NEW YORK — A senior member of President Barack Obama’s auto task force testified Wednesday that the U.S. government will not continue to fund General Motors Corp.’s operations if the automaker doesn’t get approval to sell its assets to a new company within the next 10 days.
"We have no intention to further fund this company if the sale order is not entered by July 10,” Harry Wilson, one of the Treasury Department officials overseeing GM’s restructuring, said while being cross-examined by an attorney for a group of GM bondholders who are opposed to the sale.
The No. 1 U.S. automaker’s government-backed plan for a quick exit from Chapter 11 hinges on the sale plan, which would allow it to leave behind many of the costs and liabilities that have made the company unprofitable.
The Detroit-based automaker, whose June 1 filing for bankruptcy protection was the fourth-largest in U.S. history, is hoping to avoid a lengthy court battle over the sale. Last month, objections from bondholders and other groups dragged out rival Chrysler LLC’s hearing on its sale for three days. This is day three of the GM hearing.
U.S. Judge Robert Gerber urged the parties involved to try and reach resolutions on as many issues as possible in order to avoid lengthy arguments, but he conceded that the process would likely carry over to today.
by the associated press
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Showing posts with label Bailout. Show all posts
Showing posts with label Bailout. Show all posts
Thursday, July 2, 2009
Friday, June 26, 2009
Pressuring bank buyout
WASHINGTON — Federal Reserve Chairman Ben Bernanke told Congress Thursday he didn’t pressure Bank of America into acquiring Merrill Lynch in a deal that ultimately cost taxpayers $20 billion.
Bernanke told a House committee investigating the matter that he did not threaten action against Bank of America’s CEO Kenneth Lewis or the bank’s board members if they decided to abandon the takeover.
"I did not tell Bank of America’s management that the Federal Reserve would take action against the board or management” if they decided to invoke a clause in the acquisition contract in an attempt to stop the deal, Bernanke told the House Oversight and Government Reform Committee. "Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances.”
Earlier this month, Lewis testified that his job was threatened after he expressed second thoughts about the deal. Lewis said then-Treasury Secretary Henry Paulson and federal regulators made clear that if Charlotte, N.C.-based Bank of America Corp. reneged on its promise, that he and the bank’s board members would be ousted.
Bernanke said no member of the Fed ever urged Bank of America to keep quiet about Merrill Lynch’s financial problems. Not divulging that information would have violated Lewis’ fiduciary duty to shareholders.
"Neither I nor any member of the Federal Reserve ever directed, instructed or advised Bank of America to withhold from public disclosure any information relating to Merrill Lynch, including its losses, compensation packages or bonuses or any other related matter,” the Fed chief said.
It marked Bernanke’s first public comments since the House committee launched an investigation earlier this year into whether he or other government officials bullied Bank of America to combine the two financial powers after Lewis found out about Merrill’s financial woes.
The committee’s ranking member Darrell Issa, R-Calif., accused the Fed of having "deliberately kept other regulators in the dark regarding the negotiations with Bank of America. The Federal Reserve’s cover-up of important information and willingness to exclude key regulatory partners” such as the Securities and Exchange Commission and the Office of the Comptroller of the Currency "raises troubling questions,” he said.
Rep. Jason Chaffetz, R-Utah, said of Bernanke’s denial that he threatened Lewis’ job: "With all due respect, I’m just not buying that.”
by the associated press
Bernanke told a House committee investigating the matter that he did not threaten action against Bank of America’s CEO Kenneth Lewis or the bank’s board members if they decided to abandon the takeover.
"I did not tell Bank of America’s management that the Federal Reserve would take action against the board or management” if they decided to invoke a clause in the acquisition contract in an attempt to stop the deal, Bernanke told the House Oversight and Government Reform Committee. "Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances.”
Earlier this month, Lewis testified that his job was threatened after he expressed second thoughts about the deal. Lewis said then-Treasury Secretary Henry Paulson and federal regulators made clear that if Charlotte, N.C.-based Bank of America Corp. reneged on its promise, that he and the bank’s board members would be ousted.
Bernanke said no member of the Fed ever urged Bank of America to keep quiet about Merrill Lynch’s financial problems. Not divulging that information would have violated Lewis’ fiduciary duty to shareholders.
"Neither I nor any member of the Federal Reserve ever directed, instructed or advised Bank of America to withhold from public disclosure any information relating to Merrill Lynch, including its losses, compensation packages or bonuses or any other related matter,” the Fed chief said.
It marked Bernanke’s first public comments since the House committee launched an investigation earlier this year into whether he or other government officials bullied Bank of America to combine the two financial powers after Lewis found out about Merrill’s financial woes.
The committee’s ranking member Darrell Issa, R-Calif., accused the Fed of having "deliberately kept other regulators in the dark regarding the negotiations with Bank of America. The Federal Reserve’s cover-up of important information and willingness to exclude key regulatory partners” such as the Securities and Exchange Commission and the Office of the Comptroller of the Currency "raises troubling questions,” he said.
Rep. Jason Chaffetz, R-Utah, said of Bernanke’s denial that he threatened Lewis’ job: "With all due respect, I’m just not buying that.”
by the associated press
Saturday, June 13, 2009
Chrysler and GM executives defend decision to close local dealers
WASHINGTON — Under withering criticism in Congress, General Motors and Chrysler executives on Friday called the closings of hundreds of dealerships painful steps needed to right-size the auto giants. Down-on-their-luck dealers said the moves would needlessly devastate their local economies and livelihoods.
"Many dealers and the communities they serve frankly feel blind-sided,” said Rep. Greg Walden, R-Ore.
GM CEO Fritz Henderson told a House panel the dealer cuts were "quite painful” but necessary to save over 200,000 jobs at GM’s remaining dealers.
"In essence, this is our last chance,” Henderson told the House Energy and Commerce Committee’s oversight and investigations subcommittee.
Carmakers criticized
Chrysler Deputy CEO Jim Press said the cuts were part of the shared sacrifices by the United Auto Workers union, bondholders and others needed to avoid liquidation.
"Going through bankruptcy was not our choice,” said Press, who along with Henderson and the other witnesses were required to raise their right hands and testify under oath.
But the committee heard from shutout dealers such as Frank Blankenbecker III of Waxahachie, Texas, whose voice cracked as he recalled the hard work of his father, a World War II veteran, to build their family business.
"I am glad that he is not alive to witness this travesty. To have risked his life for a country that would do what they are doing would destroy him,” he said.
The carmakers’ explanations won few converts from House members, who wagged their fingers at the executives and questioned their motivations.
Many of the dealers, they argued, had been profitable and received little warning or opportunity to plead their cases.
"There’s something wrong with a business model that basically says, ‘In order to survive, we’ve got to crush our local dealers,’” said Rep. Peter Welch, D-Vt.
Rep. Mike Burgess, R-Texas, confronted Henderson about GM’s decision to maintain a parts distribution center in the district of Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee. Frank had urged Henderson to keep the facility open.
"What is the number I need to call? Is it 1-800 Car Czar?” Burgess asked. "I have a nagging suspicion that there is a political calculation.”
Closing plans released
The committee released a GM document that, for the first time, provided a state-by-state list of 1,323 dealerships the automaker plans to wind down. Pennsylvania had the most with 90, followed by Ohio with 79, Illinois with 66 and California with 65. Alaska was the only state spared. GM has declined to release the name of individual dealerships.
Dealers said the closings put 100,000 jobs at risk and charged the companies with failing to be transparent about how they reached their decisions.
Many dealers said their stores had been performing well despite the economic downturn.
by the associated press
"Many dealers and the communities they serve frankly feel blind-sided,” said Rep. Greg Walden, R-Ore.
GM CEO Fritz Henderson told a House panel the dealer cuts were "quite painful” but necessary to save over 200,000 jobs at GM’s remaining dealers.
"In essence, this is our last chance,” Henderson told the House Energy and Commerce Committee’s oversight and investigations subcommittee.
Carmakers criticized
Chrysler Deputy CEO Jim Press said the cuts were part of the shared sacrifices by the United Auto Workers union, bondholders and others needed to avoid liquidation.
"Going through bankruptcy was not our choice,” said Press, who along with Henderson and the other witnesses were required to raise their right hands and testify under oath.
But the committee heard from shutout dealers such as Frank Blankenbecker III of Waxahachie, Texas, whose voice cracked as he recalled the hard work of his father, a World War II veteran, to build their family business.
"I am glad that he is not alive to witness this travesty. To have risked his life for a country that would do what they are doing would destroy him,” he said.
The carmakers’ explanations won few converts from House members, who wagged their fingers at the executives and questioned their motivations.
Many of the dealers, they argued, had been profitable and received little warning or opportunity to plead their cases.
"There’s something wrong with a business model that basically says, ‘In order to survive, we’ve got to crush our local dealers,’” said Rep. Peter Welch, D-Vt.
Rep. Mike Burgess, R-Texas, confronted Henderson about GM’s decision to maintain a parts distribution center in the district of Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee. Frank had urged Henderson to keep the facility open.
"What is the number I need to call? Is it 1-800 Car Czar?” Burgess asked. "I have a nagging suspicion that there is a political calculation.”
Closing plans released
The committee released a GM document that, for the first time, provided a state-by-state list of 1,323 dealerships the automaker plans to wind down. Pennsylvania had the most with 90, followed by Ohio with 79, Illinois with 66 and California with 65. Alaska was the only state spared. GM has declined to release the name of individual dealerships.
