By Jeff Harding
General Motors Corp. doesn’t plan to make a $1 billion payment due June 1 to bondholders since by that point it expects either to have cut its debt through an exchange for shares, or to have decided to seek bankruptcy-court protection, GM Chief Financial Officer Ray Young said.
Mr. Young, speaking to reporters on the sidelines of a Chinese auto industry summit near Detroit, said the company will launch a debt-for-equity exchange in coming days aimed at greatly reducing its $28 billion unsecured debt load. He said GM needs to move quickly to commence the offer in time to wrap it up by June 1, the federal government deadline it faces for revamping the company.
Mr. Young said GM is determined to restructure and get back on its feet soon, and will right the ship “in court or out of court.” He said a trip to bankruptcy court is “probable,” but indicated the company has the full backing of the U.S. government.
“They want us to be a viable entity when we emerge,” he said. “We’re going to get this done.”
This isn’t really news since those of you following The Daily Capitalist knew this was coming. ”Our” investment in GM has backfired. The Obama Administration was counting on the fact that taxpayers’ money invested to prop the company up would keep the company out of bankruptcy, but, like most things they do, this has backfired.
What bankruptcy means is that the union contracts will be rewritten so that wages and benefits will be substantially reduced. GM can’t remain competitive with such a high employee cost structure. It is also likely that the Feds (the taxpayers) will take over some of GM’s pension responsibilities.
GM is bankrupt and has been bankrupt for quite a while and it’s time for the government to cease propping them up. The reason GM is bankrupt seems to be known by everyone (even former President “W” Bush) except GM management, the unions, and the Obama Administration. GM management has destroyed the franchise. They are typical of many large bureaucratic institutions: their fathers built the company, their top-down management structure failed to respond to competition, and they built (mostly) bad cars. And now it’s gone.
Bankruptcy will be a good solution for them. I would expect to see them shrink down to Chevrolet and Cadillac and sell off the rest. Don’t count on getting our money back.
