network engineer

From The Wall Street Journal

By JEFFREY MCCRACKEN and JOHN D. STOLL

Outside advisers to the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors Corp. and Chrysler LLC, in case the two auto makers need it, said several people familiar with the matter.

While acknowledging the grimness of the task, administration officials involved in the auto talks said they are trying to find a way to restructure the two companies without resorting to bankruptcy proceedings. They stressed the latest efforts were "due diligence" on the part of the government advisers, and that bankruptcy financing may not be necessary.

Still, people involved in talks with senior Obama administration officials said that the administration believes that the option of Chapter 11 filings by the two auto makers needs to be seriously considered.

"Everything is on the table right now," one person involved in the matter said, adding that President Barack Obama doesn't want to see more massive job losses in the auto industry. His administration also doesn't want to anger the United Auto Workers by appearing to push for bankruptcy, this person added.

The initial discussions call for private banks to provide the financing -- known as a debtor-in-possession, or DIP, loan -- with the government guaranteeing or backstopping the loan. In this scenario, some of the financing would be used to pay back the $17.4 billion the government lent GM and Chrysler late last year.

Treasury advisers are handling the effort and keeping GM and Chrysler informed of the steps through back-door channels, said the people familiar with the matter. The interplay between the government, auto makers and the markets is proving to be complicated.

Lenders are reluctant to commit funding to GM or Chrysler for several reasons -- mostly concern they won't get all their money back. Recently, the government advisers have begun aggressively courting big lenders Citigroup Inc. and J.P. Morgan Chase & Co. -- themselves government-aid recipients -- to participate in any bankruptcy financing, said people familiar with the matter.

The government advisers also are looking at ways the Treasury could "prime" other banks making DIP loans, so the government could be paid back before private creditors. Banks are deeply resistant to such steps. Both GM and Chrysler insist they can avoid bankruptcy, warning that option could cost the government as much as $125 billion in rescue financing. Bankruptcy experts say the sum isn't likely to be that high.

Even so, the estimated total of $40 billion in DIP financing GM and Chrysler would need would be five times as large as the previous record for such financing, which is used to fund day-to-day operations while companies sort out their debt. To fill such a large hole, Treasury's advisers are trying to corral as many as 70 lenders to participate in what is now informally called the "bank steering committee."

The advisers are sounding out banks about loan terms based on a government backstop, figuring out what interest rate the private market would accept and what covenants or restrictions lenders would expect.

RICK WAGONER

At a news conference Tuesday, GM Chairman and Chief Executive Rick Wagoner, once a fierce opponent of even talking about a bankruptcy filing in public, said GM could engage in talks soon with the government on how to fund a stay in bankruptcy court. "We haven't had extensive discussions yet with the government on DIP financing," he said.

DIP loans are usually viewed as among the safest loans because those lenders typically get paid before other creditors. However, that corner of the lending market froze up late last year and has only recently begun to thaw.

Interest rates for bankruptcy financing have spiked in recent months, more than doubling from a year ago. In 2006 and 2007, the rate on the average DIP loan was the London interbank offered rate plus about 4 to 4.5 percentage points. Last year, the rate on the average DIP loan jumped to Libor plus 6.1 points, and rose throughout the year. A backstop by the federal government, however, probably would make such a loan less expensive.

Bankruptcy experts say that absent government support, lenders wouldn't step in to aid GM and Chrysler, given the proposed size of the loan and the tightness of credit markets. Most likely, the bankruptcy loan would roll up -- or pay off -- the $17.4 billion the government has so far lent the two auto makers. It might also pay off some other debt, including a senior bank facility.

Advising the Treasury on the GM-Chrysler situation are law firms Cadwalader, Wickersham & Taft LLP and Sonnenschein Nath & Rosenthal LLP, and the New York investment-banking firm of Rothschild Inc.

Cadwalader attorneys, who are in charge of advising the government on DIP lending and other matters, declined to comment. A spokeswoman for Sonnenschein declined to comment. Rothschild didn't return phone calls seeking comment.

