However, GM will continue to manufacture and sell cars. The U.S. government is hoping for a “surgical” process to build a new, smaller GM out of its remains. GM’s chairman, Kent Kresa, described this process as a “new beginning” for the company, saying that, “A court-^­supervised process and transfer of assets will enable a new GM to emerge as a stronger, healthier, more focused and nimbler company with a determination not to just survive but to excel.”

This massive reorganization of GM would leave the U.S. government holding 60% of the company’s equity but, nevertheless, this is an essential process in order for America to sustain a feasible US auto industry. Yet still, Obama had to reiterate that the government was still reluctant about becoming a shareholder in GM, but acknowledged that to go to with the alternative, which would be to extend more loads, would be worse.

Today, GM announced that they plan to sell their Hummer brand to Chinese equipment maker Sichuan Tengzhong Heavy Industrial Machinery Co. Ltd., in a transaction that would secure more than 3,000 U.S. jobs.

Yet another question lingers in our minds as we think to ourselves, “Will GM’s bankruptcy work?” Some people believe that GM has finally made the necessary changes to be competitive but still others hold their doubts about GM’s future prospect.

]]> http://www.dojitrading.com/2009/06/general-motor-bankruptcy/feed/ 0 http://www.dojitrading.com/2009/05/brink-of-bankruptcy/ http://www.dojitrading.com/2009/05/brink-of-bankruptcy/#comments Wed, 27 May 2009 20:04:47 +0000 Tim Huang http://www.dojitrading.com/?p=272 Will this be the end of General Motors? Bondholders have rejected a debt exchange offer from GM, which expired at midnight last night. The United States’ biggest automaker has failed to persuade enough creditors to ingest their losses and is now approaching their deadline that the Obama administration has set for them–June 1, which is next Monday. This leaves GM the rest of the week and the weekend to finish restructuring for a possible miracle or resort to filing for Chapter 11 bankruptcy, which is more than likely to happen.

One thing is for sure: GM’s uncertainty over its finances has hurt sales of their cars, as consumers worry about matters such as warranty protection. Would you purchase your own car from a company that is nearly bankrupt? For many people, this bankruptcy issue does not affect their personal interest, as the case shows that Chrysler’s sales have been holding up well even though they had recently filed for bankruptcy.

Does the news of GM dampen our optimistic attitude about the economy and its possible recovery by this year? More than 90% of economists predicted that the recession will end this year, acknowledging that the recovery will be bumpy and slow. Nevertheless, this news still may have a significant impact on consumer confidence, although there has been some positive reading in that consumer confidence has been improving lately. However the reality is that the economy is still very weak, which is also stated by Alan Gayle, senior investment strategist at RidgeWorth Capital Management.

Goodbye Lewis
Mr. Kenneth Lewis, who helped build Bank of America into the nation’s largest bank just a couple years ago now seems to be the center where criticisms are fired at. Shareholders have swiped his chairman position, though the vote was very close – 50.34% that had opted to remove Lewis as chairman. Investors attended the annual shareholders meeting, some even wearing shirts that expressed their feelings, with comments like “FIRE!!! KENNETH LEWIS.” In fact, 1/3 voted to remove him from the board altogether. However he remains chief executive, as its board of directors had unanimous support for him.

Why so angry? Angry investors held Mr. Lewis accountable for what was perceived as inept actions that he took, which had potentially forced the bank to accept two government bailouts. It wasn’t too long ago that Mr. Lewis was praised by many, even for his takeover of Merrill Lynch. Now, critics say that Mr. Lewis not only overpaid Merrill, but it seems like the takeover has done such detriments to the ex-largest bank. Merrill’s losses have prompted Bank of America to seek their second rescue from the government and this is where the criticisms start to roll in. Walter E. Massey, president of Morehouse College in Atlanta, will replace Lewis as chairman.

Over the four remaining days, offers and counteroffers will fly back and forth between the White House and banks in their last attempts to save Chrysler. The White House is determined to save jobs at Chrysler, along with auto supplier companies that could also fall into bankruptcy if Chrysler does not survive. Then, the failure for those suppliers could impact GM, as well as Ford, and other foreign automakers that manufacture in the U.S..

The United Automobile Workers union have reached an agreement with Chrysler, meeting the federal government’s requirements for Chrysler to receive more financing. The agreement also including reducing the amount of money Chrysler must pay for a new health care fund for retirees.

“My sense is that it’s not liquidation, that it would be a reorganization,” a Detroit-area Chrysler dealer, Carl Galeana, said Sunday. “I just think a shutdown of a corporation this size, in this economy, would be devastating.”

I guess we’ll just have to wait 4 more days to find out and see what happens. Good luck to Chrysler.