Dealers said the closings put 100,000 jobs at risk and charged the companies with failing to be transparent about how they reached their decisions.
Many dealers said their stores had been performing well despite the economic downturn.
by the associated press
Tuesday, June 9, 2009
Market reacts to bailout
NEW YORK — Investors are reacting coolly to word that 10 of the nation's largest banks can repay $68 billion in bailout money.
Stocks are zigzagging in a narrow range Tuesday following the Treasury Department's widely expected announcement that the banks will be allowed to repay the money they received from the $700 billion bailout fund Congress created in October at the height of the financial crisis.
The banks have been eager to escape government restrictions on executive compensation. American Express Co., JPMorgan Chase & Co. and Morgan Stanley are among those given the OK to repay the money.
At midday, the Dow is down 30 at 8,734. The Standard & Poor's 500 index is down 1 to 938, while the Nasdaq composite index is up 8 to 1,851
by the associated press
Stocks are zigzagging in a narrow range Tuesday following the Treasury Department's widely expected announcement that the banks will be allowed to repay the money they received from the $700 billion bailout fund Congress created in October at the height of the financial crisis.
The banks have been eager to escape government restrictions on executive compensation. American Express Co., JPMorgan Chase & Co. and Morgan Stanley are among those given the OK to repay the money.
At midday, the Dow is down 30 at 8,734. The Standard & Poor's 500 index is down 1 to 938, while the Nasdaq composite index is up 8 to 1,851
by the associated press
Banks to return $68 billion
WASHINGTON (AP) — Ten of the nation's biggest financial companies got a green light Tuesday to return $68 billion in federal bailout money — freeing the banks from limits on executive pay and leaving the government with a small gain on the rescue cash.
While the paybacks could be a signal that the banking industry is stabilizing, analysts say it is far from a clean bill of health, and some said it was too soon to let the banks give back the money.
Presidential spokesman Robert Gibbs said the returned money would go "back into general revenue" and could even be used to bail out banks again.
Still, the government has collected $1.8 billion from dividends on shares of preferred stock it received in exchange for bailout money, he said. And the government still holds warrants to buy shares of bank stock at cut-rate prices in the future.
The $68 billion in paybacks would be the largest since the $700 billion Troubled Asset Relief Program took effect eight months ago at the peak of the financial crisis. Specifically, the money comes from a $250 billion slice of the $700 billion bailout package.
Other chunks of the $700 billion will be harder, if not impossible, to recover. Some of it, such as $70 billion funneled to failed insurer American International Group Inc., ended up in the pockets of healthier banks that did deals with AIG.
And even the banks getting out from under the TARP still rely on government support, including debt guarantees from the Federal Deposit Insurance Corp. and credit lines from the Federal Reserve.
The banks chafed under restrictions on executive pay imposed by the government for banks that took bailout cash, arguing they were losing top talent to other firms. The administration is expected to roll out new executive pay rules Wednesday that would apply to banks that still have TARP money.
"It's our obvious hope that additional money is not going to have to be used to stabilize banks," Gibbs said. "I certainly wouldn't rule it out."
Indeed, banking experts stressed that the payments do not signal an end to the financial crisis. In fact, they say, most banks approved to pay the money back never needed it in the first place.
And three major banks that have not been approved by the government to pay the money back — Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. — could need federal help for years to come.
"When a troubled bank is capable of repaying, that would be significant," said Barry Ritholtz, head of the financial research firm FusionIQ. "But we're not going to see that anytime soon because they can't afford it."
Among the banks approved to pay back their bailout cash are eight that passed the government "stress test" earlier this year: JPMorgan Chase & Co., American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp. and BB&T Corp.
Those banks had to show they could raise private capital without federal guarantees before getting permission to pay back TARP money.
Morgan Stanley did not pass the test, but got approval to return its bailout money after quickly raising enough capital. And Northern Trust Corp. did not undergo the "stress test" but said it also had received permission to repay its bailout money.
President Barack Obama welcomed the news but said: "This is not a sign that our troubles are over — far from it."
Indeed, the repayments carry risk. Some say it could create a banking system of winners and losers, with weaker banks stuck with federal restrictions and finding it harder to compete for customers and talent against rivals that operate more freely.
Others say the repayments could conceal problems in the banking industry. Smaller banks are still saddled with billions in risky commercial real estate loans. And large banks still hold the toxic mortgage-backed assets at the heart of the financial crisis.
Paying the government back leaves banks with less protection against future losses, said Christopher Whalen, managing director of the consulting firm Institutional Risk Analytics. And with less capital on hand, they may have to scale back lending.
Other critics said it was dangerous to allow the money to be paid back before the administration overhauls the regulatory framework that governs banks.
"The credit crisis made it clear that the banks acted in irrational and greedy ways. I don't believe that enough changes have really happened yet," said Donald Thomas, an independent research analyst.
Adding to the concerns, a report released Tuesday by the congressional panel overseeing the bailout said the hypothetical scenarios used in the "stress tests" might have been too rosy.
That raises the troubling possibility that even raising enough capital to satisfy the government won't guarantee banks can withstand a deeper recession. And that means the banks might have to seek more federal aid.
Citi and Bank of America, two of the most troubled financial institutions, have taken $45 billion each in bailout money. Wells Fargo said it has not asked for permission to pay back $25 billion in TARP money.
Banking analyst Bert Ely said it could be years before those banks disentangle themselves from the government.
More than 600 banks have received a total of almost $200 billion from the TARP, and 22 smaller banks have already paid the money back. The $1.8 billion in dividend money includes stock the government owned in these smaller banks.
Besides the preferred-stock dividends, the banks that took bailout money issued warrants that give the government the right to buy bank stock at a fixed price later. Bank stocks have been battered but are expected to rise as the economy recovers, so the warrants could deliver substantial profits to taxpayers.
Or the government could sell the warrants back to the banks "at fair market value," the Treasury Department said — presumably also locking in profits for the taxpayers.
Testifying before a Senate panel, Treasury Secretary Timothy Geithner said the value of the warrants for banks permitted to repay TARP funds are in the "several billion dollar range."
by the associated press
While the paybacks could be a signal that the banking industry is stabilizing, analysts say it is far from a clean bill of health, and some said it was too soon to let the banks give back the money.
Presidential spokesman Robert Gibbs said the returned money would go "back into general revenue" and could even be used to bail out banks again.
Still, the government has collected $1.8 billion from dividends on shares of preferred stock it received in exchange for bailout money, he said. And the government still holds warrants to buy shares of bank stock at cut-rate prices in the future.
The $68 billion in paybacks would be the largest since the $700 billion Troubled Asset Relief Program took effect eight months ago at the peak of the financial crisis. Specifically, the money comes from a $250 billion slice of the $700 billion bailout package.
Other chunks of the $700 billion will be harder, if not impossible, to recover. Some of it, such as $70 billion funneled to failed insurer American International Group Inc., ended up in the pockets of healthier banks that did deals with AIG.
And even the banks getting out from under the TARP still rely on government support, including debt guarantees from the Federal Deposit Insurance Corp. and credit lines from the Federal Reserve.
The banks chafed under restrictions on executive pay imposed by the government for banks that took bailout cash, arguing they were losing top talent to other firms. The administration is expected to roll out new executive pay rules Wednesday that would apply to banks that still have TARP money.
"It's our obvious hope that additional money is not going to have to be used to stabilize banks," Gibbs said. "I certainly wouldn't rule it out."
Indeed, banking experts stressed that the payments do not signal an end to the financial crisis. In fact, they say, most banks approved to pay the money back never needed it in the first place.
And three major banks that have not been approved by the government to pay the money back — Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. — could need federal help for years to come.
"When a troubled bank is capable of repaying, that would be significant," said Barry Ritholtz, head of the financial research firm FusionIQ. "But we're not going to see that anytime soon because they can't afford it."
Among the banks approved to pay back their bailout cash are eight that passed the government "stress test" earlier this year: JPMorgan Chase & Co., American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp. and BB&T Corp.
Those banks had to show they could raise private capital without federal guarantees before getting permission to pay back TARP money.
Morgan Stanley did not pass the test, but got approval to return its bailout money after quickly raising enough capital. And Northern Trust Corp. did not undergo the "stress test" but said it also had received permission to repay its bailout money.
President Barack Obama welcomed the news but said: "This is not a sign that our troubles are over — far from it."
Indeed, the repayments carry risk. Some say it could create a banking system of winners and losers, with weaker banks stuck with federal restrictions and finding it harder to compete for customers and talent against rivals that operate more freely.
Others say the repayments could conceal problems in the banking industry. Smaller banks are still saddled with billions in risky commercial real estate loans. And large banks still hold the toxic mortgage-backed assets at the heart of the financial crisis.
Paying the government back leaves banks with less protection against future losses, said Christopher Whalen, managing director of the consulting firm Institutional Risk Analytics. And with less capital on hand, they may have to scale back lending.
Other critics said it was dangerous to allow the money to be paid back before the administration overhauls the regulatory framework that governs banks.
"The credit crisis made it clear that the banks acted in irrational and greedy ways. I don't believe that enough changes have really happened yet," said Donald Thomas, an independent research analyst.