In early January, Cadwalader bankruptcy attorney Deryck Palmer helped line up $8 billion in DIP financing for chemical company Lydondell Basell, the current record for such a loan.

So far, GM has received $13.4 billion in federal loans, The viability plan it submitted to the government last week said the company needs a total of $30 billion in aid, or $16.6 billion more than it has already gotten. GM also said it needs at least $7.7 billion in loans from the Department of Energy to develop fuel-efficient technology.

Chrysler has received $4 billion in government loans and said it needs $5 billion more. It said it would need $24 billion in financing if the company were to seek bankruptcy protection.

GM said it might need as much as $100 billion in financing from the government if it were to go through the conventional bankruptcy process. GM's $100 billion estimate stems from the belief that it would suffer "catastrophic revenue reduction impact" in a prolonged conventional Chapter 11 process, as it would expect to sustain as much as an 80% decline in sales after a bankruptcy filing. GM would need financing not only so it could weather the storm, but also to help its suppliers and dealers survive.

Mr. Wagoner, the GM CEO, said the bankruptcy scenarios are "risky" and "costly," and would only be pursued as a last resort. "We haven't had extensive discussions yet with the government on DIP financing," he said. "They asked us to put together and address the topic. We've done that in [GM's viability plan], so I suspect we may enter into those discussions."

Because OSX Leopard is just super reliable awesome right?

Compared to windows? Why yes it is. Compared to Linux? Why yes it is.

Most of us use Facebook I'm sure. I was recently on consumerist.com and had the option of logging in with my Facebook account. After logging in I was able to make posts with my Facebook avatar posted and then a pop up window gave me the option of duplicating the post along with a link to the article on my Facebook account.

Here is my Facebook account.

I am very impressed with this car. It looks great inside and out. As for the Big ass, I think that was done to nod to the interceptor and to give it potentially class leading trunk space. As Americans move toward cars, they will want more cargo space.

I think depending on the pricing and options this will be a real toss up for me between this and the new Lacrosse.

With a realistic interior this car could sell hugely to the rich and famous. How cool would it be to be seen driving this car and saving the environment at the same time?

I know it's way out of my price range, but I have to say I love this car!

I am dying to know the pricing. I could totally see some ES350 drivers switching to these.

Autoblog was saying $26k to $33k for the base prices of the two different models. (3.0L and 3.6L)

From Autoblog

Hey look, is that an XM antenna that's color coded?

I have to say, that I really like that interior. Note the HUD and that the gauges appear to be digital.

Well that seems like some bad advice and perhaps explains GM's continued meltdown.

In the end, the "small circle" approach is still going to cost more money than the "big circle" approach. You end up chasing larger market share at the expense of profits per vehicle. Unless you are brilliant, the "small circle" approach leads to complexity and inferior products in an attempt to hit all the small circles. It isn't just a matter of changing the cladding, tail lights, and brand. This is what GM has been doing for years now and it doesn't work.

You have to ask yourself if, for example, selling a similarly-featured Malibu at a higher price than an Accord (or at less of a profit) is worth it to be able to have the potential opportunity to sell another slightly different but also over-priced (or lower profit) model to someone else who might have bought the Malibu anyways. Also consider that the "big circle" alternative was that they both could have bought the Malibu for less money (or GM could have made a bigger profit per sale).

This sounds like an example (both for FOG and GM) of following whoever whispers in your ear what you want to hear.

I agree wholeheartedly.

I also agree with FOG. We don't need less models, but rather, need brands to have their own vehicles. Platform sharing really just means you sell the same car with a different wrapper. It clearly hasn't worked well for the last 30 years. If GM wants to keep Pontiac, then it needs the Pontiac cars to be truly unique. If it wants to keep Buick, then Buick should be unique, not just a gussied up Chevy. Do you have to engineer a brand new platform for different brands? No not really. You can take the same architecture and tailor it for a specific brand. For Buick you stretch it and soften the suspension. Work hard to isolate any vibrations. Make sure it really does drive and handle differently than the chevy. The cars can be cousins, but never brothers.

