First and foremost, it looks like GM will be dropped from the Dow Jones Industrial average, no surprise with GM trading at around a buck and a half.

For the same reason, GM is looking at a 1-For-100 reverse stock split, which is no surprise, as the troubled automaker was trading at over $50 a share just 2 years ago.

Seeing as how GM bled $6 billion in the last quarter, the reverse stock split is prudent.

Meanwhile, the Chrysler bankruptcy is proceeding rather smoothly, see here, and here.

The judge has generally ruled against the sanctimony of the “non-TARP lenders,” whose numbers has dwindled, and the fact that their names will be revealed has made think twice about being jerks.

Meanwhile Fiat has been busy after having taken a stake in Chrysler, and is now looking to purchase GM Europe, aka Opel, and spin off its own auto manufacture in Italy to incorporate in their new larger auto manufacturing concern. (See also here)

Because that’s just what happened with the Chrysler bankruptcy, as this article titled Chrysler Lenders Tried Obama’s Patience, Lost Game of Chicken shows.

They are making noises about how unfairly they have been treated:

An anonymous group of 20 Chrysler lenders calling itself the “Committee of Chrysler Non-Tarp Lenders” said in a statement yesterday that they’d been treated worse than junior creditors during negotiations in violation of “long-recognized legal and business principles.” They said they were owed $1 billion.

And they are technically correct that they are secured creditors, but their security is not equal the full value of the loans, more like 10-20% of the outstanding amount, and they are vulture capitalists who intended this shakedown in the first place, as evidence by the fact that they, “paid from 50 cents to 70 cents on the dollar for their Chrysler loans,” (my money is actually on their purchasing this debt for less than 50¢ on the dollar).

Now they are whining, and they are the ones who will be taken into court and have the fingers pointed at them.

This is a very big shot across the bow for creditors for General Motors.

In completely unrelated auto news, the April sales figures are out, and they are bleak, with GM -33%, Ford -32%, Honda -25%, Nissan -38%, Hyundai -14%, Daimler -31%, and Toyota -42% year over year.

Well Chrysler had gone Chapter 11, because of the unwillingness of a number of the smaller creditors to negotiate in good faith.

Those folks are actually better described as hedge funds, and knowing how hedgies work, they doubtless bought debt at a discount for the express purpose of holding it for ransom.

Here is hoping that the BK judge cleans them out.

Meanwhile, back in GM land, its bondholders have made a counter-offer, wanting a 58% stake in the firm, as opposed to the 10% stake offered, so there is a big gap to bridge there too.

Well, it looks like the Chrysler/Fiat thing is a done deal, though this would likely be post bankruptcy, because they cannot get the smaller creditors on to agree to concessions:

The Obama administration last night planned to send Chrysler into bankruptcy, replace chief executive Robert L. Nardelli^* and pump billions of dollars more into the effort, all in hopes the company can emerge from court proceedings as a reenergized competitor in the global economy.

Government officials clung to 11th-hour hopes last night that bankruptcy could be averted, but talks broke down with Chrysler’s creditors. A bankruptcy filing could happen as soon as today.

The U.S. government’s attempt to save the automaker amounts to another extraordinary intervention in the economy and a landmark event in the history of the American auto industry.

Under the administration’s detailed court strategy, ownership of Chrysler would be dramatically reorganized, the leadership of Italian automaker Fiat would take over company management and the U.S. and Canadian governments would contribute more than $10 billion in additional funding.

I would note that Cerberus would be completely wiped out on this deal, and be left with nothing, but they are not complaining, since they bought Chrysler to flip it to GM, and then found themselves having to run it when GM had its own crisis, and the alternative, that various parties go after them is even less palatable.

In related news, the dealers for both Chrysler, with the aid of the NADA, are lawyering up to deal with the consequences of a bankruptcy, which would void their franchise agreements.

Cutting dealerships is necessary, as Chrysler has about 2¾ times as many dealers per car sale as Toyota, which adds costs and inefficiencies to the system.

^*Full disclosure, I worded at GE Transportation Systems (GETS) their locomotive manufacturing unit from 1994-1996, and for about half of my time there, the chief of the division was Bob Nardelli, who I have never met.

Well, Honda automobile lost money, though the whole operation made a slight profit because of their motorcycle business.

