It’s the start of a new working week in the northern hemisphere, which means it’s non-stop bailout coverage once again. Well, I hope not, but that’s how things seem to have trended in recent weeks. It’s an absorbing story because it within the bigger story of GM’s survival is the story of Saab’s survival.
Or is it?
There’s been a lot of talk about the ripple effect if GM were to fail, but that talk has been focused on the fallout that would take place in North America.
What about GM Europe and GM’s other operations around the world. What about Holden here in Australia? When the Australian government recently announced a green vehicle fund to be shared amongst Aussie automakers they were all talking like the future was totally rosy. The crisis at GM was the un-mentioned elephant in the corner of the room.
Won’t the Australian operations shut up shop completely if the corporate parent goes under? The same question applies to GM Europe, but a recent story about GME made me think that there’s hope even if GMNA sinks.
GM Europe chief, Carl-Peter Forster, met with the German Chancellor Angela Merkel earlier this week to try and secure some funding for Opel. It read as follows:
Desperate executives from German automaker Opel turned to Chancellor Angela Merkel on Monday for government help in case US parent company General Motors goes bankrupt and leaves it high and dry.
Opel said on Friday it needed the German state to guarantee more than one billion euros (1.3 billion dollars) in loans, fearful that cash coming from GM headquarters in Detroit could dry up and leave it unable to pay its suppliers, creditors and 25,700 employees…..
…..GM Europe chief Carl-Peter Forster said that he had asked for guarantees of just over one billion euros (1.3 billion dollars).
“We felt obliged to make sure that even in the worst-case scenario, including when it comes to developments in the US, the continued survival of Adam Opel GmbH is assured,” Forster said.
My emphasis added.
The “worst case scenario” for GM is an inability to get a bailout package from a stubborn bunch of lame ducks in Washington, followed by a reasonably quick slide from Chapter 11 bankruptcy to Chapter 7 liquidation due to an inability to secure the finance it needs to get through C11.
So is Carl-Peter Forster saying that even in this worst case scenario, that operations at GM Europe could continue? What’s the model for this?
And most importantly for us, what about Saab in that situation? I have a feeling that they’ll need to go cap-in-hand with Volvo to the Swedish government for help, and I assume they’d have to do that as part of GM Europe.
There are so many questions here.
Can GM Europe be spun off from the corporate mothership if it falls?
What does all this mean for dealers? In Europe? In the US? In Asia?
If you’ve got more info than what’s being published in the news services, please let me know.
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Aussie motoring journalist Mellor last week wrote an editorial on the prospect that Ford Oz and GM Holden could be bought out by Indian and Chinese businesses respectively if push came to shove. Both companies have enormous capabilities from design through to manufacture. I would suggest the same applies to Opel and even Saab if there hasn’t been too much of a brain-drain.
It’s a tricky situation. General Motors Europe (GME) is legally a division of General Motors Corp. (GM). If GM were to be liquidated under Chapter 7 rules, would not GME be considered an asset to liquidate for cash?
Saab Automobile AB (SAAB), on the other hand, is a subsidiary of GME. You could argue that Saab would be sold as part of GME if GM were under C7. Unless GME is liquidated independent of GM with the former’s assets sold individually.
I think a person with background in corporate law may be better suited answet this and clear things up. I am somewhat doubtful the general media and blogsphere have the technical knowledge in this area of international business law.
Check this……..
http://gmfactsandfiction.com/
regards
1) Swedish govt has already set aside $250mm to assist Volvo and Saab according to press reports. Question is whether this is enough dough to be meaningful.
2) PROBABLY, a CH11 filing by GM-USA would NOT include subsidiaries in Europe and Asia that may in fact be viable. It is very typical for European subsidiaries to stay out of bankruptcy because the laws in those countries are VERY anti-borrower and pro-lender. All value in those assets would be lost to the banks. Also, the ability to repatriate profits out of Europe/Asia should those subsidiaries file is doubtful. So if they keep them out then they can move $$ back and forth as they please… (unless its France which is a WHOLE dif story…)
3) I understand that Opel is perhaps the most profitable major segment of GM and the Asia and LAtam busnesses make $$$ as well. if true they will stay out of the filing.
4) NO WAY this is a Ch7. Not right away at least. Will def be CH11.
Thanks for the input, Vance.
