Feds Told GM To Drop Pontiac Or No Bailout, Lutz Says

[jpd80]

20 years starting in 2009

That's less than $250 million per quarter off the top of revenue, I'm betting they hold it back for 35% tax reduction if possible.

 

The one thing that could have been done with the government's stock in GM was to make a safety net provision.

Make GM agree to guaranteed buy back of stock at IPO value or to cover the government's sell down losses.

IMO, as a lender of last resort, Treasury should have insisted on that provision.

Edited November 15, 2013 by jpd80

[grbeck]

 

Parties already get "special" treatment in a bankruptcy. Creditors are already ranked in order to how their debt is paid. Some creditors are more senior to others and some could (and do) end up with nothing in a "normal" bankruptcy. That's true for shareholders in any event--they get virtually no protection in a "normal" bankruptcy. If you're thinking the UAW got something special--they didn't---they took on the massive responsibilities through the VEBA GM would've otherwise had--thus, they received equity in exchange for that. Holders of common stock held equity in a company that had essentially no assets and only debt.

 

It's EXACTLY the position they would've been in without goverment assistance. The government got huge amounts of stock/equity in the new GM because they're the ones that put up all the cash. UAW got most of the rest because they took on massive liabilities. I simply don't see the problem. The government would've gotten basically ALL the stock had they put up $75B to give GM the cash and to take on the retiree healthcare liabilities. The shareholders didn't do a damn thing to save GM from bankruptcy.

 

The contention that the UAW did not receive special treatment is not true. The UAW's claims had the same legal status as those of other unsecured creditors, but the union received a much higher proportion of the debts owed by the company than other unsecured creditors.

 

(And, just to be clear, the UAW agreed to the VEBA provisions during contract negotiations in 2007, or BEFORE the bankruptcy filing. So one could say that the union had gambled and lost, much like those individuals and funds who had bought GM stock and bonds. So if the union received equity for that stake, why didn't the other shareholders?)

 

Also note that the wages were not brought down to competitive levels (which would be the transplant operations), as would happen in a normal bankruptcy proceeding. The pay cuts were taken by members not yet hired. Generally, bankrupt companies do not contemplate hiring new employees. They are worried about paying the current ones.

Edited November 19, 2013 by grbeck

[RichardJensen]

 

The contention that the UAW did not receive special treatment is not true.

 

Also note that the wages were not brought down to competitive levels

 

The UAW received special treatment because the UAW's pensions were insured by the government.

 

NOT giving the UAW special treatment would have increased the cost for EVERYONE.

 

--

 

And the changes to the overall work rules brought overall wage costs down significantly.

[jpd80]

 

The UAW received special treatment because the UAW's pensions were insured by the government.

 

NOT giving the UAW special treatment would have increased the cost for EVERYONE.

 

--

 

And the changes to the overall work rules brought overall wage costs down significantly.

You mentioned a very important point recently, those groups gaining perceived preferential treatment

were in fact taking on GM liability - UAW for one now has the responsibility of managing VEBA.

 

Stock holders could not be expected to take on liability so the best way was to let them wear their own losses.

[BrewfanGRB]

You mentioned a very important point recently, those groups gaining perceived preferential treatment

were in fact taking on GM liability - UAW for one now has the responsibility of managing VEBA.

 

Stock holders could not be expected to take on liability so the best way was to let them wear their own losses.

Exactly.

[grbeck]

 

The UAW received special treatment because the UAW's pensions were insured by the government.

 

NOT giving the UAW special treatment would have increased the cost for EVERYONE.

 

--

 

And the changes to the overall work rules brought overall wage costs down significantly.

That is admitting the UAW did receive special treatment, which was rather strenuously denied earlier in the thread.

 

If the federal government is bending the rules by giving one party special treatment, it can then bend the rules further to ensure that said special treatment does not cost taxpayers more money that it has to. It is a fact that the wages and benefits of current employees, and the pension benefits of current retirees, were basically untouched. That didn't have to happen, but it did, and it ended up costing taxpayers more money.

 

Changes in the work rules did significantly reduce costs, but the costs of GM are still not completely in line with the those of the transplant operations, which are the new benchmark in this country.

[grbeck]

You mentioned a very important point recently, those groups gaining perceived preferential treatment

were in fact taking on GM liability - UAW for one now has the responsibility of managing VEBA.

 

Stock holders could not be expected to take on liability so the best way was to let them wear their own losses.

 

The UAW agreed to this before the bankruptcy filing (the agreement was in 2007) and they agreed to allow GM to fund the VEBA with stock. So they took a risk and lost, just as the stockholders did.

 

And there was no requirement that the benefits covered by the post-bankruptcy VEBA had to match those of the pre-bankruptcy VEBA, but that was the path chosen by the federal government, and it ultimately increased the total costs of the bailout. If the goal was to save taxpayers money, then every aspect of the bailout should have been examined with that goal in mind.

