Gm Bail out Plan General Motors Bankruptcy

The question should be not who will benefit if GM and Chrysler go bankrupt but, the question should be, “What are the consequences of a GM and Chrysler bankruptcy?”

The oblivious companies who will benefit are Ford Motor company (F) the stock price $2.47 as, of April 1, 2009. Also benefiting from this bankruptcy are the foreign auto makers, the Southern states who have the foreign auto makers manufacturing plants located within their states. Less oblivious would be the new auto part companies who would be supplying auto parts.

General Motors (GM) stock price as of April 1, 2009 is $1.93. GM employs some 243,000 employee’s nation wide. The American rental car agencies like Hertz and Avis make up about 15% of all of GM auto sales. Those rental car companies will be affected as well. Delphi Corporation ticker symbol (DPHIQ) stock price as of, April 1, 2009 $0.05, that company employees 146,600 employees nationwide. Other auto part companies include American Axle and Manufacturing (AXL) ticker symbol, price as of April 1, 2009 $1.23 also employs thousands of employees nationwide. (GM) also has thousands of dealers across the nation that employs hundreds of thousands of American workers.

If General Motors and Chrysler go bankrupt the negatives will out weigh the benefits of the bankruptcy. You could see a potential of over 1 million American workers be added to the unemployment lines across the nation. Just a quick reminder to the politicians out there that 1 million Americans can and do go to the voting booths come election day.

The proponents of allowing (GM) to go into bankruptcy will site the following benefits;

1) The legacy cost and the contracts with the unions can be renegotiated.

2) The 28 billion dollars of bond holders could be paid off pennies to the dollar.

3) The auto part suppliers and creditors could be renegotiated as well

As for the “legacy issues” there are currently 450,000 former (GM) employees across the nations who are receiving pension income and medical coverage. The direct impact on those former employees would be facing a drastic cut in income as well as medical benefits. The American consumer makes up about 2/3rds of the spending in the GDP. If an additional 450,000 households cut back on their spending that would further delay the economic recovery.

One way to address the medical benefit issue would be to pass medical coverage for all Americans. If those lawmakers in Congress can receive a medical benefit program, why not expand that medical coverage to include all Americans.

As for the 28 billion worth of bond holders, the bond holders would be forced to settle for pennies to the dollar or receive nothing back. When it comes to the equity holders of the company stock and those mutual fund companies that hold GM stock, those equity holders will be wipe out. Some 48.22% of financial institutions have (GM) within their portfolio holders. You will see millions and perhaps billions of stock equity value wiped out. The market value of (GM) is $1,178,268,860.

Let us turn to the UAW union contracts. The unions will be more willing to negotiate if comprehensive medical coverage is passed.

Here are some of the potential consequences if GM,and Chrysler were allowed to fall into bankruptcy. There is a potential that America
will be adding over 1 million more workers to the unemployment line.
Currently we are facing an unemployment rate over 8% with over 5.5 million Americans receiving unemployment benefits. The federal and state governments are facing massive deficits now. This will only make matter worse.

If over 1 million new Americans are added to the unemployment lines that will further slow down the economic recovery, fear of job loss and the uncertainty of the economic climate are the twin killers of economic recovery. A bankruptcy of GM and Chrysler will only compound the slow down of the consumer spending. There is a possibility that the recession could be driven into a depression.

As distasteful as it is , to pure “Free market principle” of allowing a company to file for bankruptcy, the only solution is to move forward with a comprehensive workout solution plan for GM and Chrysler.