BIG 3 BAILOUT

[COPO 70 RS/Z28]

Just a question, I know there are some financial guys here.

What would be the downside of GM filing. The company reorganizes and can renegotiate labor contracts etc. I know that there would be collateral damage but there will be significant pain any way this thing goes. The company gets a chance and the feds are kept at bay.

In not a financial guy so if someone could explain.

[MrsBillyBobcat]

http://www.freep.com/article/20081213/COL01/81213055

[TN2Lane]

It's not the labor costs that are the problem in bankruptcy, it's the suppliers. There are literally thousands of those, many of which are in just as tenuous shape as GM. GM buys parts on credit (not multi-year financed, but net 90 days and such) so if GM runs out of cash and has to file bankruptcy, a lot of parts suppliers are going to be forced into bankruptcy also.

Now, in the current industry, a lot of parts suppliers supply multiple manufacturers. This means that if, say, Chrysler goes into bankruptcy, Ford (which doesn't have the immediate cash problems of the others) is looking at the potential of a significant portion of their suppliers also going under. That's the logic behind Ford's CEO going before Congress asking for GM and Chrysler to be bailed out.

There are basically 2 kinds of bankruptcy for corporations - Chapter 11 (reorganization), and Chapter 7 (liquidation). The rules allow the creditors to decide if the filer can attempt reorganization or is forced into Chapter 7 liquidation. The consensus is that if GM actually has to file, the large number of creditors will force them into Chapter 7.

[427TJ]

[ QUOTE ]
The company gets a chance and the feds are kept at bay.

[/ QUOTE ]

It's not the feds who need to be kept at bay, it's the smaller companies (suppliers, etc.) and banks GM owes money to who GM wants kept at bay. The feds want to give GM billions!