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Thread: GM on verge of bankruptcy?

  1. #1
    Vulture of The Western World Eric's Avatar
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    GM on verge of bankruptcy?

    General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, have about a 46 percent chance of default within five years, according to Edward Altman, a finance professor at New York University's Stern School of Business.

    ``Both are in very serious shape and the markets reflect that,'' Altman, the creator of the Z-score mathematical formula that measures bankruptcy risk, said in an interview with Bloomberg Television. The model shows that these companies are ``on the verge of bankruptcy,'' he said.

    The Z-scores for GM and Ford give both a bond rating equivalent to a CCC ranking, though GM is in slightly worse condition than Ford, Altman said. GM reported a $38.7 billion loss in 2007, the biggest in its 100-year history, and hasn't posted a profit since 2004. The scores are based on the companies' finances at the end of the first quarter.

    Moody's Investors Service said July 15 it may cut GM's Caa1 senior unsecured debt rating because the Detroit-based automaker's plan to raise at least $15 billion by suspending its dividend, cutting management payroll by 20 percent and selling assets may not be enough to offset losses. Standard & Poor's also said in June it may lower GM's B rating. Altman said the plan to raise $15 billion may improve GM's outlook.

    Ford, based in Dearborn, Michigan, is rated Caa1 by Moody's and B by S&P, which said in June that Ford's rating may also be cut.

    ``The thing that triggers a default in almost all cases is running out of cash and not being able to refinance,'' Altman said in an interview prior to his television appearance. ``You're not going to go bankrupt as long as you can refinance short-term liabilities. You will go bankrupt if you can't.''

    In 2005, Altman said GM had a 47 percent chance of default within five years.

    GM Chief Executive Officer Rick Wagoner said in an interview July 15 that the company has the ability to raise cash, and he called bankruptcy ``a bad idea.'' Ford has said it had access to $40.6 billion in funds as of March 31, including credit lines.

    GM's $3 billion of 8.375 percent bonds due in 2033 rose 0.5 cent today to 58.5 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 14.6 percent, or 994 basis points more than similar-maturity Treasuries. A basis point is 0.01 percentage point.

    ``I would not put money with GM right now because the downside is so great relative to the upside, relative to the yield,'' said Altman, speaking in New York. ``Your downside is probably 60 percent on the debt. The risk reward ratio is pretty poor.''

  2. #2
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    Re: GM on verge of bankruptcy?

    Step 1 - save the company
    Step 2 - get your bond status raised to investment-grade


    Former owner: 2012 Honda Civic LX, 2006 Honda Ridgeline RTL, 2000 Honda CR-V EX, 2003 MINI Cooper S, 1992 Honda Accord LX, 1999 Mercedes ML-320, 1995 VW Jetta GLX, 1991 Mercury Capri XR2, 1981 Mercury Zephyr, 1975 Chevrolet Impala

  3. #3
    MikeHalloran
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    Re: GM on verge of bankruptcy?

    That's a good plan, but it needs to be fleshed out a bit...

  4. #4
    Vulture of The Western World Eric's Avatar
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    Re: GM on verge of bankruptcy?

    Quote Originally Posted by chiph
    Step 1 - save the company
    Step 2 - get your bond status raised to investment-grade

    It my not be feasible to achieve Step 1... GM has major structural and product problems that would require a massive reorganization to even begin to address them. I don't see this happening within a 3-5 year timeframe, which I would say is the "most" GM has to turn things around.

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    Re: GM on verge of bankruptcy?

    I'm sorry, but I think GM needs to can healthcare for its retirees. I know of no other company that does this and don't understand why they got themselves into that bind. I have heard that in a town in Indiana there are 500 workers and 2500 retirees living in the town.

    I am all for taking care of employees, but I think that stops with a pension. After that, you are on your own. For retirees, there is Medicare.

    I have heard that healthcare costs $1500 - 2000 per car. It makes sense that they can the retiree part so that they can sell cars more competitively.


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    Vulture of The Western World Eric's Avatar
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    Re: GM on verge of bankruptcy?