Chrysler has launched a marketing campaign that has put thousands of adds in newspapers across the country and a new website that thanks America for helping them through this tough time. America has responded to Chryslers adds.

The site is here.

The majority of the 70+ comments deride Chrysler and their management. The accuse the company of stealing from the American public.

Hey Crysler! You're not welcome. You took my hard earned tax dollars without congressional approval. This is not the time for a "thank you." This would be a good time for a refund...and an apology. http://rightklik.net

That was the very first post. Nice.

Bob Nardelli - thanking Americans for stealing their money is NOT something to boast about on your website. The American public DID speak when we choose to NOT buy your cars. Why not spend the money by showing us something compelling that people would "want" to buy. I have NEVER hear anyone excited about "buying a chrysler." You have no brand strength and this current "Thank You" ad will further your branding problems.

There were a few positive posts, but they didn't exactly applaud Chrysler or say they were happy with the bailout.

I think the bigger concern is with the backlash this bailout is having. I have heard many people echo the sentiments in these blog comments. Such that they will never buy a car from Chrysler or GM again. I know that I am seriously considering a Ford for my next car, because of the bailout.

Thoughts?

Could be an option, I'll explore the idea with the other admins/Mods.

Cool. I know everyone's busy and I'd be happy to donate my time daily to updated the front page.

I thought it might be nice to bring people back to the front page. You could see all the news in one place. No need to go through all the forums. Of course the forums would always be there.

I really think we need to have a more active front page. it's already set up in a blog style. Why can't we simply get the Auto stories from the major news sources posted in the forums and then linked to from the front page. Or have articles in the forums linked to the front page with a headline, post snippet and small photo?

I would love to do this. I emailed FLY about it, but I think he may not be checking his mail. I am currently not working and have plenty of time on my hands. This would be something I would love to do, which would really help C&G stay competitive with other auto news and discussions sites.

What do you guys think?

Are you assuming the government won't change those requirements if necessary. PE Obama just announced he was increasing the jobs cretion/retention goal.

Yes. I am assuming that the government will be concerned about public reaction. Most of the people I've talked to think that the $14B is it, and we won't need more money. They're surprised to find out that the companies will blow though this money by March and then need billions more. I think that much of the public will be enraged if we have to continue pumping money into this company. Especially after the government has proved they don't know what they're doing in the financial industry.

They just did!

Read between the line and factor in additional statements Bush made.

"Under normal economic circumstances." I.e. no available credit, the economy in the Great Recession.

The private sector would provide the DIP and the Judiciary branch of the Federal government would oversee the restructuring under a normal Chapter 11.

They automaker just entered chapter 11 "in practice" with the executive branch of the government its bankruptcy judge, setting the terms. The only difference is the automakers do not face the stigma of being in "bankruptcy" since the public does not understand the word.

The executive branch of the federal government just did under its TARP authority.

If the conditions outlined in the agreement are not met, the government would call in the loans with the next likely step being Chapter 7 (In practice) as there will be no one else to step in to provide the DIP.

I will steal a banking term as the government is "the lender of last resort".

You're assuming that GM will meet the terms the government has set. We shall see. After watching GM for the last 8 years, I don't believe they're going to do it. The UAW is going to stick to their guns, now more than ever. The government has no authority to rewrite the contract for them. And I simply don't see people with INSURED debt on GM swapping out their insured money for equity that could become worth less than their debt or potentially nothing.

*** As much as I support a more focused Pontiac, WHY is GM choosing this path? I don't get it... Do they think that Buick and Chevrolet are going to pick up the sales?!?!

Seriously... Someone enlighten me.

Because they've mismanaged the brand so badly that it's an embarrassment to be seen in many of it's badge job cars. Though that's easy to fix, with cars like the G8(Of course it doesn't sell well, because it's not advertised on TV and most people assume it's just another FWD Grand Prix. Anyway, with what money is GM supposed to fix it? They've squandered $78 Billion in the last four years. They have no choice but to drop the weakest brands so the strongest brands can survive. It's like the slowest member of the pack getting picked off by the predators.

