The Wall Street Journal story on GM engaging a team of bankruptcy advisors stresses that this move is in part political, to underscore that the top US automaker really is at the end of its rope.
Most observers assume that if Congress failed to authorize a rescue bill, that the Treasury would uses it TARP funds to provide a lifeline. But the longer it takes for a plan to come into being, the more GM’s condition deteriorates.
From the Wall Street Journal:
General Motors Corp. has hired lawyers and bankers to consider whether to file for bankruptcy protection, said several people familiar with the matter….
The hirings have both a practical and political bent. Such a large case typically takes lawyers and bankers months to prepare. It also highlights the auto maker’s growing desperation as it petitions the U.S. Congress for a $14 billion bailout package.
GM Chief Executive Rick Wagoner has been reluctant to publicly embrace bankruptcy, fearing that it would scare off potential buyers. In addition, the cost of financing a Chapter 11 filing would be enormously expensive and difficult given tight credit markets.
Mr. Wagoner “still believes the company can’t and shouldn’t file,” but decided in the last few weeks to hire the outside advisers said a person familiar with the matter.
GM and its dealers are meeting late this week to discuss launching a new advertising campaign to spark sales amid concerns about GM’s health. GM will also discuss plans for its Saturn division, which it may shutter. One option includes putting the division into bankruptcy protection, as it is technically a separate entity.
One mounting fear is that even with a bailout, GM may be forced to file for protection from creditors. GM executives are worrying that suppliers could tighten credit terms, and the government could swiftly recall its loans.
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That is merely a posturing move on the part of GM–no different than a spoiled child holding his breath to get something.
I love to wander over from CalculatedRisk, and I was thrilled to hear you on Warren Olney’s show today. I don’t have anything to offer on these stories, other than my overwhelming impression of the posturing going on in the Senate is all about breaking the unions.
I could be way wrong, but the impact near term could be quite volatile for crude oil, bonds, and equities.
If we think back to the impeachment of Nixon, huge negative for the stock market. If we think back to the oil embargo, the stock market received a 20% haircut in 6 weeks, and I can’t tell you what happened to the crude oil cash markets, only because I don’t have the data any more, but the spike up was impressive, imagine the inverse happening with the spike in more jobs lost.
Of course, if they pass the legislation, none of these volatile spikes will come to pass. but if it does….
The South VS the North and West. An old story in American politics and the Senate is the last chance for the South to hold any of its remarkable economic benefits from the Federal Gov’t. The Republicans represent the South and they are up againist a large group of Democrats looking to take whatever gov’t spending spoils they can redistribute so the 60 votes in the Senate look to be the main leverage the Republicans have and I am sure during this period they are making sure that if the Democrats want a bailout bill then the South will keep its gov’t entitlements.
How can TARP funds legitimitely be used to bail out GM, especially in the face of rejection of the auto bailout package in the senate? I just can’t see it happening.
What the TARP could do (and may well have to) however, is cover the CDS transactions that are triggered as a result of a GM bankrupcy.