    Quote Originally Posted by Henry
    I'm sorry, but I think GM needs to can healthcare for its retirees. I know of no other company that does this and don't understand why they got themselves into that bind. I have heard that in a town in Indiana there are 500 workers and 2500 retirees living in the town.

    I am all for taking care of employees, but I think that stops with a pension. After that, you are on your own. For retirees, there is Medicare.

    I have heard that healthcare costs $1500 - 2000 per car. It makes sense that they can the retiree part so that they can sell cars more competitively.

    No question, it's a liability.

    But - and just to play Devil's advocate - GM did agree to provide these benefits as a condition of employment. It'sa contractual obligation no different than any other - isn't it? If I had worked for GM for 20 years and GM had agreed, as a condition of my employment, to provide a pension (one that I probably contributed to, also)upon retirement, then I would certainly feel entitled to it.

    Wouldn't you?

    Meanwhile, GM pays its loser CEOs tens of millions every year to preside over one debacle after the next - and no one ever talks about cutting their benefits, do they?

    The pension/health care thing is a bogey. GM's real problem is that it has too much product glut - at least three divisions need to be closed or consolidated. It is just ridiculous that GM still maintains six full-line divisions with all of 24 percent market share.

    It's also GM's fault that it has been producing non-competitive cars for decades. Yes, I know, it has improved - and I freely admit that GM has some excellent cars. But it has also produced far more duds than Toyota - and chose not to invest in (among things) hybrid technology until much later than Toyota and, even now, is pouring billions into idiocy such as the new Camaro and the $45,000 Volt....

    To a very great extent, GM has made its own bed. This is not the workers' fault - and I grow weary of seeing the average American getting f**ked in the ass by the corporate kleptocracy.

    Socialism is a fact of life for corporate Big Business; it's only the average American who gets to enjoy the so-called "free market."







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    Senior Member misterdecibel's Avatar
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    Re: GM on verge of bankruptcy?

    This is how socialized medicine will come to pass in America. It won't come from the left wing, it'll come as a bail-out for the Auto Industry and others, corporate welfare to save the CEO fatcats' asses.

  8. #8
    Vulture of The Western World Eric's Avatar
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    Re: GM on verge of bankruptcy?

    Quote Originally Posted by misterdecibel
    This is how socialized medicine will come to pass in America. It won't come from the left wing, it'll come as a bail-out for the Auto Industry and others, corporate welfare to save the CEO fatcats' asses.
    I agree.

    But just once, I'd like to see these business cretins held accountable for the disasters they create and preside over. Any normal person screws up at work, they get fired - no "golden parachute" - and it won't be a simple matter of finding another grossly overpaid gig, either.

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    Re: GM on verge of bankruptcy?

    I sold my GM stock about 2 years ago when I bought the Hyundai. It was inherited, so I didn't really have a "loss" but I was able to take one on taxes. I'm glad I have. Our company stopped the healthcare program for retirees about 4 years ago and has announced it's freezing the retirement program as of Aug 1. However, they are improving the 401k to counter it. And, let me tell you, socialized medicine in America aint' all it's quacked up to be. When I signed up with the Air Force in the 70s, one of the key things was the free healthcare for life if you retire. Well, it's not free, but it's not that expensive. Luckily, I use my job's health plan most of the time, but the pharmacy benefit on base for what they stock is still a great savings.

  10. #10
    Vulture of The Western World Eric's Avatar
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    Re: GM on verge of bankruptcy?

    Quote Originally Posted by ducky1776
    I sold my GM stock about 2 years ago when I bought the Hyundai. It was inherited, so I didn't really have a "loss" but I was able to take one on taxes. I'm glad I have. Our company stopped the healthcare program for retirees about 4 years ago and has announced it's freezing the retirement program as of Aug 1. However, they are improving the 401k to counter it. And, let me tell you, socialized medicine in America aint' all it's quacked up to be. When I signed up with the Air Force in the 70s, one of the key things was the free healthcare for life if you retire. Well, it's not free, but it's not that expensive. Luckily, I use my job's health plan most of the time, but the pharmacy benefit on base for what they stock is still a great savings.
    Yep - another problem for GM is that its stock is becoming radioactive. As more and more people dump it, fewer are willing to risk buying it. The death spiral just picks up speed... .










