Freddy and Fannie... are also bailouts just as the latest plan to "absorb" all of the bad debt is a bailout.

GM has got themselves to a point where they are SO risky right now that NO bank will offer them a loan at any form of reasonable rate... Their only hope is government help.

I think some of us at least are comparing what GM and Ford are asking for -- a loan guarantee -- with the bailouts offered to Wall Street.

I do think spin will become a large player in this as they try to sell it during an election year. Who wants to tell the American populace that their money is going to go to those fat cats on Wall Street that a few years ago were paying themselves billions and now need a handout from Washington.

 

[Bokl]

I think some of us at least are comparing what GM and Ford are asking for -- a loan guarantee -- with the bailouts offered to Wall Street.

I do think spin will become a large player in this as they try to sell it during an election year. Who wants to tell the American populace that their money is going to go to those fat cats on Wall Street that a few years ago were paying themselves billions and now need a handout from Washington.

LOL few years ago paying them self billions. They still do. Even as their companies are failing they are making millions. If i cant afford to pay my house do you think gov. will give me a guarantee loan so that i can?? No they will not. So banks and detroit 3 should not get any of our money. Screw them. They got them self into this mess now let them get out if they cant bye see you later. Best will survive. Do you see good companies asking for bail outs. Do you see apple or microsoft asking for money? No why? because they have real leaders not some jerks like we have in banking system and detroit.

 

[KingElvis]

I guess GM should just call themselves a "bank" and stand in line for that $700B.

I also can't comprehend why some folks confuse what GM and Ford are asking for -- guaranteed loans -- with what's being provided to the fools on the Street -- bailouts.

I also remain completely confused as to how bailing out those "banks" on the Street will actually help anything. If the paper backing the companies is worthless, pumping more money into the situation hardly seems a viable move. It looks like a simple delay of the inevitable. I'd let the investment firms collapse. Wall Street needs to learn a lesson, and this would be a great one to learn.

Not sure if anyone saw this, but exactly how do the clowns at Lehman in New York deserve $2.5B in bonuses?

Fury at $25B Bonus for Lehman's New York Staff

ZETE, you make an exceedingly good point.

This Wall Street thing is a REAL bail in terms of taxpayers buying worthless debt. All this does is solidify the their ill gotten gains. It's a massive transfer of wealth from the taxpayer to the vampires and predators on Wall Street.

The loans are a different thing. It worked out swimmingly for Chrysler in the eighties - they repaid the money early and thousands of real jobs were saved.

 

[vcs2600]

I guess GM should just call themselves a "bank" and stand in line for that $700B.

GM is a bank and GMAC will get some of that $700B directly or indirectly.

The problem here isn't entirely mortgages, its also bad auto loans and consumer credit card debt. Nevermind that GMAC did subprime mortgages too.

 

[D C]

I guess GM should just call themselves a "bank" and stand in line for that $700B.

I also can't comprehend why some folks confuse what GM and Ford are asking for -- guaranteed loans -- with what's being provided to the fools on the Street -- bailouts.

I also remain completely confused as to how bailing out those "banks" on the Street will actually help anything. If the paper backing the companies is worthless, pumping more money into the situation hardly seems a viable move. It looks like a simple delay of the inevitable. I'd let the investment firms collapse. Wall Street needs to learn a lesson, and this would be a great one to learn.

Not sure if anyone saw this, but exactly how do the clowns at Lehman in New York deserve $2.5B in bonuses?

Fury at $25B Bonus for Lehman's New York Staff

Well said. Seems as though there are some people who remaim clueless to the concept that a loan is not a bailout.

"Here's a gazillion dollars, we're going to save your azz. No thanks necessary. Naw, you don't need to pay us back. Keep the change."

vs.

"Here's some money that you need to pay back according to some set terms."


Naw...no difference there at all.

The federal gov't just decided that I and every other responsible tax-paying, mortgage-paying sucker are now responsible for guaranteeing the mortgage of every low-life moron that got in over their heads and creatively-financed more house than they should ever have bought. That's somehow fine, but loaning a pittance to an industry that is at the very core of this country is somehow the embodiment of evil.

 

[zete]

As so many of the posts between this one and my previous one indicate, we're all pretty much in agreement that this just sickens all of us. Those who perpetrated this fiasco -- from Clinton on down through the morons who considered themselves financial "geniuses" on Wall Street -- should all suffer some consequences for this massive unravelling. Instead, the consequences will be paid for by normal Americans. Unbelievable.

 

[jcgable]

Some people don't seem to get it. Congress isn't bailing out Wall Street because they want to. They're doing it because if the banks fail, it will be the Great Depression Part 2. Banks quite frankly no longer have the money to offer loans to everyday Americans. Savings & Loans are the blood that runs our economy and EVERYONE'S paychecks. Afterall, consumer spending accounts for about 20% of our country's annual GDP. Investing accounts for 60%.

Bailing out irresponsible investors is a necessary evil, but it is a small price to pay to keep the economy from shutting down. The big question is to see whether or not the Democrats have the balls to legislate new regulations on the financial industry, or if they are willing to trust the invisible hand to keep America rolling. I for one, would rather guarantee healthcare and food for my citizens.

 

[sigma]

ZETE, you make an exceedingly good point.

This Wall Street thing is a REAL bail in terms of taxpayers buying worthless debt. All this does is solidify the their ill gotten gains. It's a massive transfer of wealth from the taxpayer to the vampires and predators on Wall Street.

The loans are a different thing. It worked out swimmingly for Chrysler in the eighties - they repaid the money early and thousands of real jobs were saved.

Ding, ding, ding we have a winner. Now the question is will GM and Ford actually be able to explain it in such a fashion that the "Detroit can burn" crowd can understand.

 

[Slideways]

Do you see good companies asking for bail outs. Do you see apple or microsoft asking for money? No why? because they have real leaders not some jerks like we have in banking system and detroit.

Not the best argument to make:
1) iPods don't cost $25,000.
2) A faulty iPod won't kill you.
3) The government doesn't tell Apple how many songs an iPod must play on one charge.
4) Apple and its suppliers don't employ tens of thousands of Americans.
5) iPods are assembled in China, where there's a workforce just waiting to make all of our cars.

 

[PRO_USA1776]

For a moment, the Lehman Brothers (NYSE: LEH) twist in the wind seemed to dramatically diminish the probability that automakers would get a handout.

Could this be the same Lehman brothers that was talking trash about GM going bankrupt and downgraded their stock? Hah! I think they deserve a throat punch, and not only that I hope they enjoy their Chinese language lessons, since I hear they want a piece of Lehman brothers!

 

[skylark68]

Some people don't seem to get it. Congress isn't bailing out Wall Street because they want to. They're doing it because if the banks fail, it will be the Great Depression Part 2. Banks quite frankly no longer have the money to offer loans to everyday Americans. Savings & Loans are the blood that runs our economy and EVERYONE'S paychecks. Afterall, consumer spending accounts for about 20% of our country's annual GDP. Investing accounts for 60%.

Bailing out irresponsible investors is a necessary evil, but it is a small price to pay to keep the economy from shutting down. The big question is to see whether or not the Democrats have the balls to legislate new regulations on the financial industry, or if they are willing to trust the invisible hand to keep America rolling. I for one, would rather guarantee healthcare and food for my citizens.

Sometimes i think a new global depression would be perfect for a sick and corrupted society as ours.