Meanwhile, GM is having problems negotiating its bondholders, with the troubled automaker giving what says is a “final offer,” and the bond holders are blowing a gasket over this:

Today’s posturing makes it clear that the company and the auto task force would rather discount the thousands of individual investors and retirees who own GM bonds than undergo earnest negotiations.

I think that the bond holders think that they can do with GM what was done with GMAC, throw a tantrum, and get what they want, but the market has already discounted these bonds by over 85%, and the offer is a better deal than that.

On Chrysler’s side, things look better with both the UAW and the bondholders coming to agreements with the auto firm.

The UAW will a get 55% equity stake in Chrysler, in exchange for concessions, but I’m still a pessimist, and believe that they are getting 55% of what will turn out to be nothing.

I think that the bondholders for GM have unrealistic expectations of the carmaker’s survival.

I would say that even if GM gets the bondholders to an agreement, they still have to figure out how to cut dealerships without declaring bankruptcy.

Getting out of those franchise agreements would be difficult otherwise, unless Congress gets into the act to streamline the process, which I do not expect, since car dealers are big political donors.

It now appears that the sale of GM’s main European division is a done deal, and it also looks possible that they will essentially give the car company away, “According to a person familiar with GM’s thinking, an investor will be asked to pay at least €500m ($652m) in equity but the carmaker will realise no financial gain as the money will be injected directly into Opel.”

I note without surprise that Cerberus, the private equity firm that owns Chrysler, is not interested in getting a piece of this deal.

When Cerberus bought Chrysler, they expected to hold onto it for perhaps 6 months, and then sell it to GM. Their model was flip and flee, not sensibly operate a company as a going concern.

Meanwhile, on the worker benefits front, it looks like GM Sand the UAW will be renegotiating their benefits deal, replacing much of the cash promised with an ownership stock in GM.

There is very little that I am sure of, but one is that when employees get an ownership stake in lieu of payment, they get the shaft.

In other GM News, it now appears that the normal 2 week end of year shutdown will be extended to 9 weeks, which makes sense when you look at how moribund car sales are, and they spooked the market by saying that was unlikely that they would be making a $1 billion debt payment in July, though they are saying that this is because they will have restructured the debt.

There is also a report that the US government will move to convert GM’s debt to it into equity, which will likely make the taxpayer the largest shareholder of the automotive giant.

Meanwhile, the Treasury is directing Chrysler to prepare for a bankruptcy filing, and not because, as the chattering class is so fond of asserting, the union is being unreasonable, but because the banks and other debt holders are.

Chrysler lenders offer to cut debt, take stock – Apr. 21, 2009, see here,
here, here, and here.

Basically, the market value on their debt is about 15%, and they want something north of 85%.

Once again, it looks like the management at Ford did everything right to face this crisis, and they have executed debt for equity swaps and haircuts to bondholders that has lowered their outstanding debt by $9.9 billion, and lowered their interest payments by about $550 million a year.

On the other side of doing the right thing, we have GM, who says that they
expect to sell their SAAB automobile division by the end of June, as there are 3-5 serious bidders.

I never understood this merger in the first place, SAAB auto was too small for GM, and unlike Ford’s purchase of Jaguar, where Ford’s quality was marked superior, and was applied to the British sports care maker, GM didn’t have anything of value to send to SAAB.

Meanwhile, I get to say a sentence that I rarely get to say, that “The New Republic gets it,”on the auto bailout.

The problem is not the unions. It’s the bondholders and banks who are unwilling to deal.

We have reports that appear to be leaked from the White House that say that they want to see GM go through some sort of preplanned bankruptcy here, and here.

I don’t see this happening, and I tend to agree with Yves Smith’s analysis that says that this would be next to impossible, because you would have to essentially get all the creditors to agree ahead of time.

Smith suggests that a realistic timetable for a bankruptcy would be over a year, and the analysis of the cascade effect on auto parts suppliers is that no one in the United States, including Toyota, Nissan, and Honda, would be able to make automobiles for something on the order of a year, because it would force the already tightly strapped auto parts suppliers into bankruptcy too.

I see this as primarily a way to apply pressure to two parties, the UAW and Pimco, who runs the world’s largest bond fund.

I think that Pimco is particularly a problem. Their behavior in the GMAC bailout was to dig in their heels, and make everyone else take a haircut, and all indications are that they are doing the same thing with GM.