New GM almost ready to roll

Discussion in 'Wall St. News' started by ASusilovic, Jul 3, 2009.

  1. A new General Motors could emerge from bankruptcy protection next week if a federal judge approves its restructuring plan, as seems likely.

    Judge Robert Gerber adjourned proceedings after the US carmaker indicated it would revise some terms of the plan to accommodate objections. It filed a revised plan with the Securities and Exchange Commission late on Thursday.

    The restructuring, under section 363 of the US bankruptcy code, would be a landmark in the Obama administration’s efforts to reshape the car industry. Chrysler, GM’s Detroit-based rival, has gone through a similar process, emerging as a new company last month after 41 days in Chapter 11. GM filed for court protection on June 1.

    GM is planning a campaign to persuade Americans that it is a nimbler company making vehicles worthy of their respect.

    Several new directors will be appointed and Fritz Henderson, chief executive, has indicated that an extensive management shake-up is in the works.

    One person familiar with GM’s thinking said the changes would give top management a younger, more diverse dimension, including promotion of several executives from GM’s overseas operations.

    The US and Canadian governments will own 72 per cent of the new GM, with stakes held by a union healthcare fund and existing bondholders.

    Unwanted assets, such as idled plants and other real estate, will remain in the existing company in Chapter 11 to be sold or wound down. As part of the restructuring, GM is looking for an outside investor for its European operations.

    GM laid the groundwork for its speedy trip through the courts by taking a less confrontational stance than Chrysler.

    As in Chrysler’s case, GM and the government have stressed the importance of speed in the restructuring.

    Harvey Miller, GM’s chief counsel, told the court on Thursday: “The longer we stand here, [the longer] GM’s market share is eroding.”

    The revised plan includes an increase in US government support for winding down the existing company from $950m to $1.18bn. The funds are part of $33bn in debtor-in-possession financing provided by the US and Canadian government to help GM operate during the bankruptcy proceedings.

    The official committee of unsecured creditors and trustees for the bondholders said they supported the revised deal.

    So what can we expect from the "New GM"? Better cars ?
  2. You know the answer.
  3. pismo10


    Government Motors will be run more horribly than ever of course.
  4. General Motors can survive bankruptcy far more easily than it can survive President Barack Obama's ambitious fuel economy standards, which mandate that all new vehicles average 35.5 miles per gallon by 2016.

    The actual Corporate Average Fuel Economy (CAFE) results will depend on the mixture of fuel-thrifty and fuel-thirsty vehicles consumers choose to buy from each manufacturer -- not on what producers hope to sell. That means only those companies most successful in selling the smallest cars with the smallest engines will, in the future, be allowed to sell the more profitable larger pickups and SUVs and more powerful luxury and sports cars.

    Sales of Toyota's Prius, Yaris, Corolla and Scion, for example, allow and encourage Toyota to market more Lexus 460s, Sequoia SUVs and Tundra pickups in the U.S. without incurring fines. Hyundai's success selling Accent and Elantra compacts allows it to sell 368-horsepower Genesis sedans.

    Similarly, Ford has the Toyota-licensed hybrid Fusion and will soon produce the European Ford Fiesta in Mexico. Chrysler will soon have Fiats. But what does GM have?

    No independent reviewer suggests that the Chevy Aveo and Cobalt are credible contenders in the small car field. Even the president's auto task force finds the electric Chevy Volt "unviable," since it will lose money unless priced above a Cadillac CTS. The Opel-engineered 2011 Chevy Cruze will face tough competition from Asian cars whose reliability is better established. Launching such new models will be even tougher in the future, now that GM has lost control of Opel.

    GM accounted for about 19% of vehicle sales so far this year, but the company had a much smaller share of the market for small cars and SUVs (which accounted for 20% of total sales through May). To continue offering a Toyota-like array of larger cars and trucks under ever-tighter CAFE rules, GM would have to capture a much larger share of the market for small and/or diesel-powered vehicles. Unfortunately, European and Asian car makers have decades more experience building reliable subcompact cars and diesel engines for their local markets -- where consumers face steep taxes on gasoline and large engines.

    General Motors does produce competitive cars and trucks, but not one of them is small. Consumer Reports recommends three GM cars and three GM trucks. The recommended cars are the Chevy Malibu (the unrecommended hybrid has been dropped), the large Buick Lucerne and the Cadillac DTS. Consumer Reports recommends the Chevy Avalanche and Silverado and the GMC Sierra trucks. Car enthusiast magazines insist on adding Camaro, Corvette and the 556-horsepower Cadillac CTS-V to that list.

    Among those nine best GM vehicles, only the four-cylinder Malibu achieved as much as 25 mpg in Consumer Reports testing. The others get 12-17 mpg, yet they are no less fuel-efficient than comparable foreign brands. The Environmental Protection Agency rates the mileage of the Toyota Sienna van and Nissan Titan pickup as worst in their class, and comparable Chevys as best. Unlike GM, however, Japanese car companies sell enough small cars to offset the large and thus hold down the average figures.

    General Motors is likely to become profitable only if it is allowed to specialize in what it does best -- namely, midsize and large sedans, sports cars, pickup trucks and SUVs. The company can't possibly afford to scrap billions of dollars of equipment used to produce its best vehicles simply to please politicians who would rather see GM start from scratch, wasting more taxpayer money on "retooling" to produce unwanted and unprofitable subcompacts and electric cars. The average mileage of GM's future cars won't matter if nobody buys them.

    Politicians are addicted to CAFE standards because they create an illusion of doing something sometime in the future without voters experiencing the slightest inconvenience in the present. Tighter future CAFE rules will have no effect at all on the type of vehicles we choose to buy. Their only effect will be to compel us to buy larger and more powerful vehicles from foreign manufacturers. Americans will still buy Jaguars, but from an Indian firm, Tata, rather than Ford. They'll buy Hummers, but from a Chinese firm, Tengzhong, rather than GM. The whole game is a charade; symbolism without substance.