The reason for the Ch7 reference is that there are a lot of theories going around that GM wouldn’t be able to last in Ch11. Many see Ch11 as the panacea but don’t realise that GM need cash to get through Ch11 as well. Where would they get that from? Many money markets are closed to them now, before Ch11. Some might suggest that the Govt could loan them the money to get through, but I can’t see a government bankrolling a proposition that will definitely lead to job cuts and loss of benefits for many. It’s definitely going to be interesting. – SW
Hear u friend on the Ch7 reference. Here are my impressions.
Chrysler is prob a CH7. Not much value there except perhaps some of its factories sans UAW contracts, Perhaps Nissan-Renault or the Italians buy the bits and pieces? Jeep can certainly be sold for $$$. Other than that? Nada…
GM has some hugely valuable properties and can prob turn itself around given support. Corvette, Chevy, Cadillac are prime assets many car cos would bid on. Also the non-USA businesses have loads of value. Should cert be enough to re-org around those assets or sell them for more coin than the GM stock now trades at. CH11 would require DIP (debtor in possession) financing. Most likely existing lenders would role into the new DIP structure. What changes is the nutty UAW agreements (ALL GONE IN CH11) incl the healthcare expenses etc for current workers all to be re-struck at market rates. Retiree situation is more complicated and better for the workers. They prob get their pensions but not healthcare for life. BUT GM may become near profitable just from throwing out the labor contracts. I could cert see the US govt putting money in to keep pensioners whole and provide cushions for laid off workers as well as retooling $$ etc. I just hope that shareholders get wiped out (done already..) , the US govt and bondholders get the equity in “Newco” and the unions get their contracts “marked to market” and a GOOD slug of equity to incentiveize them to the upside.
Ford similar to GM but more manageable in size and scope. BTW… if one “goes” they all have to “go”. No way C or F can survive if GM restructures with govt $$$
A bailout package is not going to happen until Obama takes over on January 20th. Can GM hang on that long? That’s the drama right now.
Kroum: The division v. subsidiary thing is likely not anything more than a naming convention the marketing people use. The legal entities, be it division or subsidiary, are very likely set up as a separate company with 100% ownership by something else. The question with respect to financial obliogations generally becomes how much the parent is actively involved with daily operations of the division/subsidiary. In both cases, one can argue that GM is actively involved, dictating product, product timing, marketing, pricing, labor contracts, location of manufacture, etc. For all practical purposes both GM Europe and Saab are on the same playing field from a legal point of view and will be regarded as if they are in integral part of GM for valuation and restructuring. From a financial perspective, GM Europe has more tangible assets in a location with stronger currency, so I’d think that makes the biggest difference.
Greg: It could happen before, but I think that GM can hold out long enough. Shoot, even if they ran out of cash now someone would be there to lend the money. It may cost more, but they can certainly hold until spring.
Eggs, it is no marketing lingo, but different legal structures. I have made a note to ask our legal folks for more insight tomorrow. Meanwhile, this and that may provide for a quick reading.
I guess GME is one part of the problem for the US government. No way US taxpayers would give away money to help foreign brands – and by foreign I here mean all brands based outside the US regardless of who owns it. But cut them away and the US operations will fall even faster. Tricky situation.
One solution could be that the US government demand that foreign brands get their own protection from the local government where they are HQ:ed. That could be the reason for Opel now asking for protection from the German government. That done, the US government could then protect the US part of the companies without getting to much heat from US taxpayers.
Another way is for the Big 3 to decrease their involvement in the foreign brands. GM has just sold its remaining shares in Suzuki. Reason: to raise cash – or to not risk having to give the US taxpayers money to Japan. Same with Mazda. Ford has now decided to sell 2/3 of their stake in that brand, despite the Mazda CEO just week ago said that there were to be no change in the Ford-Mazda relationship.
Also reported in Swedish media this morning. Fredinand Dudenhöffer, “a leading German auto industry expert”, thinks Opel can survive. But Since GM has trashed Saab, it should be sold or scrapped. “Saab is no more than an Opel with a Saab badge.” I guess it can be ugly the next few months when protectionism and nationalism really comes into play.
Maybe the Wallenbergs will decide that Saab has become a bargain and take a stake in the business again?
Saaburius!
Just putting it out there
What do you say, Watanabe san? If you promise to not go all Volt on us, that is. Saab even rhymes with Sushi.