But they are jobs that, even if done well, don’t result in a product anyone wants, so essentially they are taking money from people who do produce valuable goods and services and giving them to people who do not, and have not for decades. I want my money back!
It depends on the debt. The bulk is exchanged for equity in new GM and warrants for more equity.
Bondholders get 10% of new GM for their $27 billion in debt and warrants for 7.5% more exercisable when new GM is worth $15 billion and another 7.5% exercisable at a new GM worth of $30 billion. The union gets equity and additional warrants as well although their warrants do not become exercisable until value hits $75 billion.
Kramer? Yeah I’ll trust his thoughts.
So, you either owned Morris Marina or an Austin Princess, didn’t you, Blake? 
Seriously, while the government should provide funding for research into the next evolution of passenger vehicles and supporting infrastructure via the DoE, DoT, DARPA, it should stay out of the business of producing automobiles, or indeed manufacturing anything. The ideal situation would be to have one council of experts in transportation technology to define a series of recommended directions for development, a separate advisory council on the business and production aspects of running a large manufacturing company, and then a executive management team drawn from diversified manufacturing development companies like Textron and ITT. All of this should be collected into a nonprofit FFRDC under CFR Title 48, Part 35, analogous to The Aerospace Corporation or MITRE, that will oversee and advise the internal management of GM. The extend of direct Federal oversight should be limited to OMB reviews through the Department of the Treasury as to the status of predicted profitability versus actual profits.
Ultimately, a return to profitability (or assessment of obsolescence and piecing off the production facilities and intellectual property) should be the primary focus, although retention of jobs where possible and worthwhile should also be a primary focus, although jobs to product unsalable products are useful to no one. Chopping up the company for short-term ROI profitability is neither desirable nor worthwhile. Relaxing labor restrictions and presumption of support for the UAW is also a needed step. Turning GM into an employee-invested company may help to limit the excesses of union-enforced hamstrings while still supporting labor input and control.
Ultimately, the government needs to limit involvement and cashflow into GM, and divest itself of the responsibility of running a major industry.
Stranger
Elaborating on DSeid’s post a bit more,
Debt owed to the US Treasury ($19.4 billion currently, with GM estimating it will require an additional $30 billion from the Treasury for restructuring) is converted to:
-A 72.5% common stock holding in the new company
-$2.5 billion in preferred stock (preferred stockholders get regularly-scheduled dividend payments)
-$8 billion in debt
Debt owed to the UAW ($20 billion) is converted to:
-A 17.5% common stock holding in the new company
-$6.5 billion in preferred stock
-$2.5 billion in debt
-The right to purchase an additional 2.5% common stock holding in the new company for $75 billion (the newly issued stock would dilute everyone’s existing shares)
Cumulative debt owed to other debtholders ($27.2 billion) is converted to:
-10% common stock holding in the new company
-$6.5 billion in debt
-The right to purchase an additional 7.5% common stock holding in the new company for $15 billion (Warrant 1)
-The right to purchase an additional 7.5% common stock holding in the new company for $30 billion (Warrant 2, obviously Warrant 1 would be used first)
The new terms of the now-smaller debts to the Treasury, the UAW, and the other debtholders would presumably need to be negotiated in bankruptcy proceedings, although I’m guessing there have been tentative discussions regarding the new debt terms already.
One good way might be by saying: “So GM is unable to attract sufficient money from customers and investors to cover its expenses? How about we force people - including many who have no interest in GM products - to pony up that money (to the tune of $50 billion, and more). We sure wouldn’t want them directing that money toward companies that have a history of doing things competently.”
Thank you, Caldazar and DSeid, that clears up a lot. I was just curious what happened with the debt when a company isn’t liquidated but kept around.
My opinion is the whole situation’s a fustercluck and no, I really don’t have opinions beyond “mass layoffs in an already bad economy are a bad thing” and “cars that will help wean us off foreign oil are a good thing”, neither of which is a particularly insightful or incendiary statement. That said, and to paraphrase a conceit of Mr. Perot’s circa 1992, “I ain’t got no experience running up tens of billions of dollars worth of debt and and having to get public tax dollars to bail me out neither”, so my uninformed opinions are far less harmful than the presumably informed opinions of those who ran the company.
This is what I particularly don’t understand: the auto da fa over “oh no, the government is taking over private industry, they’re going to mess it up! Terrebraum et nebulae!” by people who don’t seem to grasp that the company would be an ex-company, bleeding demised, gone to sing with the Choir Invisible, etc., were it not for the government. It’s a bit like saying “Hands off that corpse you just reanimated! You’re gonna hurt him!”
Mass layoffs are the only way that GM is going to survive. It’s was a requirement of the recovery plan approved by the Government overseers before this whole mess was allowed to proceed. The only guaranteed way for this to fail (there are other ways to fail but this one is a non-starter) is if GM doesn’t eliminate lots and lots of unnecessary jobs. Some, like some jobs associated with the Hummer brand being sold off, will last at least for some time. Some new work will come along with the new products being developed. But 10,000’s of jobs must simple go away for GM to survive as a company.