Adding to the concerns, a report released Tuesday by the congressional panel overseeing the bailout said the hypothetical scenarios used in the "stress tests" might have been too rosy.
That raises the troubling possibility that even raising enough capital to satisfy the government won't guarantee banks can withstand a deeper recession. And that means the banks might have to seek more federal aid.
Citi and Bank of America, two of the most troubled financial institutions, have taken $45 billion each in bailout money. Wells Fargo said it has not asked for permission to pay back $25 billion in TARP money.
Banking analyst Bert Ely said it could be years before those banks disentangle themselves from the government.
More than 600 banks have received a total of almost $200 billion from the TARP, and 22 smaller banks have already paid the money back. The $1.8 billion in dividend money includes stock the government owned in these smaller banks.
Besides the preferred-stock dividends, the banks that took bailout money issued warrants that give the government the right to buy bank stock at a fixed price later. Bank stocks have been battered but are expected to rise as the economy recovers, so the warrants could deliver substantial profits to taxpayers.
Or the government could sell the warrants back to the banks "at fair market value," the Treasury Department said — presumably also locking in profits for the taxpayers.
Testifying before a Senate panel, Treasury Secretary Timothy Geithner said the value of the warrants for banks permitted to repay TARP funds are in the "several billion dollar range."
by the associated press
Monday, June 8, 2009
Delay Of Chrysler Sale
WASHINGTON (Dow Jones)--Auto-industry allies on Capitol Hill stepped up pressure Monday on a group of Indiana pension funds to drop their opposition to the sale of most of Chrysler LLC's assets to Fiat SpA (FIATY), after the Supreme Court agreed to delay the sale. But a Republican lawmaker defended the group's right to argue its case before the court.
Rep. John Dingell, D-Mich., warned that a delay of the deal could lead to Chrysler's liquidation, costing thousands of jobs and millions of dollars in lost tax revenue for auto-manufacturing states. He called on the Indiana pensions funds to "come to their senses."
"By refusing to make the relatively small sacrifices that would avert a calamity, the pension funds will instead create a great catastrophe, which is the same kind of shortsighted thinking that got us into the Great Depression," Dingell said in a statement. "Make no mistake: If these pension funds can't see past their own pain, they threaten to create a kind of agony for their state and the nation that is difficult for most people to imagine or condone."
Rep. Gary Peters, D-Mich., whose district includes Chrysler's headquarters, warned Indiana would lose millions of dollars in tax revenue and 4,000 jobs if Chrysler is liquidated.
"It is quite clear that Indiana's case is not in the best interest of the people of Indiana," Peters said in a statement. "Other stakeholders, including other secured lenders and Chrysler's auto workers, accepted shared sacrifice because they recognized their interest was better served keeping Chrysler alive rather than forcing liquidation. Why the officials who decided to take their objections all the way to the Supreme Court can't recognize this is beyond me."
Rep. Candice Miller, R-Mich., said she was "very disappointed" by the stay and "mystified why these litigants continue to pursue their case." She added, "It is my sincere hope that Justice Ginsburg or the full court will issue a ruling expeditiously that will allow Chrysler to emerge from bankruptcy and end this process."
But Rep. Jeb Hensarling, R-Tex., who has criticized the Obama administration's bailout of GM and Chrysler as an improper use of taxpayer money, praised the Supreme Court's move. He said the case raises fundamental questions about due process, equal protection under the law and the possible misuse of financial-rescue funds on auto makers, and that those questions must be resolved before the sale goes through.
"The smallest bondholder in GM who may be part of the Indiana pension funds - they deserve their day in court," Hensarling said in an interview with Dow Jones Newswires. "This is about their retirement. This is about their children's future, and they shouldn't be browbeaten by the administration, the UAW" and company executives, he said.
A White House spokeswoman declined to comment shortly after the ruling.
from the wall street journal
Rep. John Dingell, D-Mich., warned that a delay of the deal could lead to Chrysler's liquidation, costing thousands of jobs and millions of dollars in lost tax revenue for auto-manufacturing states. He called on the Indiana pensions funds to "come to their senses."
"By refusing to make the relatively small sacrifices that would avert a calamity, the pension funds will instead create a great catastrophe, which is the same kind of shortsighted thinking that got us into the Great Depression," Dingell said in a statement. "Make no mistake: If these pension funds can't see past their own pain, they threaten to create a kind of agony for their state and the nation that is difficult for most people to imagine or condone."
Rep. Gary Peters, D-Mich., whose district includes Chrysler's headquarters, warned Indiana would lose millions of dollars in tax revenue and 4,000 jobs if Chrysler is liquidated.
"It is quite clear that Indiana's case is not in the best interest of the people of Indiana," Peters said in a statement. "Other stakeholders, including other secured lenders and Chrysler's auto workers, accepted shared sacrifice because they recognized their interest was better served keeping Chrysler alive rather than forcing liquidation. Why the officials who decided to take their objections all the way to the Supreme Court can't recognize this is beyond me."
Rep. Candice Miller, R-Mich., said she was "very disappointed" by the stay and "mystified why these litigants continue to pursue their case." She added, "It is my sincere hope that Justice Ginsburg or the full court will issue a ruling expeditiously that will allow Chrysler to emerge from bankruptcy and end this process."
But Rep. Jeb Hensarling, R-Tex., who has criticized the Obama administration's bailout of GM and Chrysler as an improper use of taxpayer money, praised the Supreme Court's move. He said the case raises fundamental questions about due process, equal protection under the law and the possible misuse of financial-rescue funds on auto makers, and that those questions must be resolved before the sale goes through.
"The smallest bondholder in GM who may be part of the Indiana pension funds - they deserve their day in court," Hensarling said in an interview with Dow Jones Newswires. "This is about their retirement. This is about their children's future, and they shouldn't be browbeaten by the administration, the UAW" and company executives, he said.
A White House spokeswoman declined to comment shortly after the ruling.
from the wall street journal
Monday, June 1, 2009
President Obama , put a 31-Year-Old in Charge of Dismantling G.M.
It is not every 31-year-old who, in a first government job, finds himself dismantling General Motors and rewriting the rules of American capitalism.
But that, in short, is the job description for Brian Deese, a not-quite graduate of Yale Law School who had never set foot in an automotive assembly plant until he took on his nearly unseen role in remaking the American automotive industry.
Nor, for that matter, had he given much thought to what ailed an industry that had been in decline ever since he was born. A bit laconic and looking every bit the just-out-of-graduate-school student adjusting to life in the West Wing — “he’s got this beard that appears and disappears,” says Steven Rattner, one of the leaders of President Obama’s automotive task force — Mr. Deese was thrown into the auto industry’s maelstrom as soon the election-night parties ended.
“There was a time between Nov. 4 and mid-February when I was the only full-time member of the auto task force,” Mr. Deese, a special assistant to the president for economic policy, acknowledged recently as he hurried between his desk at the White House and the Treasury building next door. “It was a little scary.”
But now, according to those who joined him in the middle of his crash course about the automakers’ downward spiral, he has emerged as one of the most influential voices in what may become President Obama’s biggest experiment yet in federal economic intervention.
While far more prominent members of the administration are making the big decisions about Detroit, it is Mr. Deese who is often narrowing their options.
A month ago, when the administration was divided over whether to support Fiat’s bid to take over much of Chrysler, it was Mr. Deese who spoke out strongly against simply letting the company go into liquidation, according to several people who were present for the debate.
“Brian grasps both the economics and the politics about as quickly as I’ve seen anyone do this,” said Lawrence H. Summers, the head of the National Economic Council who is not known for being patient whenever he believes an analysis is sub-par — or disagrees with his own. “And there he was in the Roosevelt Room, speaking up vigorously to make the point that the costs we were going to incur giving Fiat a chance were no greater than some of the hidden costs of liquidation.”
Mr. Deese was not the only one favoring the Fiat deal, but his lengthy memorandum on how liquidation would increase Medicaid costs, unemployment insurance and municipal bankruptcies ended the debate. The administration supported the deal, and it seems likely to become a reality on Monday, if a federal judge handling the high-speed bankruptcy proceeding approves the sale of Chrysler’s best assets to the Italian carmaker.
Mr. Deese’s role is unusual for someone who is neither a formally trained economist nor a business school graduate, and who never spent much time flipping through the endless studies about the future of the American and Japanese auto industries.
He lives a dual life these days. He starts the day at a desk wedged just outside of Mr. Summers’s office, where he can hear what young members of the economic team have come to know as “the Summers bellow.” From there, he can make it quickly to the press office to help devise explanations for why taxpayers are spending more than $50 billion on what polls show is a very unpopular bailout of the auto industry.
Several times a day he speed-walks to Treasury, taking a shortcut through the tunnel under the colonnade, near the kitchens. The other day he talked about how sharply perceptions of the industry’s future changed after Mr. Obama’s election.
“At the first meeting with Rick Wagoner,” he said, referring to G.M.’s recently deposed chief executive, “they were in a very different place. He said publicly that bankruptcy was not a viable option. It’s been a long process getting everyone to look at the options differently.”
In fact, from before Inauguration Day, few in Mr. Obama’s circle saw any other choice. Every time Mr. Deese ran the numbers on G.M. and Chrysler, he came back with the now-obvious conclusion that neither was a viable business, and that their plans to revive themselves did not address the erosion of their revenues. But it took the support of Mr. Rattner and Ron Bloom, senior advisers to the task force charged with restructuring the automobile industry, to help turn Mr. Deese’s positions into policy.
