USA Motors, Liabilities, and Finances, Inc., Part Two

According to reports in the Wall Street Journal on Tuesday, after a restructuring of the American auto industry by the Obama administration, the UAW would possess 55% control of the once great Chrysler and 39% of the once dominant General Motors.
These two companies will be controlled by the United States federal government and one of its strongest thug benefactors, the United Auto Workers union.
GM has thus far received some $15.4 billion in bailout funds from the federal government, and is requesting an additional $11.6 billion. CEO Fritz Henderson, who, incidentally, was installed by Obama after he fired Rick Wagoner, wants to repay their debt with at least half of GM's shares. That would make the United States government a majority shareholder in General Motors.
Additionally, GM would use stock to repay half the debt owed to provide health care to retirees, about $10.2 billion, giving the UAW a 39% stake in the company.
GM also plans to eliminate the Pontiac brand and cease production of Saturn vehicles by the end of this year. Also on the chopping block are 21,000 jobs by 2010 and 42% of its dealer base, approximately 500 dealers, by the end of next year. It's a bleak picture for the once great automaker which in better days controlled more than half the automobile market in the US.
Also at risk in this plan are GM's private debt holders, who have until May 26 to accept stock in exchange for the $27 billion they have invested in the company. They lose either way. If 90% of the bond-holders do not accept stock in lieu of cash, the deal will not go through and GM will likely enter bankruptcy, which could be devastating to bond holders. If they accept the stock exchange, they do so for pennies on the dollar and 10% stake in GM. Furthermore, GM may press for a similar deal in bankruptcy court anyway.
From a statement from GM Bondholders Committee's Advisers:
"We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another." (http://blogs.wsj.com/autoshow/2009/04/27/statement-from-gm-bondholder-commitees-advisers/)
But Henderson is not going to get into what's fair and not fair.
Obama's restructuring of the auto industry will reportedly also give the UAW majority control of Chrysler with 55% ownership of the company, as well as a board representative and regular disclosures and contributions from management, suppliers, and other affiliated interests.
In exchange for the UAW concessions involved in the restructuring, Chrysler will pay $4.59 billion into a retired worker health care trust fund, with additional payments of several hundred million over the next fifteen years.
In return, UAW concessions bring salaries and benefits down to levels closer to those paid to non-union workers at foreign automakers such as Toyota and Honda which operate manufacturing facilities in the US. The union is expected to vote to ratify these concessions Wednesday in the hopes of staving off bankruptcy, which might force the elimination of union contracts altogether.
Fiat SpA would also acquire 35% ownership and would also provide a small car and small diesel and gasoline engines, as well as possibly building a plant in the US.
The US government and private lenders would split the remaining 10% of Chrysler.
So these once great companies become government entities and tools of political power constituencies. It's very depressing, really.
In an interesting twist for the US auto industry, however, Ford has been showing some signs of life. Or, at the very least, has slowed the hemorrhaging. Ford lost less money than analysts expected for the first quarter, with a net loss of $1.4 billion. Furthermore, Ford burned through less cash, $3.7 billion, down from $5.5 billion the previous quarter. Stock prices are up a bit as well.
It should be noted that Ford did not ask for nor did they receive federal bailout money. You may also recall there was much discontent over the whole government bailout fiasco last fall. Perhaps car buyers remember that and it is influencing their purchasing decisions? It's hard to say.
At this point, after all of this government intervention, I think I would rather buy a Ford. Maybe I'm not the only one.