GM doesn't want to do this to any of their brands. On the other hand GM doesn't want ALL of their brands to go out of business either.

*** As much as I support a more focused Pontiac, WHY is GM choosing this path? I don't get it... Do they think that Buick and Chevrolet are going to pick up the sales?!?!

Seriously... Someone enlighten me.

Because they've mismanaged the brand so badly that it's an embarrassment to be seen in many of it's badge job cars. Though that's easy to fix, with cars like the G8(Of course it doesn't sell well, because it's not advertised on TV and most people assume it's just another FWD Grand Prix. Anyway, with what money is GM supposed to fix it? They've squandered $78 Billion in the last four years. They have no choice but to drop the weakest brands so the strongest brands can survive. It's like the slowest member of the pack getting picked off by the predators.

GM doesn't want to do this to any of their brands. On the other hand GM doesn't want ALL of their brands to go out of business either.

No - you do not get it as GM is finished otherwise. The UAW and GM will live or die accordingly. In order for GM to file Chapter 11 they need a DIP and there is no one who will provide GM the money. The banks are not exactly lending money right now.

The federal government would be very likely to step in with the DIP financing. This was even one of the options the President was considering. The next 3 months will give the automakers adequate time to organize their affairs. They can either turn themselves around or be prepared for a pre packaged ch 11. Why wouldn't we provide the DIP financing?

I do not think you understand the situation.

I do and I understand what you're saying. The bailout proposal is essentially a government funded bankruptcy. It's not going to work though. GM will not get the concessions it needs and they will need to file ch 11 in order to get their contracts rewritten. I believe this will happen to GM in March. I believe that Chrysler will file chapter 7 at that point. I also believe the administration is aware of this and planned this regardless of what they've said.

Actions speak louder than words.

This was the world most expensive punt.

I really hope GM & Chrysler can do something with their second chance (and third, come the spring.)

Anyone here genuinely confident that those involved in guiding this--between management & the government--can make this work?

When I think transformational abilities, the Federal Gov't and/or Auto execs aren't the first people that spring to mind.

I am confident this plan will work as designed. I believe it's designed for them to fail. What they must achieve in 3 months is very difficult, especially for a slow moving company like GM. The UAW has promised to fight any wage concessions. The debtors will not want to swap for equity in a company that might not be here in 6 months. And GM hasn't been profitable for 4 years and have been increasing their loses every year. Now they're going to magically produce a plan in 3 months that will get them back to profitability? I'm pretty sure this plan is designed for them to fail and be forced into an organized bankruptcy. Mark my words, GM will file bankruptcy before the summer and end up better for it.

I keep hearing about the millions of jobs this will save, but if I'm not mistaken, the industry is expected to continue downward in sales. If that happens more and more autoworkers are going to get let go. So this is more like putting a tourniquet on. You're going to lose the limb but keep the victim alive right? GM will shed thousands of jobs but hopefully come out smaller and profitable.

it'll be interesting to see how the requirements work out for the loans. i believe they have to get their balance sheet to the positive, which means clearing over $70billion of debt, by March 31st, or the loans will be canceled.

obviously, I am happy to see GM live to survive another day. the purpose of the loans within GM appears to be to keep the lights on and weather this tough economic time for the auto business. somehow, I believe this will not be enough.

You're right. I think the total cost could be closer to $100 Billion. They'll just take the money out of our hands of course. The plan has some nice stips though.

They must:

Demonstrate financial viability by March 31st or pay the loans back (If they can't it's CH11 then)

Open their books to the manufacturers and allow the government to block transactions over $100 Million

Limit executive pay and eliminate bonuses.

No dividends on stock until the government has been paid back.

Pay the unions retirement funds with 50% equity(stock)

Eliminate paying union workers when they're not working. So if GM idles a plant for 30 days because of excess capacity, no one gets paid. And no

jobs bank.

And have union costs and rules competitive with foreign automakers by Dec 31, 2009. (the sticking point for the Senate)

Oh and the government says they will examine the financials of the companies. Which must mean they haven't already?! So we're pitching nearly $20 Billion into GM and don't know how deep the hole their in is?! What?!