The president’s instruction to us was that we had to come up with a solution that would work on a commercial basis, that didn’t involve indefinite federal financing,” Mr. Deese said. “But we didn’t want liquidation, which would have even worse effects. So the question was how do you design a very substantial restructuring, and do it fast.”
Mr. Deese’s route to the auto table at the White House was anything but a straight line. He is the son of a political science professor at Boston College (his father) and an engineer who works in renewable energy (his mother). He grew up in the Boston suburb of Belmont and attended Middlebury College in Vermont. He went to Washington to work on aid issues and was quickly hired by Nancy Birdsall, a widely respected authority on the effectiveness of international aid and the founder of the Center for Global Development.
But he wanted to learn domestic issues as well, and soon ended up working as an assistant for Gene Sperling, who 17 years ago in the Clinton White House played a similar role as economic policy prodigy. Eventually, Mr. Deese headed to Yale for his law degree. But his e-mail box was constantly filled with messages from friends in Washington who were signing up to work for the Obama or Hillary Rodham Clinton campaigns. Mr. Deese chose Senator Clinton’s.
“He was pretty quickly functioning as the top economic policy staffer through her campaign,” Mr. Sperling said. “He could blend the policy needs and the political needs pretty seamlessly.” On the day that the Clinton campaign ended, Mr. Deese left her concession speech and received a message on his BlackBerry from a friend in the Obama campaign urging him to sign on immediately to Mr. Obama’s team.
He resumed his policy work there, and found himself stuck in Chicago — unable to fly to Washington with his dog — as the economic crisis deepened. Finally, one night, he decided to get into his car with his dog and just started driving back to Washington. Tired, he pulled over to catch some sleep in the car.
“I slept in the parking lot of the G. M. plant in Lordstown, Ohio,” he recalled. The giant plant, opened during G.M.’s heyday in the mid-1960s, is where the Pontiac G5 is produced. Under the plan Mr. Deese worked on when he arrived in Washington, Pontiac will disappear.
“I guess that was prophetic,” he said, shaking his head.
by the new york times
But that, in short, is the job description for Brian Deese, a not-quite graduate of Yale Law School who had never set foot in an automotive assembly plant until he took on his nearly unseen role in remaking the American automotive industry.
Nor, for that matter, had he given much thought to what ailed an industry that had been in decline ever since he was born. A bit laconic and looking every bit the just-out-of-graduate-school student adjusting to life in the West Wing — “he’s got this beard that appears and disappears,” says Steven Rattner, one of the leaders of President Obama’s automotive task force — Mr. Deese was thrown into the auto industry’s maelstrom as soon the election-night parties ended.
“There was a time between Nov. 4 and mid-February when I was the only full-time member of the auto task force,” Mr. Deese, a special assistant to the president for economic policy, acknowledged recently as he hurried between his desk at the White House and the Treasury building next door. “It was a little scary.”
But now, according to those who joined him in the middle of his crash course about the automakers’ downward spiral, he has emerged as one of the most influential voices in what may become President Obama’s biggest experiment yet in federal economic intervention.
While far more prominent members of the administration are making the big decisions about Detroit, it is Mr. Deese who is often narrowing their options.
A month ago, when the administration was divided over whether to support Fiat’s bid to take over much of Chrysler, it was Mr. Deese who spoke out strongly against simply letting the company go into liquidation, according to several people who were present for the debate.
“Brian grasps both the economics and the politics about as quickly as I’ve seen anyone do this,” said Lawrence H. Summers, the head of the National Economic Council who is not known for being patient whenever he believes an analysis is sub-par — or disagrees with his own. “And there he was in the Roosevelt Room, speaking up vigorously to make the point that the costs we were going to incur giving Fiat a chance were no greater than some of the hidden costs of liquidation.”
Mr. Deese was not the only one favoring the Fiat deal, but his lengthy memorandum on how liquidation would increase Medicaid costs, unemployment insurance and municipal bankruptcies ended the debate. The administration supported the deal, and it seems likely to become a reality on Monday, if a federal judge handling the high-speed bankruptcy proceeding approves the sale of Chrysler’s best assets to the Italian carmaker.
Mr. Deese’s role is unusual for someone who is neither a formally trained economist nor a business school graduate, and who never spent much time flipping through the endless studies about the future of the American and Japanese auto industries.
He lives a dual life these days. He starts the day at a desk wedged just outside of Mr. Summers’s office, where he can hear what young members of the economic team have come to know as “the Summers bellow.” From there, he can make it quickly to the press office to help devise explanations for why taxpayers are spending more than $50 billion on what polls show is a very unpopular bailout of the auto industry.
Several times a day he speed-walks to Treasury, taking a shortcut through the tunnel under the colonnade, near the kitchens. The other day he talked about how sharply perceptions of the industry’s future changed after Mr. Obama’s election.
“At the first meeting with Rick Wagoner,” he said, referring to G.M.’s recently deposed chief executive, “they were in a very different place. He said publicly that bankruptcy was not a viable option. It’s been a long process getting everyone to look at the options differently.”
In fact, from before Inauguration Day, few in Mr. Obama’s circle saw any other choice. Every time Mr. Deese ran the numbers on G.M. and Chrysler, he came back with the now-obvious conclusion that neither was a viable business, and that their plans to revive themselves did not address the erosion of their revenues. But it took the support of Mr. Rattner and Ron Bloom, senior advisers to the task force charged with restructuring the automobile industry, to help turn Mr. Deese’s positions into policy.
The president’s instruction to us was that we had to come up with a solution that would work on a commercial basis, that didn’t involve indefinite federal financing,” Mr. Deese said. “But we didn’t want liquidation, which would have even worse effects. So the question was how do you design a very substantial restructuring, and do it fast.”
Mr. Deese’s route to the auto table at the White House was anything but a straight line. He is the son of a political science professor at Boston College (his father) and an engineer who works in renewable energy (his mother). He grew up in the Boston suburb of Belmont and attended Middlebury College in Vermont. He went to Washington to work on aid issues and was quickly hired by Nancy Birdsall, a widely respected authority on the effectiveness of international aid and the founder of the Center for Global Development.
But he wanted to learn domestic issues as well, and soon ended up working as an assistant for Gene Sperling, who 17 years ago in the Clinton White House played a similar role as economic policy prodigy. Eventually, Mr. Deese headed to Yale for his law degree. But his e-mail box was constantly filled with messages from friends in Washington who were signing up to work for the Obama or Hillary Rodham Clinton campaigns. Mr. Deese chose Senator Clinton’s.
“He was pretty quickly functioning as the top economic policy staffer through her campaign,” Mr. Sperling said. “He could blend the policy needs and the political needs pretty seamlessly.” On the day that the Clinton campaign ended, Mr. Deese left her concession speech and received a message on his BlackBerry from a friend in the Obama campaign urging him to sign on immediately to Mr. Obama’s team.
He resumed his policy work there, and found himself stuck in Chicago — unable to fly to Washington with his dog — as the economic crisis deepened. Finally, one night, he decided to get into his car with his dog and just started driving back to Washington. Tired, he pulled over to catch some sleep in the car.
“I slept in the parking lot of the G. M. plant in Lordstown, Ohio,” he recalled. The giant plant, opened during G.M.’s heyday in the mid-1960s, is where the Pontiac G5 is produced. Under the plan Mr. Deese worked on when he arrived in Washington, Pontiac will disappear.
“I guess that was prophetic,” he said, shaking his head.
by the new york times
GM 20,000 Jobs Gone
NEW YORK (CNNMoney.com) -- General Motors unveiled plans to close 14 plants and three warehouses Monday in a move that could ultimately slash up to 20,000 workers from its payrolls, as the company undergoes an historic bankruptcy restructuring.
The largest closures include a 3,405-worker assembly facility in Orion, Mich, that makes the popular Chevy Malibu and the Pontiac G6, a 2,671-employee Chevy plant in Spring Hill, Tenn. that used to make Saturns, and a truck plant in Pontiac, Mich. that employs over 1,400 people.
"We had our suspicions, but we had hoped that we were going to remain open, so it's a little bit of a shock," Brian Larkin, an official at United Auto Workers Local 594 in Pontiac, Mich., told CNNRadio. "People are just going to have to see what their options are. Right now, that's not clear."
The Orion, Mich and Spring Hill, Tenn. plants, along with a stamping plant in Pontiac, Mich., are being placed on "standby" status, meaning they could re-open if demand bounces back.
GM said the moves will result in lower fixed costs per vehicle, and lower and more efficient capital investment.
"Our manufacturing operations will emerge even leaner, stronger and more flexible, as part of the New GM, " Gary Cowger, an executive at GM's Global Manufacturing and Labor Relations division, said in a statement.
At least one of the assembly plants on standby will reopen when GM starts building a new small car in the United States, although the company didn't specify which plant.
The closures, which will be phased in over the next few years, will result in GM going from 47 plants currently to 33 by 2012.
Shuttering the factories is part of an unprecedented effort to turn around the once mighty U.S. company that has suffered from overcapacity, high labor costs and vehicle quality issues for years.
Other plants slated for closure include a 1,069-worker assembly plant in Wilmington, Del. that makes soon-to-be-discontinued Pontiac models, as well as stamping facilities in Indianapolis, Ind., and Mansfield, Ohio.