Edited November 20, 2013 by grbeck

[RichardJensen]

That is admitting the UAW did receive special treatment, which was rather strenuously denied earlier in the thread.

 

If the federal government is bending the rules by giving one party special treatment, it can then bend the rules further to ensure that said special treatment does not cost taxpayers more money that it has to. It is a fact that the wages and benefits of current employees, and the pension benefits of current retirees, were basically untouched. That didn't have to happen, but it did, and it ended up costing taxpayers more money.

 

Changes in the work rules did significantly reduce costs, but the costs of GM are still not completely in line with the those of the transplant operations, which are the new benchmark in this country.

 

I never denied special treatment for the UAW.

 

What I said in the past, and continue to say, is that the treatment of UAW pensions was clearly and directly connected with the PBGC.

 

Furthermore, I would love to see how one could impose billions of additional liabilities on the already insolvent PBGC without creating more cost for taxpayers. Offloading GM's pensioners alone onto the PBGC would basically triple the number of PBGC beneficiaries.

 

I find the notion that preserving UAW pensions 'cost taxpayers' to be utterly absurd.

 

I can't imagine any sane bidder that would have exceeded Marchionne by such an amount as to eliminate the net cost of assuming Chrysler's pension liabilities. And anything less than that would have increased taxpayer costs.

 

And, finally, the bankruptcy process does not guarantee that your costs will be 'completely in line' with your competitors. GM and Chrysler are, by most accounts, within a buck or two per hour (~3%) of the transplants.

Edited November 20, 2013 by RichardJensen

[RichardJensen]

 

If the goal was to save taxpayers money

 

So, taxpayers would save money if pensioners ended up on Title XIX for their supplemental medical?

[jpd80]

At that time, GM had 377,000 retirees on VEBA's books, the fall out from not supporting the UAW to carry those liabilities would have

cost the government much more. The problem with second guessing government decisions, the fallout in collateral damage from doing

some perceived alternative that saves money would have most likely resulted in costing the government even more money in another area.

 

We need to get over this idea that investors are entitled to anything, they took a risk and had months beforehand to get out

but instead, fund managers chose to stay in taking a GAMBLE that the government would cover their losses.

 

People also forget that a lot of those GM investors were also pension plans investing in GM and those fund managers should look to

their own incompetence with other people's money, relying on the government to cover their failure to act prudently was just plain stupid.

Edited November 20, 2013 by jpd80

[630land]

It wasn't as if Pontiac was still making GTO Judges, and Bandit Trans Ams with non-Chevy 400-455 ci motors 5 years ago. Purists hated the looks of the Holden based GTO and the G8 sold at a loss. The Solstice couldn't keep a whole plant running profitably, and why steal Corvette sales?

 

Lutz also acts as if the G6, G5, and G3 were 'great cars'. No way

 

And they already have RWD cars at Chevy and Caddy, why have more badge jobs?

Edited November 22, 2013 by 630land

[grbeck]

 

I never denied special treatment for the UAW.

 

What I said in the past, and continue to say, is that the treatment of UAW pensions was clearly and directly connected with the PBGC.

 

Furthermore, I would love to see how one could impose billions of additional liabilities on the already insolvent PBGC without creating more cost for taxpayers. Offloading GM's pensioners alone onto the PBGC would basically triple the number of PBGC beneficiaries.

 

I find the notion that preserving UAW pensions 'cost taxpayers' to be utterly absurd.

 

I can't imagine any sane bidder that would have exceeded Marchionne by such an amount as to eliminate the net cost of assuming Chrysler's pension liabilities. And anything less than that would have increased taxpayer costs.

 

And, finally, the bankruptcy process does not guarantee that your costs will be 'completely in line' with your competitors. GM and Chrysler are, by most accounts, within a buck or two per hour (~3%) of the transplants.

 

This was posted up on the thread - not by you - regarding the UAW's treatment during the bankruptcy process:

 

"If you're thinking the UAW got something special--they didn't---they took on the massive responsibilities through the VEBA GM would've otherwise had--thus, they received equity in exchange for that. Holders of common stock held equity in a company that had essentially no assets and only debt. (emphasis added)

 

So, yes, it was denied that the UAW received special treatment on this very thread.

 

As for this:

 

"I find the notion that preserving UAW pensions 'cost taxpayers' to be utterly absurd."

 

It's not "utterly absurd" if the pensions emerged completely unscathed - remember, the UAW, in a communications to its members, has admitted this - during the process.

 

The choice here wasn't limited to "UAW pensions without any changes" and "throwing everything on the PGBC." It was entirely possible for the pensions to have been modified in a manner that didn't result in members haunting food banks and still saved taxpayer's money. This, however, apparently wasn't explored. And that, again, constitutes special treatment.