The problem I see with bankruptcy is preserving the size of the company. (Divisions, overseas operations, etc.)

I, for one, will not be a GM customer if all they have to offer is Chevrolet or Cadillac. GM needs to maintain it's divisions for future growth and it's size for global competitiveness and economies of scale.

They could certainly do that by only offering the G8 for Pontiac and the.... well I can't think of anything for Buick to keep, but then they could just drop the badge jobs and build the Invicta. That way they get to cut the wasted development money creating competitors for their own cars but leave the divisions alive. You want to bring out a Velite later? No problem Buick is still there. How about a new RWD G6? Ok, it fits with Pontiac's image and it's still around. In the meantime they drop the badge jobs like the G6, G5, G3, Torrent, Vibe, Enclave, Lacrosse and Lucerne. And Saturn can just hit the bricks. If they want to sell opens here then just launch Open in the US and be done with it. Leave em right hand drive and everything for the really niche feel.

And Rick should be replaced with this guy GlenGaryGlenRoss. He'd definitely take no crap, and be fun to watch.

They will be Obama's problem one way or another...

given the lack of engeneering graduates and the general American preference for foreign cars (in some geographic areas) it will be a problem for the person who replaces him in 4-8 years.

Chris

You know, I was all about science and engineering in high school. I took physics and computer programming and got all As in both. Of course in 99 when I started college the tech bubble was bursting and record numbers of engineers jobs were being sent to India and China where they work for much less. That really made me stop and look at whether I should go into those fields. I didn't. I would go back tomorrow to become an engineer, but I fear the government will continue to award foreign companies and fail to create an environment that encourages companies to hire domestically. Sigh.

from Reuters

House Speaker Nancy Pelosi, a California Democrat, says the administration will likely use part of the $700 billion fund established in October to stabilize the financial services sector, rather than pushing the companies into bankruptcy, as some lawmakers have urged.

"That would be my expectation and I think all the signals coming from the White House are that they know that bankruptcy is not an option and that (stabilization) funds are the only recourse that they have," Pelosi said at a news conference.

So who's got it right? Will the administration force a bankruptcy or will they just give them enough cash to become Obama's problem?

From SmartMoney

It looks like there may be some serious conditions attached to any TARP money that could be forthcoming.

With Detroit's car makers facing bleak short-term prospects due to a collapse in consumer demand for vehicles, the Bush administration was rushing to determine the extent of the companies' financial problems. Late last week, some officials thought the government might be able provide as little as $8 billion to tide the companies over until early next year. On Sunday, a person familiar with the situation said the companies' collective needs could range from $10 billion to more than $30 billion. The administration spent the weekend poring over the automakers' books to assess their financial needs.

After reviewing the books over the weekend, this was leaked to the media.

Two people familiar with the situation said the government is also considering of requiring any auto makers seeking aid to file for bankruptcy. Under such a scenario, the money would be used as so-called debtor-in-possession financing. Outside experts said such financing could require $50 billion or more for General Motors and Chrysler combined.

A prepackaged bankruptcy technically requires approval by all constituents that are making concessions in the bankruptcy, making that a less likely option. A more likely outcome, if the White House decides it will only lend the money on condition of a bankruptcy, is what bankruptcy experts call a pre-arranged bankruptcy filing.

Under that scenario, the filing company negotiates with its stakeholders beforehand and may get one or two groups to sign off on their concessions before filing. The company then hashes out the remaining concessions in bankruptcy.

One advantage of the continuing public debate and congressional talks, people familiar with the matter said, is that Chrysler and General Motors appear to be preparing for the possibility of a filing, with both recently bringing in bankruptcy advisers.

I personally believe that this may be the only way for GM to get itself back on track. While they may lose major market share, they can become profitable. GM could see their market share at 10% after a restructuring, but it's better to be smaller and profitable than to have 20% share right before you go out of business forever.

I'd rather have a smaller, focused, profitable GM than no GM at all..