Michigan powertrain facilities in Livonia, Flint and Ypsilanti, as well as Parma, Ohio, and Fredericksburg, Va., are also on the closure list.
Additionally, a powertrain plant in Massena, N.Y., and a stamping plant in Grand Rapids, Mich., will shut down - moves that had been previously announced.
Warehouses in Boston, Jacksonville, Fla., and Columbus, Ohio employing a total of 232 people will also be closed.
GM (GM, Fortune 500) didn't specify how many people will be laid off from each factory, but said between 18,000 and 20,000 workers will ultimately be affected. Over 15,000 people currently work at the facilities that were listed on Monday, according to the GM Web site.
A GM spokesman said all the laid-off employees will receive some type of severance package, although he could not comment on the details.
Lincoln Merrihew, an autos analyst at the market research firm TNS, said the compensation would likely be short term, not a paycheck-for-life type arrangement.
"All indications are that this will be intermittent, a couple of weeks pay for every year at the firm, or something like that," said Merrihew.
He also said he expects Monday's layoffs to account for the lion's share of job losses at GM, although what happens to workers at brands the company is spinning off - like Saturn - is another matter.
The closures are bound to be tough on the towns where these factories are located. Many have few other employment options.
The job losses are also likely to spread beyond GM, as dealerships, parts suppliers and others indirectly dependent on the auto industry feel the pinch.
In Mansfield, Ohio, the manager of a 860-person stamping plant tried to let his employees down easy.
"This decision has not been made because of something that you, plant management, the union, local or state government's have failed to do," the manager wrote in a letter to employees, now posted on CNN affiliate WMFD's Web site. "I want to stress the fact that GM management knows that all of you - the men and women of Mansfield - are proud, hard working people who have dedicated your working lives to building high quality parts for your assembly plants."
The largest closures include a 3,405-worker assembly facility in Orion, Mich, that makes the popular Chevy Malibu and the Pontiac G6, a 2,671-employee Chevy plant in Spring Hill, Tenn. that used to make Saturns, and a truck plant in Pontiac, Mich. that employs over 1,400 people.
"We had our suspicions, but we had hoped that we were going to remain open, so it's a little bit of a shock," Brian Larkin, an official at United Auto Workers Local 594 in Pontiac, Mich., told CNNRadio. "People are just going to have to see what their options are. Right now, that's not clear."
The Orion, Mich and Spring Hill, Tenn. plants, along with a stamping plant in Pontiac, Mich., are being placed on "standby" status, meaning they could re-open if demand bounces back.
GM said the moves will result in lower fixed costs per vehicle, and lower and more efficient capital investment.
"Our manufacturing operations will emerge even leaner, stronger and more flexible, as part of the New GM, " Gary Cowger, an executive at GM's Global Manufacturing and Labor Relations division, said in a statement.
At least one of the assembly plants on standby will reopen when GM starts building a new small car in the United States, although the company didn't specify which plant.
The closures, which will be phased in over the next few years, will result in GM going from 47 plants currently to 33 by 2012.
Shuttering the factories is part of an unprecedented effort to turn around the once mighty U.S. company that has suffered from overcapacity, high labor costs and vehicle quality issues for years.
Other plants slated for closure include a 1,069-worker assembly plant in Wilmington, Del. that makes soon-to-be-discontinued Pontiac models, as well as stamping facilities in Indianapolis, Ind., and Mansfield, Ohio.
Michigan powertrain facilities in Livonia, Flint and Ypsilanti, as well as Parma, Ohio, and Fredericksburg, Va., are also on the closure list.
Additionally, a powertrain plant in Massena, N.Y., and a stamping plant in Grand Rapids, Mich., will shut down - moves that had been previously announced.
Warehouses in Boston, Jacksonville, Fla., and Columbus, Ohio employing a total of 232 people will also be closed.
GM (GM, Fortune 500) didn't specify how many people will be laid off from each factory, but said between 18,000 and 20,000 workers will ultimately be affected. Over 15,000 people currently work at the facilities that were listed on Monday, according to the GM Web site.
A GM spokesman said all the laid-off employees will receive some type of severance package, although he could not comment on the details.
Lincoln Merrihew, an autos analyst at the market research firm TNS, said the compensation would likely be short term, not a paycheck-for-life type arrangement.
"All indications are that this will be intermittent, a couple of weeks pay for every year at the firm, or something like that," said Merrihew.
He also said he expects Monday's layoffs to account for the lion's share of job losses at GM, although what happens to workers at brands the company is spinning off - like Saturn - is another matter.
The closures are bound to be tough on the towns where these factories are located. Many have few other employment options.
The job losses are also likely to spread beyond GM, as dealerships, parts suppliers and others indirectly dependent on the auto industry feel the pinch.
In Mansfield, Ohio, the manager of a 860-person stamping plant tried to let his employees down easy.
"This decision has not been made because of something that you, plant management, the union, local or state government's have failed to do," the manager wrote in a letter to employees, now posted on CNN affiliate WMFD's Web site. "I want to stress the fact that GM management knows that all of you - the men and women of Mansfield - are proud, hard working people who have dedicated your working lives to building high quality parts for your assembly plants."
from cnn.com
Saturday, May 30, 2009
Reinventing GM
DETROIT — With an almost certain bankruptcy filing days away, General Motors is beginning its reinvention, planning to retool one factory to make its smallest vehicles ever in the U.S. and rid itself of the biggest.
As GM’s board began two days of meetings Friday to make a final decision on the company’s fate, GM also was closing in on a sale of its European Opel unit, and its main union overwhelmingly approved dramatic labor cost cuts. A deal to sell its rugged but inefficient Hummer brand also appeared on the horizon.
Dramatic changes
The moves provided more clues about what a restructured GM might look like ahead of the expected Chapter 11 filing Monday. Taxpayers will eventually own nearly three-quarters of a leaner GM, with a total government commitment of nearly $50 billion.
GM has yet to confirm it will seek bankruptcy protection but scheduled a news conference for Monday in New York.
With the government’s backing and nearly $20 billion in U.S. loans so far, the company has made more dramatic changes in just a few days than it has in decades.
"It’s been coming to a head for a very long time,” said Aaron Bragman, an analyst for the consulting firm IHS Global Insight. "But in just the past few months, we’ve really seen steps being taken to completely and dramatically change the face of American auto manufacturing.”
GM said it plans to reopen a shuttered U.S. factory to build subcompact cars. The retooled factory would be able to build 160,000 cars a year and create 1,200 jobs, offsetting some of the 21,000 that will be lost when GM closes 14 factories by the end of next year.
GM’s stock tumbled to the lowest price in the company’s 100-year history, closing at just 75 cents after trading as low as 74 cents. The government plan for GM revealed Thursday would make the shares virtually worthless.
Union savings
The United Auto Workers’ reluctant but overwhelming ratification of concessions will save GM $1.3 billion per year and bring its labor costs down to those of its Japanese competitors. The new UAW deal freezes wages, ends bonuses and eliminates some noncompetitive work rules.
The changes, plus others that will be worked out in court, will shrink GM and position it to be among the world’s most competitive automakers if it can emerge from bankruptcy protection and survive the global auto sales slump, Bragman said.
"They’ve eliminated their legacy costs. They’ve already invested in new product that’s coming. They have the ear of the government unlike any time in their history, and the government has said basically ‘we are going to help you survive and thrive,’” Bragman said.
by the associated press
As GM’s board began two days of meetings Friday to make a final decision on the company’s fate, GM also was closing in on a sale of its European Opel unit, and its main union overwhelmingly approved dramatic labor cost cuts. A deal to sell its rugged but inefficient Hummer brand also appeared on the horizon.
Dramatic changes
The moves provided more clues about what a restructured GM might look like ahead of the expected Chapter 11 filing Monday. Taxpayers will eventually own nearly three-quarters of a leaner GM, with a total government commitment of nearly $50 billion.
GM has yet to confirm it will seek bankruptcy protection but scheduled a news conference for Monday in New York.
With the government’s backing and nearly $20 billion in U.S. loans so far, the company has made more dramatic changes in just a few days than it has in decades.
"It’s been coming to a head for a very long time,” said Aaron Bragman, an analyst for the consulting firm IHS Global Insight. "But in just the past few months, we’ve really seen steps being taken to completely and dramatically change the face of American auto manufacturing.”
GM said it plans to reopen a shuttered U.S. factory to build subcompact cars. The retooled factory would be able to build 160,000 cars a year and create 1,200 jobs, offsetting some of the 21,000 that will be lost when GM closes 14 factories by the end of next year.
GM’s stock tumbled to the lowest price in the company’s 100-year history, closing at just 75 cents after trading as low as 74 cents. The government plan for GM revealed Thursday would make the shares virtually worthless.
Union savings
The United Auto Workers’ reluctant but overwhelming ratification of concessions will save GM $1.3 billion per year and bring its labor costs down to those of its Japanese competitors. The new UAW deal freezes wages, ends bonuses and eliminates some noncompetitive work rules.
The changes, plus others that will be worked out in court, will shrink GM and position it to be among the world’s most competitive automakers if it can emerge from bankruptcy protection and survive the global auto sales slump, Bragman said.
