Winners And Losers In GM Bankruptcy

Auto Workers, Taxpayers, Bondholders Have Much Riding On Expected Deal; CBS MoneyWatch's Jill Schlesinger Sorts It All Out

(CBS)  General Motors is heading down the road toward an almost certain bankruptcy filing Monday.

The iconic automaker's stock closed at 75 cents a share Friday, after trading as high as $18 during the past year.

There are many players in the GM bankruptcy drama, including workers, taxpayers, and bondholders, to name a few. Who among them stands to benefit and who looks likely to lose?

CBS MoneyWatch.com Editor at Large Jill Schlesinger took a look on The Early Show Saturday Edition.


THE WINNERS

THE BIGGEST: FOREIGN CAR MAKERS: If you're going to buy a car right now, what would you buy? You'd have to have some concerns about buying one from GM. You may get a good bargain. But Toyota and Honda have a huge competitive advantage right now just because of the uncertainty surrounding GM.

BONDHOLDERS: Some of the bondholders bought their bonds at really low prices. They're going to see profits.

What about bondholders who say they lost their whole retirement investment? How do they profit? The majority of the bondholders are institutions, NOT individuals. That means a hedge fund could go out and buy GM bonds in the market at a lower price and then make money if the ultimate settlement value is higher. It's true that individual investors who may have owned the bonds from years ago could lose out.

Incidentally, the difference between a stockholder and a bondholder is that the former owns part of the company. Shares of stock don't come with guarantees. But a bondholder lends the company money. Essentially, bondholders get an IOU from the company. GM bondholders are owed $27 billion. Now, GM is offering them 10 percent equity in a new, reorganized company.

LAWYERS: Bankruptcy is a very procedure-heavy process. There are lots of pieces, lots of lawyers involved. You have to have them to get the process done, and they're going to make a ton of money in this.


THE LOSERS

WORKERS, DEALERSIPS AND SUPPLIERS: This is a no-brainer. They're going to lose jobs. There are 60,000 GM employees now, and the company plans to get down to 38,000 by the end of 2010. "This is a terrible human price to pay for this bankruptcy," Schlesinger told co-anchor Erica Hill. Meanwhile, GM's suppliers are under pressure: Fewer GM cars being sold means less of their products being sold.

UNIONS: The unions gave up a lot of power in this process. I think we've seen a diminished role for unions in this country for a number of years. This really illustrates how little power unions have nowadays. When it came down to it, they had to give up whatever the government wanted them to give up. The unions basically had to say to themselves, "We can try to hold out and get better benefits for our members. While we do this, the company goes broke. OR, we can give in a bit, and we lose benefits and jobs for our members, but there will still be a company intact." It was a very tough place for them.

TAXPAYERS: Washington has pumped $20 billion into GM already, and it seems likely some 50 billion more taxpayer dollars will be heading into company coffers. There is no way of knowing if GM is going to come out of this and survive. There is a LOT of risk here. It could emerge from bankruptcy with fewer obligations and employees, but still could be in big trouble. Toyota and Honda could eat them for lunch, and we'd all lose $70 billion.

It's never a fun thing to bail out any industry. But this is going to be a particularly tough situation. "There’s a very big possibility," Schlesinger told Hill, "that the U.S. taxpayer is a big loser because, not only do we have to come out of bankruptcy, we have to get GM to be profitable, and then give us our $70 billion back. That's a real long shot at this point. We’re propping them up for a good reason: We're in the middle of a recession. We don't want a big ripple effect. But it doesn't mean we're getting our money back. It doesn't mean it was a great investment."

[number1GI]

Ha Ha Ha oiaf17 you nmber ten ha ha ha

[sam-kiley]

bonjour,
chrysler..et là probablement "GENERAL MOTORS"...mais qu'arrivet-il a l'industrie automobile aux USA, est-elle aussi fragile, ..la crise économique a frappé de plein fouet, et du jour au lendemain ces voitures de luxe, ne sont plus a la portée de la bourse..de l'américain moyen..pour ne pas dire l'américain tout court, ...ou est le hic..

au revoir

[payasyougo]

"Winners And Losers In GM Bankruptcy"
----
The American Taxpayer had absolutely no one at the table bargaining in their best interests.

"Too big to fail" is what everyone is assuming the U.S. is.