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    Re: GM on verge of bankruptcy?

    I think that most major CEO's ought to be dropped out of an airplane, not given a golden parachute, that's for sure.

    U.S. corporations have broken the social contract that they've had with workers and community 3 decades or more ago. Every year, wages go down, benefits, and vacations are reduced. Employees are forced to work longer hours for less pay. To not ask so-called retirees to pay a little is absured.

    I think that Rick Wagoneer ought to be forced to work for GM in China as an assembly line worker and the health care benefits should be canned. That would solve a lot of their problem.

    I don't think that GM has too much product. It has too much of the wrong product, for whatever reason, like all other carmakers selling vehicles here.

  12. #12
    Vulture of The Western World Eric's Avatar
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    Re: GM on verge of bankruptcy?

    Quote Originally Posted by Henry
    I think that most major CEO's ought to be dropped out of an airplane, not given a golden parachute, that's for sure.

    U.S. corporations have broken the social contract that they've had with workers and community 3 decades or more ago. Every year, wages go down, benefits, and vacations are reduced. Employees are forced to work longer hours for less pay. To not ask so-called retirees to pay a little is absured.

    I think that Rick Wagoneer ought to be forced to work for GM in China as an assembly line worker and the health care benefits should be canned. That would solve a lot of their problem.

    I don't think that GM has too much product. It has too much of the wrong product, for whatever reason, like all other carmakers selling vehicles here.
    I agree health care should be decoupled from employment; I also think it's ridiculous to use insurance for routine check-ups and so on. The whole point of insurance is to provide security against a major (and relatively unlikely) calamity, for example, cancer or a heart attack. Thus, high-payout expenses are spread out among a large pool of payers, with the result being reasonable rates for coverage, etc.

    Regular expenses should be paid out of pocket, just as we pay for routine service for our cars. (Imagine using your car insurance to file a claim to pay for an oil change... .)

    That said, I cannot see how you can deny the contractually agreed upon retirement benefits owed to the workers. GM, et al, agreed to provide "x" in return for "y" years of work. How can anyone justify rescinding these benefits - especially while the company is still paying its senior management multi-millions each every year? I'm sorry, but I really get angry about this socialism for the rich/"free market" for average people BS that is being crammed down our throats.

    As for the rest: 6-7 full line divisions cannot be supported by a 24 percent market share. It is madness. GM has to invest enormous sums in promoting and advertising each of these divisions (as well as all the separate tooling, parts inventory, supply chain, etc etc.) while Honda and Toyota only have to worry about 2-3 divisions each.

    6-7 divisions made sense in 1970 - when GM owned 60 percent of the US car market. But not today.





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    Re: GM on verge of bankruptcy?

    I also think it's ridiculous to use insurance for routine check-ups and so on.
    I have an HSA (Health Savings Account). You couple that to a high-deductable insurance policy to catch the catastrophic problems. My policy says I pay for the first $5k, after which I'm 100% covered (well, subject to the usual insurance company exclusions, etc).

    The catch is you need to contribute $2900 a year to your HSA to get the most benefit. But most Americans can't save that in their regular savings accounts, much less one dedicated to their health. Even though you get to keep that money for when you retire, and medical costs skyrocket. The HSA account is currently paying 5%.

    Chip H.

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    Vulture of The Western World Eric's Avatar
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    Re: GM on verge of bankruptcy?

    Quote Originally Posted by chiph
    I also think it's ridiculous to use insurance for routine check-ups and so on.
    I have an HSA (Health Savings Account). You couple that to a high-deductable insurance policy to catch the catastrophic problems. My policy says I pay for the first $5k, after which I'm 100% covered (well, subject to the usual insurance company exclusions, etc).

    The catch is you need to contribute $2900 a year to your HSA to get the most benefit. But most Americans can't save that in their regular savings accounts, much less one dedicated to their health. Even though you get to keep that money for when you retire, and medical costs skyrocket. The HSA account is currently paying 5%.

    Chip H.
    I would be most people could afford $2,900 annually - if they didn't also buy a too-big house, too much car, have too many kids - etc.

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