"They’ve eliminated their legacy costs. They’ve already invested in new product that’s coming. They have the ear of the government unlike any time in their history, and the government has said basically ‘we are going to help you survive and thrive,’” Bragman said.
by the associated press
Thursday, May 28, 2009
GM expected to find court protection
DETROIT — General Motors bondholders felt they deserved something like a 58 percent stake in the company in exchange for their billions of dollars in debt. What they were offered wasn’t even close.
As a result, the largest industrial bankruptcy in U.S. history is now all but certain. The bondholder rejection virtually ensures GM will file for Chapter 11 bankruptcy protection within days.
The government, which has already extended nearly $20 billion in loans to GM, ordered the company to come up with a plan that 90 percent of its bondholders would agree to. But the government allowed it to offer only 10 percent of the company’s stock. GM was forced to withdraw the offer Wednesday after it fell short.
A person familiar with discussions between GM and the government told The Associated Press any bankruptcy filing would probably come around the government’s Monday deadline for GM to finish restructuring or enter protection. The person asked not to be identified because the talks are private.
To avoid bankruptcy, the government said GM must shed debt, cut labor costs and close plants.
GM bondholders are owed about $27 billion, the largest chunk of GM’s roughly $58 billion in debt. They were offered the 10 percent stake to wipe out the debt, well short of the 58 percent they wanted.
Like its crosstown rival Chrysler, which was angling Wednesday for a judge’s permission to sell most of its assets to a group headed by an Italian automaker, GM was pulled down by debt, high labor costs and a devastating sales slump.
The government has poured billions into the two companies, fearing the ripple effects of catastrophic job losses might push the economy into a depression. The pair employ more than 126,000 people in the U.S., and hundreds of thousands of others rely on the companies working for parts suppliers, dealerships and other businesses.
GM spokesman Tom Wilkinson said the board would meet later this week to decide its next move
by the associated press
As a result, the largest industrial bankruptcy in U.S. history is now all but certain. The bondholder rejection virtually ensures GM will file for Chapter 11 bankruptcy protection within days.
The government, which has already extended nearly $20 billion in loans to GM, ordered the company to come up with a plan that 90 percent of its bondholders would agree to. But the government allowed it to offer only 10 percent of the company’s stock. GM was forced to withdraw the offer Wednesday after it fell short.
A person familiar with discussions between GM and the government told The Associated Press any bankruptcy filing would probably come around the government’s Monday deadline for GM to finish restructuring or enter protection. The person asked not to be identified because the talks are private.
To avoid bankruptcy, the government said GM must shed debt, cut labor costs and close plants.
GM bondholders are owed about $27 billion, the largest chunk of GM’s roughly $58 billion in debt. They were offered the 10 percent stake to wipe out the debt, well short of the 58 percent they wanted.
Like its crosstown rival Chrysler, which was angling Wednesday for a judge’s permission to sell most of its assets to a group headed by an Italian automaker, GM was pulled down by debt, high labor costs and a devastating sales slump.
The government has poured billions into the two companies, fearing the ripple effects of catastrophic job losses might push the economy into a depression. The pair employ more than 126,000 people in the U.S., and hundreds of thousands of others rely on the companies working for parts suppliers, dealerships and other businesses.
GM spokesman Tom Wilkinson said the board would meet later this week to decide its next move
by the associated press
Wednesday, May 27, 2009
Union deal could sweeten GM’s offer to bondholders
DETROIT — A cost-cutting deal between the United Auto Workers and General Motors Corp. will give a union-run health care trust fund a smaller stake in the automaker than previously expected, but it also could be the catalyst that allows the company to restructure outside of bankruptcy court.
GM, which faces a Monday deadline to restructure or be forced into bankruptcy protection, reached a concession deal with the UAW last week that gives the trust fund up to 20 percent of the company’s shares while freezing wages and cutting performance bonuses and cost-of-living raises.
Factory-level union leaders from across the U.S. unanimously endorsed the deal at a meeting Tuesday in Detroit. The union’s GM workers must vote on the agreement by Thursday.
In a summary of the deal, the union said it would get 17.5 percent of GM’s common stock, plus a warrant for another 2.5 percent, as partial payment of the $20 billion that GM must put into a trust that will start paying retiree health care costs next year. The trust will get $6.5 billion of preferred shares that pay 9 percent interest, plus a $2.5 billion note. The remaining $10 billion will come from health care trust funds that GM already has set up. The trust will get a seat on GM’s board, although it will have to vote at the direction of GM’s other independent directors.
GM’s unsecured bondholders have resisted an offer to take a 10 percent stake in the company to wipe out $27 billion in debt. Analysts say it’s unlikely enough bondholders will approve the offer, meaning GM would still be forced to file for Chapter 11.
But the UAW trust is getting far less than 39 percent in stock GM said it would get previously. With the UAW’s share at 20 percent, that frees 19 percent to go to either the government or the bondholders, who had until 11:59 p.m. Tuesday to accept or reject the exchange offer.
GM has said it could extend the deadline for the bond exchange and will decide that today.
by the assiated press
GM, which faces a Monday deadline to restructure or be forced into bankruptcy protection, reached a concession deal with the UAW last week that gives the trust fund up to 20 percent of the company’s shares while freezing wages and cutting performance bonuses and cost-of-living raises.
Factory-level union leaders from across the U.S. unanimously endorsed the deal at a meeting Tuesday in Detroit. The union’s GM workers must vote on the agreement by Thursday.
In a summary of the deal, the union said it would get 17.5 percent of GM’s common stock, plus a warrant for another 2.5 percent, as partial payment of the $20 billion that GM must put into a trust that will start paying retiree health care costs next year. The trust will get $6.5 billion of preferred shares that pay 9 percent interest, plus a $2.5 billion note. The remaining $10 billion will come from health care trust funds that GM already has set up. The trust will get a seat on GM’s board, although it will have to vote at the direction of GM’s other independent directors.
GM’s unsecured bondholders have resisted an offer to take a 10 percent stake in the company to wipe out $27 billion in debt. Analysts say it’s unlikely enough bondholders will approve the offer, meaning GM would still be forced to file for Chapter 11.
But the UAW trust is getting far less than 39 percent in stock GM said it would get previously. With the UAW’s share at 20 percent, that frees 19 percent to go to either the government or the bondholders, who had until 11:59 p.m. Tuesday to accept or reject the exchange offer.
GM has said it could extend the deadline for the bond exchange and will decide that today.
by the assiated press
Friday, May 22, 2009
Rescue fund to continue aiding financial corps
WASHINGTON — The Treasury intends to use bank repayments of government aid to continue assisting the financial sector, Treasury Secretary Timothy Geithner told lawmakers Thursday even as he assured them that the $700 billion rescue fund would not become a permanent financial bailout tool.
"We’re still in a very challenging economic and financial situation,” Geithner said.
Republican lawmakers have argued that Geithner should use the repayments toward reducing the federal debt.
Deadline exists
Geithner reminded members of a House Appropriations subcommittee Thursday that the rescue fund law, as adopted by Congress last fall, automatically ends on Dec. 31. The law gives the Treasury secretary the authority to extend it only nine more months.
"So it is not a permanent program,” he said.
The hearing before the Appropriations subcommittee was intended to give Geithner an opportunity to discuss the Treasury’s 2010 budget request. But lawmakers’ questions focused largely on his work dealing with the financial crisis, including what role the government could play in assisting money-strapped states such as California.
Local help
Geithner said he did not have authority to use the financial rescue funds to help state and municipal governments.
But he said he was working with Congress to make it easier for state and municipal governments to borrow money.
"The primary burden is going to rely on governors and mayors to try to make sure that they’re taking the steps necessary to bring their deficits down,” he added.
Geithner declined to rule out helping California or other states with taxpayer money.
by the associated press
"We’re still in a very challenging economic and financial situation,” Geithner said.
Republican lawmakers have argued that Geithner should use the repayments toward reducing the federal debt.
Deadline exists
Geithner reminded members of a House Appropriations subcommittee Thursday that the rescue fund law, as adopted by Congress last fall, automatically ends on Dec. 31. The law gives the Treasury secretary the authority to extend it only nine more months.
"So it is not a permanent program,” he said.
The hearing before the Appropriations subcommittee was intended to give Geithner an opportunity to discuss the Treasury’s 2010 budget request. But lawmakers’ questions focused largely on his work dealing with the financial crisis, including what role the government could play in assisting money-strapped states such as California.
Local help
Geithner said he did not have authority to use the financial rescue funds to help state and municipal governments.
But he said he was working with Congress to make it easier for state and municipal governments to borrow money.
"The primary burden is going to rely on governors and mayors to try to make sure that they’re taking the steps necessary to bring their deficits down,” he added.
Geithner declined to rule out helping California or other states with taxpayer money.
by the associated press
Saturday, May 9, 2009
Feds might offer more aid to GMAC
DETROIT — With the federal government almost certain to take control of GMAC Financial Services, analysts suggest it could become a loan machine that gives General Motors and Chrysler a huge advantage over their competitors.
The company was one of 10 financial firms ordered by the government to raise more capital after taking a stress test. In GMAC’s case, it needs $11.5 billion, and the most likely source is the government itself.
A government-controlled GMAC would have the power to offer low-cost loans to buyers of GM and Chrysler cars and trucks as a way of steering business to the troubled automakers.