A much smaller, leaner company. Everything I’ve read says the government board is going to try to hold them to this. Yes, there will be attempts by elected officials to save jobs (and it’s already started) but I hope the board gives the company political cover to make those painful cuts.
The concern is the hemorrhaging of tens or eventually hundreds of billions of taxpayer dollars to bail out a company that will continue to produce inferior and unprofitable products on the basis that “We can’t let the American auto industry die.” This is an exact parallel that led to the charlie-fox that was British Leyland and the Wilson/Callaghan Labour government. GM needs to become profitable on its own merits without permanent subsidy or needs to be taken out in the back forty and mercifully dispatched.
Stranger
Isn’t it kind of like the argument Labour had with Thatcher over the coal miners? It may be expensive to subsidise these industries but it will cost a lot more to pay them to do nothing (Welfare/Dole)?
And there are plenty of argument as to why not having some type of social net leads to worse overall economic outcomes for the country as a whole then having one.
Lawmaker demands Obama reverse GM decision on plant closure
It’s Bush/Cheney’s fault, but Obama made it worse:
Misguided actions by White House and Congress led to GM bankruptcy (Rep. Jim Jordan)
Yup, but it’s not imperative that it be chopped up and sold* right now *in the midst of a massive worldwide financial crisis.
The only way “we” could own GM is if “we” happen to be driving one because 60% of nothing is nothing. GM is gone. whether or not its possible to start up a new car company with $60B in capital remains to be seen. I hope they get a good price for Hummer and Saturn as that will become part of the working capital.
Wait, in one breath he complains about the lack of a comprehensive energy policy making ginormous gas guzzlers nonviable, and the in the next he complains about instituting an energy policy that seeks to mitigate reliance on increasing imports of petroleum. Urk?
No, I didn’t say it was. It is, however, necessary to take measures–some drastic–to see if the company can be placed on a sound profitable footing. It will take at least three or four years, and perhaps longer, just to get design and production changes in place to even begin to see if GM can produce competitive products. There is no sense in the taxpayers shelling out massive amounts of money just to let GM keep on blundering through the way it has for the last two decades without correction. That “massive worldwide financial crisis” is in part the result of overextended and unprofitable companies and industries. Propping them up on the public dole queue will ultimately just extend the problem.
Stranger
Exactly!
I didn’t say you did, but from some of the talk I’ve heard there’s a goodly minority who see even a temporary government takeover as one of the signs of the apocalypse; a grave and gathering threat that requires imminent bombing of Washington democrats and suchlike.
We fell for this crap on Iraq, let’s not fall for it again.
And why do you think it will be temporary, or even useful, much less profitable? If GM had been shut down shut down last year, or even years ago, the company would not just go away. It would be broken up. It would be bought up by competitors peicemeal. Creditors would have been paid off considerably. What could, and probably would have emerged was several stronger companies, entrenched management and bad business practices (the UAW and top GM management, particularly) cleared out, and ultimately more and better future potential. And more competition.
Second, Obama and the Congressional Democrats are nakedly, blatantly, and grotesquely using this to engage in gratuitous vote-buying. They are propping uip the private unions in order not to save jobs (for the amount already spent, we could have given about a *$100K or more to every employee *even if the whole company went down in flames!) but to save votes. From now on, the unions are in Obama’s pocket - his pocketbook, that is. And Congress will try to draw that out as much as possible with as much public money as possible. And every Dem is going to try and get their cut, or at least for their district. And this kind of behavior we’ve already seen is more suited to a Banana Republic than the United States. It is stupid, wasteful, demeaning to the government’s minimal decency, and skirts the razor’s edge of outright criminality.
No, this will not end well unless they change direction quick.
What I cannot figure is why we only own 60%. Is somebody else contributing new capital? If all loans and capital are wiped out by the BK, shouldn’t the new buyers, that is, the government, get 100 percent? Or do we need to wipe everyone else out and put more into it at the end of the BK. I don’t know squat about BK, pretty clearly.
I’d like to see AIG go through the same process.
Now what?
I want to be able to go into the parts department of one of my GM dealerships whenever I feel like it and just take an air filter off the shelf and bring it home. The big round kind that looks like a big paper-and-rubber donut.
I don’t own a GM vehicle, understand. I just like the idea of having a bunch of those.
Yup, we’re all DOOMED! 
Other people (for example the UAW) are owed considerable amounts of money by GM. They get a stake in exchange for the fact they wont see much of their money again.
Well, frankly, it’s because there are ways to go about this, and so far the government has shown itself to be quick to rewrite these on a whim if they feel like it.
In a bankruptcy, there is a reorganization. This is monitored by various people, including the courts. If the leadership of the company aren’t up to the task of handling this, they will be replaced - but there are risks to doing this. The management in place presumable knows the business and the problems that need to be resolved - a new team may not know these things.
Various creditors will need to be paid - and some of them have priority over others. Under a normal bankruptcy this is a fairly well established process - in this case it is a highly political one where the unions are getting far more than they would have otherwise received.
Perhaps GM could have survived a bankruptcy, or at least its various parts could have ended up with other companies. Perhaps not. But there was no reason for a full nationalization. If the government felt the need to reassure customers and parts suppliers, a simple guarantee of warranties could have sufficed. As it is they have done this and far more.