 

That's the trouble with hanging your hat on the "it saved taxpayers money" argument. When others can prove that, ultimately, that precept was applied rather selectively, the justification starts to ring hollow.

Edited November 25, 2013 by grbeck

[grbeck]

 

So, taxpayers would save money if pensioners ended up on Title XIX for their supplemental medical?

Again, that wasn't the only choice available. You can increase co-payments and deductibles without requiring people to switch to government plans.

 

This type of choice is always presented by UAW supporters and members on other threads, usually regarding the non-union transplants:

 

"If we don't have the UAW we'll be making minimum wage!", as if there are only two choices - the minimum wage or having the union represent the workers.

 

Ignoring, of course, that the Toyota Lean Production System requires workers to make meaningful contributions to improve the product and the process in order to work properly. Companies generally don't get those kind of people by offering the minimum wage. The Japanese, amazingly enough, have figured out this one. Which is why they pay a lot more than the minimum wage, even to non-union workers.

 

 

Edited November 25, 2013 by grbeck

[RichardJensen]

Ignoring, of course, that the Toyota Lean Production System requires workers to make meaningful contributions.

 

 

Please: http://articles.economictimes.indiatimes.com/2008-09-10/news/27693619_1_toyota-employees-toyota-motor-corp-toyota-system

 

 

It was entirely possible for the pensions to have been modified in a manner that didn't result in members haunting food banks and still saved taxpayer's money. This, however, apparently wasn't explored. And that, again, constitutes special treatment.

 

If Treasury negotiated a reduction in pension liabilities, it would increase the book value of GM, but taxpayers don't stand to lose money because of GM's book value. They stand to lose money because of the gap between market cap & book value. Do you believe that-------if nothing else changed at GM besides pension liabilities-----there would be a significantly smaller gap between market cap & book value?

Edited November 25, 2013 by RichardJensen

[jpd80]

So let me get this right, every decision by treasury was to balance or minimize risk to taxpayer funding, not only in direct decisions but in

potential collateral damage instances. if VEBA had not been supported and that pension fund was allowed to crash and burn with old GM

in CH7, then there would then be 377,000 retirees with no retirement income what so ever knocking lining up for government welfare.

 

GM may have initially agreed to fund VEBA with $2.5 B and $9 billion in preferred stock but that 2007 agreement was later amended

with a lot of other work and pay conditions thrown on top all whilst GM received on going TARP funding from the Bush government.

 

I'm sure that any CH 11 judge would look favorably on any organization willing to take on VEBA management provided that the original

funding agreements were honored - the UAW is forced to agree to terms suitable to GM to cover its liabilities. That's a completely

different circumstance to pension plans investing in GM stock where those fund managers go in eyes open and expecting the

government to cover their losses.

Edited November 25, 2013 by jpd80

[akirby]

So let me get this right, every decision by treasury was to balance or minimize risk to taxpayer funding, not only in direct decisions but in

potential collateral damage instances. if VEBA had not been supported and that pension fund was allowed to crash and burn with old GM

in CH7, then there would then be 377,000 retirees with no retirement income what so ever knocking lining up for government welfare.

 

I believe the government was responsible for those 377K pensions, not just for welfare assistance.

[RichardJensen]

So let me get this right, every decision by treasury was to balance or minimize risk to taxpayer funding, not only in direct decisions but in

potential collateral damage instances. if VEBA had not been supported and that pension fund was allowed to crash and burn with old GM

in CH7, then there would then be 377,000 retirees with no retirement income what so ever knocking lining up for government welfare.

 

GM may have initially agreed to fund VEBA with $2.5 B and $9 billion in preferred stock but that 2007 agreement was later amended

with a lot of other work and pay conditions thrown on top all whilst GM received on going TARP funding from the Bush government.

 

I'm sure that any CH 11 judge would look favorably on any organization willing to take on VEBA management provided that the original

funding agreements were honored - the UAW is forced to agree to terms suitable to GM to cover its liabilities. That's a completely

different circumstance to pension plans investing in GM stock where those fund managers go in eyes open and expecting the

government to cover their losses.

 

There are two components: VEBA was largely responsible for the health plan, and the pensions were carried on the books as unsecured liabilities.

 

In a privately financed bankruptcy the unsecured obligations to the VEBA and the pensions would have been severely compromised, as the DIP lender and bondholders would be made whole with equity in new GM ahead of retirees.

 

The cancellation of retiree healthcare and reduction of pensions to PBGC amounts would dramatically increase taxpayer costs, through Title XIX ("Medicaid" health coverage) and a bailed out/recapitalized PBGC.

 

Instead, the government left VEBA and the pensions intact.

 

Reductions in pensions would not have directly benefited taxpayers. Reduction of the VEBA would have increased payment to bond & stockholders, which would not have benefited taxpayers.