"GMAC could become the Freddie Mac and Fannie Mae of auto finance. It would probably help sales of GM and Chrysler cars, but it also increases the risk of taxpayer loss,” said Bert Ely, a banking consultant in Alexandria, Va.
An advantage?
The Obama administration already owns 5 million shares of GMAC, which it got in exchange for a $5 billion bailout loan. And Treasury Secretary Timothy Geithner said Friday his department is poised to offer GMAC more help.
"We’re going to provide substantial support to GMAC,” Geithner said.
He said it was "likely” that GMAC will need more money from the government, "and we’ll be prepared to provide that.”
Chrysler LLC is already in bankruptcy, and General Motors Corp. is facing a June 1 deadline to finish a restructuring plan and avoid winding up in bankruptcy as well. U.S. auto sales are at a 27-year low.
The government could lean on GMAC to help stimulate sales with the cash to offer zero-percent financing, or lower credit requirements.
"Financing is critical to this process, and that requires that GMAC have the ability to provide loans that Americans need to buy cars,” Geithner said.
Turning GMAC into a government-funded finance arm for GM and Chrysler would give them a competitive advantage over Ford Motor Co. and perhaps other automakers, said Kirk Ludtke, senior vice president of CRT Capital Group LLC in Stamford, Conn.
by the associated press
The company was one of 10 financial firms ordered by the government to raise more capital after taking a stress test. In GMAC’s case, it needs $11.5 billion, and the most likely source is the government itself.
A government-controlled GMAC would have the power to offer low-cost loans to buyers of GM and Chrysler cars and trucks as a way of steering business to the troubled automakers.
"GMAC could become the Freddie Mac and Fannie Mae of auto finance. It would probably help sales of GM and Chrysler cars, but it also increases the risk of taxpayer loss,” said Bert Ely, a banking consultant in Alexandria, Va.
An advantage?
The Obama administration already owns 5 million shares of GMAC, which it got in exchange for a $5 billion bailout loan. And Treasury Secretary Timothy Geithner said Friday his department is poised to offer GMAC more help.
"We’re going to provide substantial support to GMAC,” Geithner said.
He said it was "likely” that GMAC will need more money from the government, "and we’ll be prepared to provide that.”
Chrysler LLC is already in bankruptcy, and General Motors Corp. is facing a June 1 deadline to finish a restructuring plan and avoid winding up in bankruptcy as well. U.S. auto sales are at a 27-year low.
The government could lean on GMAC to help stimulate sales with the cash to offer zero-percent financing, or lower credit requirements.
"Financing is critical to this process, and that requires that GMAC have the ability to provide loans that Americans need to buy cars,” Geithner said.
Turning GMAC into a government-funded finance arm for GM and Chrysler would give them a competitive advantage over Ford Motor Co. and perhaps other automakers, said Kirk Ludtke, senior vice president of CRT Capital Group LLC in Stamford, Conn.
by the associated press
Saturday, May 2, 2009
Ford gains in Market, Without more Bailout Money
DETROIT — Detroit’s Big Three is becoming Ford and the other two.
While its rivals stay afloat with billions in government aid, Ford grabbed a bigger slice of the American car market in April with record sales of its fuel-efficient Fusion. Those results pushed it past Toyota to retake its post as the nation’s No. 2 car seller.
Even though Ford’s monthly sales tumbled 32 percent from a year earlier, it captured 16 percent of the total market. Most of those gains came at the expense of General Motors Corp. and Chrysler LLC, which unlike Ford are dependent on federal help.
Overall U.S. auto sales reported Friday fell 34 percent from a year earlier. Automakers sold about 820,000 light vehicles in April, about 38,000 fewer than in March but still a big improvement over January’s 27-year low.
"It seems we’re bouncing on the bottom of the bathtub, but it’s somewhat stabilized,” Chrysler Vice Chairman Jim Press said in a conference call with journalists. "Maybe we’ve figured out where the bottom is.”
How others are faring
Chrysler, which filed for a government-engineered bankruptcy Thursday, reported the sharpest decline among major automakers, falling 48 percent.
GM, the largest American automaker with 21 percent of the market, posted its smallest decline in four months at 34 percent.
Ford sold a record number of Fusions — 18,321 — with the unveiling of its 2010 gas and hybrid versions of the car. Ford began selling the Fusion with its 2005 model.
Still, sales of the rival Camry, Toyota’s popular sedan, totaled about 25,000 last month, while Honda’s Accord sedan sold more than 29,000.
Toyota Motor Corp., which had overtaken Ford as No. 2 in U.S. sales, fell behind its rival in sales for the first time in months. Ford got a lift from its line of midsize cars that burn less gasoline.
Ford Motor Co. sold 133,979 light vehicles in April, compared with 195,665 for the same month of 2008. The figures exclude sales of heavy and low cab forward trucks. Sales rose from March to April, with Ford selling 2,878 more cars.
April marked the sixth time in seven months that Ford gained in the retail market share.
Chrysler is clinging to a 9 percent share of the U.S. market, down from about 12 percent a year ago.
by the associated press
While its rivals stay afloat with billions in government aid, Ford grabbed a bigger slice of the American car market in April with record sales of its fuel-efficient Fusion. Those results pushed it past Toyota to retake its post as the nation’s No. 2 car seller.
Even though Ford’s monthly sales tumbled 32 percent from a year earlier, it captured 16 percent of the total market. Most of those gains came at the expense of General Motors Corp. and Chrysler LLC, which unlike Ford are dependent on federal help.
Overall U.S. auto sales reported Friday fell 34 percent from a year earlier. Automakers sold about 820,000 light vehicles in April, about 38,000 fewer than in March but still a big improvement over January’s 27-year low.
"It seems we’re bouncing on the bottom of the bathtub, but it’s somewhat stabilized,” Chrysler Vice Chairman Jim Press said in a conference call with journalists. "Maybe we’ve figured out where the bottom is.”
How others are faring
Chrysler, which filed for a government-engineered bankruptcy Thursday, reported the sharpest decline among major automakers, falling 48 percent.
GM, the largest American automaker with 21 percent of the market, posted its smallest decline in four months at 34 percent.
Ford sold a record number of Fusions — 18,321 — with the unveiling of its 2010 gas and hybrid versions of the car. Ford began selling the Fusion with its 2005 model.
Still, sales of the rival Camry, Toyota’s popular sedan, totaled about 25,000 last month, while Honda’s Accord sedan sold more than 29,000.
Toyota Motor Corp., which had overtaken Ford as No. 2 in U.S. sales, fell behind its rival in sales for the first time in months. Ford got a lift from its line of midsize cars that burn less gasoline.
Ford Motor Co. sold 133,979 light vehicles in April, compared with 195,665 for the same month of 2008. The figures exclude sales of heavy and low cab forward trucks. Sales rose from March to April, with Ford selling 2,878 more cars.
April marked the sixth time in seven months that Ford gained in the retail market share.
Chrysler is clinging to a 9 percent share of the U.S. market, down from about 12 percent a year ago.
by the associated press
Thursday, April 23, 2009
GM gets another $ 2 Billion for bailout
WASHINGTON (AFP) — The US Treasury Friday announced it had loaned General Motors an additional two billion dollars to help the troubled auto giant operate until a June 1 deadline for submitting a new restructuring plan.
The government said earlier in the week that it would provide GM with five billion dollars and give competitor Chrysler 500 million dollars while the two loss-making firms came up with plans to return to profitability.
The Treasury has yet to provide any new money to Chrysler, which is due to submit its restructuring proposals to the government by May 1.
Authorities have warned that bankruptcy was an option for both companies if they failed to come up with realistic plans for becoming "viable" by the deadlines.
GM, which had already received 13.4 billion dollars in loans from the government, was given 60 days to present an aggressive restructuring plan after authorities rejected previous proposals from the firm in late March.
Chrysler, considered the most fragile of the big US automakers, has received four billion dollars in loans. US media reported this week that the Treasury was pressing the company to prepare to file for bankruptcy as early as next week when its deadline to provide a realistic survival plan expires.
The government said earlier in the week that it would provide GM with five billion dollars and give competitor Chrysler 500 million dollars while the two loss-making firms came up with plans to return to profitability.
The Treasury has yet to provide any new money to Chrysler, which is due to submit its restructuring proposals to the government by May 1.
Authorities have warned that bankruptcy was an option for both companies if they failed to come up with realistic plans for becoming "viable" by the deadlines.
GM, which had already received 13.4 billion dollars in loans from the government, was given 60 days to present an aggressive restructuring plan after authorities rejected previous proposals from the firm in late March.
Chrysler, considered the most fragile of the big US automakers, has received four billion dollars in loans. US media reported this week that the Treasury was pressing the company to prepare to file for bankruptcy as early as next week when its deadline to provide a realistic survival plan expires.
by the associated press
Ford may drive away without a bailout
DEARBORN, Mich. — Better-than-expected earnings from Ford raised hopes Friday that the automaker’s restructuring and new products may be enough to spare it from a federal bailout, while General Motors received more government help and Chrysler raced to avoid bankruptcy.
Ford still lost $1.4 billion from January through March, but that was less than expected, and executives said the outlook for future sales was good enough to increase production of its most popular vehicles. Ford Motor Co. has taken several steps over the last few years to avoid government intervention: cutting costs, focusing on its core brands, and introducing vehicles and advanced features.
