Govt. may consider bailout for avert bankruptcy

Detroit: November 13, 2008 , IR Summary/NYT - Preparations are being made to grant some rescue package to the auto industry to avoid bankruptcy, particularly General Motors, which is believed to be in an uncomfortable position. It is feared G.M may file Chapter 11 and that they consider disaster.

Some experts feel that while bankruptcy would be painful and so the Government should come up to their rescue for bailout so as to enable the GM to become stronger.

Although G.M.’s labor contracts would be at risk of termination in a bankruptcy, setting up a potential confrontation with its unions, the company says its pension obligations are largely financed for its 479,000 retirees and their spouses.
Shareholders have already lost much of the equity that would disappear in a bankruptcy case. Shares of G.M. rose 16 cents Wednesday, to $3.08, but they have fallen 90.5 percent over the last 12 months, amid sharply lower auto sales and fears about G.M.’s future.

And as companies in industries like airlines, steel and retailing have shown, bankruptcy can offer a fresh start with a more competitive cost structure to preserve a future for the workers who remain.

“Just let market forces play out,” said Matthew J. Slaughter, associate dean at the Tuck School of Business at Dartmouth. “And if G.M. or one of the other companies files for bankruptcy, support the workers and the communities that would affected by a bankruptcy filing.”

William Ackman, a prominent activist investor who runs Pershing Square Capital, said Tuesday that G.M. should consider bankruptcy. “The way to solve that problem is not to lend more money to G.M.,” he said in an interview with Charlie Rose on PBS.
Instead, G.M. should submit a prepackaged bankruptcy, laying out steps it plans to enact once in Chapter 11 protection, said Mr. Ackman, who is not a major holder of G.M. shares.

“I’d rather the government’s money be used to train people for other jobs,” Mr. Ackman said. “The bankruptcy word scares people. It’s simply a system.”
Not surprisingly, Rick Wagoner, G.M.’s chief executive, disagrees. He told investors last week that “the consequences of bankruptcy would be dire and extend far beyond” the company. G.M. will “take every action we possibly can to avoid it,” he added.

The company also may be forced to take drastic actions as a condition of receiving any federal bailout package. It may include stiff requirements that G.M. and other automakers restructure and meet financial goals before they can get access to federal financing. Lawmakers may also demand a change in management.

Such demands “may have the same end as a restructuring,” but avoid the taint of an actual bankruptcy filing, said Susan R. Helper, a professor of regional economic development at Case Western Reserve University.

Even though a bankruptcy might help create a stronger company in the long run, consumers could easily see it as a sign that the cars they bought might not retain their value, and seek other options when shopping for a new car. (By contrast, travelers tend to have fewer concerns about flying on airlines operating in bankruptcy because their commitment ends with the flight.)

A car is “a major investment for a lot of families and the assurance that it will perform for a set period of time is part of the bargain,” said Christie L. Nordhielm, an associate professor of marketing at the University of Michigan.

To help ease consumers’ fears, G.M. could put money in escrow to reimburse its 6,468 dealers for any repairs to address problems covered by warranties. Airlines have taken such steps in the past to guarantee the value of tickets for future flights.
A study of 6,000 consumers last summer by CNW Marketing found that 80 percent of them said they would switch companies if G.M. or Ford filed for bankruptcy protection in the United States, suggesting that only G.M. loyalists would stand by the automaker.

A bankruptcy filing by a single Detroit car company could cost the economy $175 billion in the first year of the legal case in lost employee income and tax revenue, the Center for Automotive Research estimated this week. Given the complexity, a G.M. bankruptcy case could last three years or more.

A bankruptcy at G.M., with $111 billion in assets, would rank as one of the biggest bankruptcies ever, but would still be dwarfed by the case filed by Lehman Brothers last spring.Full


Tags: , , , , , , , , , , ,
Dr. Raj Baldev, Cosmo Theorist

About Dr. Raj Baldev, Cosmo Theorist

Dr. Raj Baldev, Cosmo Theorist, Ph.D., D. Litt., D Sc. (H.C), Editor-in-Chief of International Reporter, Chairman Media International Ltd., Born on 15 January 1927 in Montgomery, now in Pakistan. Internationally known, man of letters with over dozen of books and thousands of articles to his credit on various subjects including theories on the Creation of the Universe, the Black Holes, Supernovas and other functions of the Universe, Nature and Life , which he described both ways, philosophically and scientifically. He further elaborated how the entire Cosmos were formed. He holds spiritual wisdom of predicting and curing powers of the human problems, so much so, he is popularly known as Destiny Repairer, hence people call him with respect as Swamy Ji. He got the privilege of leading various Parliamentary Delegations abroad on good will missions; he also got the privilege of being invited by differnt Heads of State on state visits. He is the Founder of God Believers (GBA) who place belief in “FAITH”, Universal Modern Religion. FAITH is not a religion but a human service, an encyclopedia of creating healthy balance between Science and God. The main purpose of this mission is to defend the Identity of God from Scientists on one hand and to help fight Global Environmental Abuses, to create awareness of high risks of Excessive Nuclear Stockpiles, global service to the Human Rights and Justice on the other. He is a very simple man, he commands special respect as a holy man with high spiritualism and people address him as His Holiness. He is equally dedicated to the cause of media and journalism where he has been serving the people through his writing for over 50 years; he has also served as Member of Press Council of India. His main aim is to serve the humanity and all kinds of life on the Earth, to serve the elders, women and children, the blind, crippled, lepers and the needy, he is committed to save the Mother Earth from the abuses caused by humans and the nature through the social mission of God Believers (GBA), which also serves the World Peace. In short, he is a global social reformer. Google