Like a household filing for bankruptsy or the state of CA heading down that road it's a simple matter of using debt to finance your current lifestyle "hoping" tomorrow you'll be able to cover the expenses and then looking to someone else to bail you out when that day arrives. There is no one to bail out the U.S.

This is not a doomsday scenario, it's simple math. Start running the scenarios now about what the rebuild should look like.

[Dgunner]

FROM THE HALLS OF MONTEZUMA TO THE SHORES OF TRIPOLI WE FIGHT OUR NATIONS BATTLES TO PROTECT THE BIG THREE..This makes about as much sense as believing the UAW has any power at all. The next thing the government will try to convince us is that a trailer house is a manufactured home.

[golfered2]

BS!!! BS!!!! BS!!!!!! THE UAW IS THE BIGGEST WINNER. The workers should ALL be FIRED. The UAW has raped every auto company and finally is getting what they deserve!!! Thinks about it Railroads, Airlines, Steel Industry, Clothing companies and thousands of manufacturing companies went bankrupt because the unions forced them out of business. Non union companies and their workers still working ie WalMart. GET RID OF ALL UNIONS!!!!!!

[carthur60]

The unions made very few concessions in this deal. The nearly 1 million UAW retirees, the group overwhelmingly responsible for GM's crippling overhead costs, had no cuts made to their pensions or their health-care plan. In a normal bankruptcy, pension and retiree health-care are completely eliminated. What is the difference in this bankruptcy? The Obama administration, under the pretext of giving money to GM, will actually use most of the $70 billion of U.S. tax payers' money to support the UAW retirees' pension and health-care.

It's unfortunate that the american built cars have developed the reputation of being unreliable. Even if it's NOT ture today, the damage has already been done from previous years, that it will take several more years before it passes.

I remember the time that I was looking for a car and I asked my mechanic friend as to what car I should buy and his only reply was: " Which cars do you NOT see in my shop?"

Well, I saw just about every model of U.S. made cars there but there was NO Toyota cars around. .. and I asked him if he didn't service toyota cars. He said that he had just finished tuning up a Toyota Camry and doing an Oil Change on a Lexus, that was it for the entire week!

That was all he had to say ...!

But like I said before. Today I have a used 1993 Ford F150 PU truck which I purchased from a friend two years ago and it's running like a champ! Maybe the reliablility issue with American cars has closed the gap!

[payasyougo]

Winners And Losers In GM Bankruptcy
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If anyone thinks the taxpayer is other than a loser here.....

[the74blaster]

Billions of dollars your money go flushhhhh at GM and Chrysler. Think what could it spent on. It could give to poor. It could build better schools. Instead it make CEO richer and build more factories in Brazil and China. What oversight, Pelosi? Pelosi create jobs in Brazil and China with your billion dollars. You can afford to waste it?

Bye-bye America. Pelosi took your money to take away your jobs and give them to Brazil and my uncle. Ha Ha Ha.
Posted by oiaf17 at 3:59 PM : May 30, 2009

Blaming Pelosi or Obama for this is a total fabrication. The problem is our politicians have been bought by lobbyists and they implemented policies to help companies move offshore.

The problem is very clear. We have sat back as Americans and left the special interests groups destroy our infrastructure for their profit. In fact it is almost like the communists in China have an alliance with our greedy elitist to destroy our own country for profit.

The mechanism of economic collapse is eliminating the decent paying jobs which eliminates our disposable income and this in turn causes a recession.

Why is it that a political party would rather discuss issues like abortion to divide us and totally ignore the economic disaster.

Perhaps we should start recalling these peole because leaving them in office until 2010 is simply not acceptable.

[mars7578]

The communist wanted the adminstation to let these companies fail because they had hedged for this inaction.They care less about capitalism,free market ,or democracy.Although i would have asked Congress to restructure the bankruptcy laws to keep people from losing their homes and would have money to spend.You cannot tell me the accountants who created this scheme didnt see the downside. It is just like the drug companies when they create a new medication.Everytime we find that they knew of the side effects.We are to believe that these top level financial firms acted out of ignorance.I believe they calculated everything,including the governmental response and the effect on the world economy.Is it just a coincident that ,they changed the bankruptcy code.The slickest move of all is how they have hid under the cloak as if the were victims too.