"Ford is building the best stuff it’s ever made in terms of quality rankings and critical reviews,” said Aaron Bragman, auto analyst at IHS Global Insight. "The vehicles are sufficiently improved and people are starting to realize that.”
While Ford tries to go it alone, federal officials are questioning every penny spent by General Motors Corp. and Chrysler LLC, which are both subsisting on government loans.
Friday, the Treasury Department said it loaned $2 billion to GM, bringing the automaker’s total to $15.4 billion. Chrysler has borrowed $4 billion and could get $500 million more so it can keep running while it restructures.
But Ford, under the leadership of former Boeing Corp. CEO Alan Mulally, mortgaged all of the automaker’s assets — including the trademark blue logo — a few years ago, when loans were easier to get from the private sector.
Are things improving?
As of March 31, Ford had $21.3 billion to help it survive the worst market for U.S. auto sales in 27 years.
The company said Friday it had spent just $3.7 billion of its cash during the first three months of this year, far less than the $7.2 billion it burned in the fourth quarter of 2008. Investors sent Ford’s shares up 11 percent.
"I think the important comparison for us is ‘Are we improving versus the fourth quarter?’” Chief Financial Officer Lewis Booth said. "Because the fourth quarter, things were really dreadful.”
He said cost cuts and better pricing for its vehicles helped Ford narrow its losses from $5.9 billion in the fourth quarter, and he expects continued improvement.
Ford said it was able to charge more for its vehicles, which now come loaded with features such as electronic blind-spot detection and technology that links cell phones and MP3 players to a voice-activated command center.
by the associated press
Ford still lost $1.4 billion from January through March, but that was less than expected, and executives said the outlook for future sales was good enough to increase production of its most popular vehicles. Ford Motor Co. has taken several steps over the last few years to avoid government intervention: cutting costs, focusing on its core brands, and introducing vehicles and advanced features.
"Ford is building the best stuff it’s ever made in terms of quality rankings and critical reviews,” said Aaron Bragman, auto analyst at IHS Global Insight. "The vehicles are sufficiently improved and people are starting to realize that.”
While Ford tries to go it alone, federal officials are questioning every penny spent by General Motors Corp. and Chrysler LLC, which are both subsisting on government loans.
Friday, the Treasury Department said it loaned $2 billion to GM, bringing the automaker’s total to $15.4 billion. Chrysler has borrowed $4 billion and could get $500 million more so it can keep running while it restructures.
But Ford, under the leadership of former Boeing Corp. CEO Alan Mulally, mortgaged all of the automaker’s assets — including the trademark blue logo — a few years ago, when loans were easier to get from the private sector.
Are things improving?
As of March 31, Ford had $21.3 billion to help it survive the worst market for U.S. auto sales in 27 years.
The company said Friday it had spent just $3.7 billion of its cash during the first three months of this year, far less than the $7.2 billion it burned in the fourth quarter of 2008. Investors sent Ford’s shares up 11 percent.
"I think the important comparison for us is ‘Are we improving versus the fourth quarter?’” Chief Financial Officer Lewis Booth said. "Because the fourth quarter, things were really dreadful.”
He said cost cuts and better pricing for its vehicles helped Ford narrow its losses from $5.9 billion in the fourth quarter, and he expects continued improvement.
Ford said it was able to charge more for its vehicles, which now come loaded with features such as electronic blind-spot detection and technology that links cell phones and MP3 players to a voice-activated command center.
by the associated press
Tuesday, April 21, 2009
GM Fires 1,600 Workers
DETROIT — General Motors Corp. began firing 1,600 white-collar workers Monday and Fiat’s chief executive left Italy to resume critical talks on an alliance with Chrysler LLC, as deadlines draw closer for GM and Chrysler to finish their restructuring plans.Both automakers are living on a combined $17.4 billion in government loans and have said they’ll need more money to survive. Chrysler must cut its debt and its labor costs and forge an alliance with Fiat Group SpA by April 30, or President Barack Obama says Chrysler won’t get any more help.
If GM can swap much of its debt for stock and get concessions from the UAW and Canadian Auto Workers by June 1, the government says it will provide more loans to keep the company going. Bankruptcy financing also is possible if the company determines Chapter 11 is its best bet to achieve the cuts it needs.
More cuts ahead
GM’s layoffs this week bring the automaker close to its goal announced in February to cut 3,400 U.S. salaried positions, spokesman Tom Wilkinson said. GM has about 29,000 salaried workers in the U.S.
"In these unprecedented times, GM is reinventing every aspect of our business, including our organizational size and structure, to create a lean and agile company,” GM North America President Troy Clarke said Monday in an e-mail to employees obtained by The Associated Press.
GM has said it will eliminate 47,000 jobs worldwide by the end of 2009, but the cuts may go even deeper as the company moves toward its deadline. CEO Fritz Henderson has said the automaker will close more factories beyond five announced in February. The factories to be closed have not been identified.
by the associated press
If GM can swap much of its debt for stock and get concessions from the UAW and Canadian Auto Workers by June 1, the government says it will provide more loans to keep the company going. Bankruptcy financing also is possible if the company determines Chapter 11 is its best bet to achieve the cuts it needs.
More cuts ahead
GM’s layoffs this week bring the automaker close to its goal announced in February to cut 3,400 U.S. salaried positions, spokesman Tom Wilkinson said. GM has about 29,000 salaried workers in the U.S.
"In these unprecedented times, GM is reinventing every aspect of our business, including our organizational size and structure, to create a lean and agile company,” GM North America President Troy Clarke said Monday in an e-mail to employees obtained by The Associated Press.
GM has said it will eliminate 47,000 jobs worldwide by the end of 2009, but the cuts may go even deeper as the company moves toward its deadline. CEO Fritz Henderson has said the automaker will close more factories beyond five announced in February. The factories to be closed have not been identified.
by the associated press
Bailout could be open to Fraud
WASHINGTON — Taxpayers are increasingly exposed to losses and the government is more vulnerable to fraud under Obama administration initiatives that have created a federal bank bailout program of "unprecedented scope,” a government report finds.
In a 250-page quarterly report to Congress, the rescue program’s special inspector general concludes that a private-public partnership designed to rid financial institutions of their "toxic assets” is tilted in favor of private investors and creates "potential unfairness to the taxpayer.”
The report, which examines the $700 billion Troubled Asset Relief Program, is scheduled for release today.
Inspector General Neil Barofksy offers a series of recommendations to protect the public and takes the Treasury to task for not implementing previous advice. The report also commends Treasury and the Federal Reserve Bank for creating safeguards.
The report’s warnings about the public-private plan’s potential for losses echoes alarms raised by some lawmakers and economists, but Barofksy’s views are likely to carry ample weight.
Plan may total $2T
Overall, the report says the public-private partnership — using Treasury, Federal Reserve Bank and private investor money — could total $2 trillion. The markets responded positively to the program when the Obama administration announced it last month, but the administration is still putting final touches on its implementation.
"The sheer size of the program … is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives,” the report states.
In particular, the report cited the private-public partnership that would purchase troubled real estate-related securities from financial institutions. Under plans unveiled by Treasury, for every $1 of private investment, Treasury would invest $1 and could provide another dollar in a nonrecourse loan. That money could then leverage a loan from another government fund backed mostly by the Federal Reserve, a step that Barofsky says would dilute the incentive for private fund managers to exercise due diligence.
by the associated press
In a 250-page quarterly report to Congress, the rescue program’s special inspector general concludes that a private-public partnership designed to rid financial institutions of their "toxic assets” is tilted in favor of private investors and creates "potential unfairness to the taxpayer.”
The report, which examines the $700 billion Troubled Asset Relief Program, is scheduled for release today.
Inspector General Neil Barofksy offers a series of recommendations to protect the public and takes the Treasury to task for not implementing previous advice. The report also commends Treasury and the Federal Reserve Bank for creating safeguards.
The report’s warnings about the public-private plan’s potential for losses echoes alarms raised by some lawmakers and economists, but Barofksy’s views are likely to carry ample weight.
Plan may total $2T
Overall, the report says the public-private partnership — using Treasury, Federal Reserve Bank and private investor money — could total $2 trillion. The markets responded positively to the program when the Obama administration announced it last month, but the administration is still putting final touches on its implementation.
"The sheer size of the program … is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives,” the report states.
In particular, the report cited the private-public partnership that would purchase troubled real estate-related securities from financial institutions. Under plans unveiled by Treasury, for every $1 of private investment, Treasury would invest $1 and could provide another dollar in a nonrecourse loan. That money could then leverage a loan from another government fund backed mostly by the Federal Reserve, a step that Barofsky says would dilute the incentive for private fund managers to exercise due diligence.
by the associated press
Saturday, April 4, 2009
Demonstrators Protest aid to Big Business
Chanting " Whose Street ? Our Street ! " hundreds of people railed on Friaday to protest billions of dollars in federal bailout money to big business . Monica Moorehead , managing editor of the left-learning newspaper Workers World , said the crowd gathered to protest the capitalist system , which helps AIG and other companies she said steal money from us .
The crowd was waving signs readinng , " No more money for Wall street " . The protesters behind police barricades and marched along Broadway and through the narrow streets in downtown Mannhattan . They walked past the headquarters of American International Grooup Inc , and several banks that recevied federal funds to stay afloat .
Some of the companies posted security guards outside their entrances .
by the associated press
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