    As a matter of practical politics, rescuing GM from strangulation by CAFE will require offering economically literate environmentalists a greener alternative, i.e., one that works. Luckily, the government has two policy tools that, with minor modifications, really could discourage people from buying the least fuel-efficient vehicles.

    One is the federal excise tax on "gas guzzlers," which could take some fun out of the horsepower race except that it applies only to cars, not to SUVS, vans and trucks. Why not apply this tax to all types of gas guzzling vehicles? Owners of trucks used for business could deduct the tax in proportion to miles used for business, as they do with other vehicular expenses. Phase it in after 2011 to encourage buyers to snap up the unsold inventory of gas guzzling trucks quickly -- a timely "stimulus plan."

    Second, the federal fuel tax is highest on the most efficient fuel (diesel) and below zero on the least efficient fuel (ethanol). Cars get about 30% better mileage on diesel than on gasoline, and cars running mainly on gasoline get about 30% better mileage than they would using 85% ethanol.

    To stop distorting consumer choices, simply apply the same 24-cent-a-gallon federal tax to gasoline and ethanol as we do to diesel. This would add funds to the depleted federal highway trust. More importantly, it would remove an irrational tax penalty on buying diesel-powered cars -- arguably the most cost-effective way to improve mileage without reducing car size or performance.

    These two proposals are a greener alternative to CAFE, because they'll work. But they'll only work if Congress totally and permanently abandons the charade of CAFE. It is arguably worthwhile to accept a modest tax increase in exchange for an end to harmful regulations, but that exchange is effective precisely because it is not painless.

    Unifying fuel taxes and broadening the excise tax on gas guzzlers makes sense as an alternative to CAFE. Otherwise it's just more pain with no gain.

    If politicians insist on tightening fleet average mileage standards for bankrupt auto companies, how could those rules be enforced? The only penalty for violating CAFE rules is a big fine. If consumers keep refusing to buy enough small cars from GM and Chrysler to allow them to meet the CAFE rules, how are those companies expected to pay the fines?

    The government is already planning to spend about $50 billion bailing out General Motors plus $7 billion for Chrysler. Will President Barack Obama provide Detroit auto makers with even more subsidies to pay CAFE fines?

    Maybe so. That would be only slightly more bizarre than current plans to bribe folks with $4,500 to sell their "clunkers," or to offer huge tax credits to those rich enough to buy a $73,000 hybrid Cadillac Escalade or an $88,000 Fisker Karma.

    The bottom line is that CAFE standards are totally unenforceable and ineffective. Regardless of how much damage the rules do to GM and Chrysler, Americans can and will continue to buy big and fast vehicles from German, Japanese, Korean, Chinese and Indian car companies. CAFE standards might just be another foolhardy regulatory nuisance -- were it not for the fact that they could easily prove fatally dangerous for any auto maker overly dependent on the uniquely overregulated U.S. market.
  5. If every single vehicle of any size was built as a hybrid, and plugin technology conversions were enouraged (not "voiding" the warranty") and a host of other good suggestions that seem to remain only as suggestions were implemented...

    And gasoline taxes were raised very high and the money used to PAY for hybrid, reduced rolling resistance tires, improved transmissions and engines and hundreds of other fuel-saving conversions

    then we would "CAFE" a lot sooner. And imported oil would drop dramatically.
  6. No hybird of medium or large size is close to CAFE standards of 35mpg.
    It will only happen if we all are forced to drive very small cars.
  7. This new fuel standard is easily achievable by the car companies. Is it economical? Sure, will they make as much money? No. Which shows their reluctance. all those market theorists. The government basically just said that the market is wrong and the consumer is wrong. The consumer is the market and the market does not know what it wants, therefore we're going to impose a restriction to guide them in the right direction.
    So...perfect market theory = dead. It always has been, it never factored in psychology.

    Anyway, GM is going to be a huge joke. Sounds like an Investment Bank that made a bad decision (purposefully) and has to pump and dump the stock to "regain" the "bail out" money.

    This inevitably will happen, same thing can be seen as a working example with the banks. Change from Tier-1 Model to an Equity Model, meanwhile you own the equity portion (preferreds?). Yeah pump and dump, but everyone will be happy in the end because the government will get their money back and look like a savior.

    I personally am not worried, give it a couple of years and the world return to normal.

  8. [​IMG]
  9. Hybrid was only a piece of the total, not the whole thing.

    Lighter materials, hybrids, low rolling resistance tires, plugins and a bevy of other discoveries and things are available. But the car companies constantly quote cost and competition.

    Putting the gasoline back to $4.30 alone will against drive down SUVs and pickups numbers and drive up hybrid and high MPG car numbers, used by the masses, annoyingly especially seeing a Ford Excursion (8000 pound SUV) mostly used for a single driver back and forth to work.

    Now it is back to $2.50, the very large vehicle sales have risen a lot.

    Europe has a lot fewer problems with these, because fuel has always been a lot more expensive. And diesel vehicles, which get much

    Diesel-hybrid 2,500 pound midsize cars for all alone could do wonders for CAFE.

    Having a wide selection of natural gas cars (relatively cheap domestic fuel which puts out a third fewer CO2 emissions) would be a help. Only the Honda CNG car(s) have been available...
  10. The only way to meet CAFE is either with some breakthrough technology or forcing consumers to drive small cars.

    The Government plans to raise the cost of fossil fuels through cap and trade and other taxes. Watch rebates coming to buy GM cars.

    If no breakthrough then Government is going to "incentivize" people to buy tiny deathtrap cars
    #10     Jul 4, 2009