NEOAVATARA

General Motors presented a plan to restructure the company, with some surprising and controversial steps to decrease its debt.

First, GM plans to cut 23,000 additional jobs, as well as eliminating the 84 year old Pontiac brand name.  They plan on reducing dealers by 1/2, therefore making it possible to decrease long term car production.

The most controversial part of the plan is the conversion of debt to equity.  You and I, the American taxpayer, via the proxy of the American Government will become the majority stakeholder of the car company, converting $10 billion in debt to a majority stock holding.  The UAW would be the second largest holder of GM stock, would get a 39% ownership of the company for elimination of $10 billion in debt.

Clearly the biggest losers would be credit and bond holders.  Unlike the U.S. government and the UAW, the bond holders would get on average 10 cents on the dollar for their investment.  In other words, both the Unions and the US government would get approximately 5 times more worth out of the company per dollar than the bond holders.  They currently are balking at the deal, calling it unfair.  They were not part of the initial negotiations that resulted in the current plan.

Creditors accuse the Obama Administration of bowing to pressure from the unions.  They accuse GM and Treasury, stating that they  “are pinning their hopes on an extremely risky and legally questionable turnaround in bankruptcy court, instead of engaging its lenders and workers in the very type of negotiations that could avoid such a fate,” the committee said.

The government’s mincromanaging of GM has already started.  The White House basically dictated the end of Pontiac, and wanted to end GMC as well, until they realized that GMC is one of the few profitable divisions in the company.

Additionally, GM had tried to keep it key supplier, Delphi, afloat with cash.  Delphi, which has been under bankruptcy protection for several years, is under a strict deadline from the bankruptcy court, and needs more case.  GM, the Treasury, Delphi and its lenders are in negotiations and now face a May 9 deadline to come up with a deal that will resolve Delphi’s Chapter 11 bankruptcy.  The Treasury’s prohibition likely hastened Delphi’s eventual dowfall, and GM (and ironically, Ford and Chrysler as well) would have trouble running without Delphi.  Delphi, again, is another company ‘to big to fail’.

Obama is clearly favoring the Unions in this debacle.  Again, as I have been stating at least since November, bankruptcy is preferable to this nonsense.  The ONLY reason at this point not to let both GM and Chrysler enter bankrutpcy if for the unions.  Clearly the Democrats are doing anything to pay back their best supporters…just look at Card Check, which should be dead based on lack of both Republican and moderate support, but still lives and breathes.

We have now made our largest automaker a complete subsidiary of the federal government…along side such glowing successes as the IRS and US Post Office.  And you know that every lobby ever involved in discussing GM is going to get into the game, whether it be labor, environment, legal…everybody sees their chance now.  This may be one of the greatest government boondoggles in modern history.