SALON

Friday, May 15, 2009 2:06 PM UTC

G.M.’s death spiral accelerates

As bankruptcy day approaches, thousands of dealerships get pink slips and the UAW is hammered again. Meanwhile, bondholders complain about a raw deal from the government. Get in line!

By

Topics: Globalization, How the World Works, Chrysler,

If Thursday’s spike in jobless claims was partially attributable to Chrysler layoffs, as some press reports have suggested, then worse is to come, judging by the news from General Motors.

Bloomberg is reporting that G.M. is “is sending termination notices today to 1,100 U.S. dealers with about $2.5 billion in unsold vehicles.” In separate news, the automaker is supposedly near a deal with the UAW that would cut its labor costs and health benefit obligations, and result in another 20,000 layoffs.

Both moves are just a prelude to the bankruptcy filing that seems increasingly inevitable. According to the Journal’s analysis, the goal is to get major deals in place before going before the bankruptcy judge, in the hopes of achieving an accelerated proceeding.

The big sticking point there, however, will be the unsecured bondholders, who are already screeching that the the government is running roughshod over their legal rights. To which the Treasury appears to be responding: So what?

Another critical task for the auto maker will be to persuade a bankruptcy judge that unsecured bondholders — owed at least $27 billion — are being treated fairly in a reorganization. GM has offered them 10 percent of the company’s equity.

The bondholders, who say the offer is equivalent to four cents on the dollar, have fired back with a counterproposal asking for 58 percent of the new GM’s equity, and a bigger slice than the UAW’s. But administration officials, emboldened by concessions wrested from Chrysler LLC’s lenders, are taking a hard line, according to people close to the Treasury.

These people say the Obama administration wants a GM bankruptcy “to be as clean as possible,” but isn’t “going to pay ransom to bondholders.”

The White House has clearly made a political calculation that showdowns with bondholders play well with the public, if not on the Wall Street Journal editorial page. But even if Treasury wins again, ultimately, the news from G.M. is bleak. The company that emerges from bankruptcy will be a shadow of its former self: Thousand of workers will lose their jobs, retirees will see benefits slashed, and communities all across the country will see gaping holes where dealerships once stood.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

Next Article

Related Stories

More Related Stories

Featured Slide Shows

The week in 10 pics

close X
  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11
  • Lisa Montgomery embraces her nephew Thursday after a tornado tore apart her home in Cleburne, Texas. The twister killed six people and destroyed entire swaths of the North Texas town.
    Credit: AP/LM Otero

  • Jack McMahon, the defense attorney for abortion doctor Kermit Gosnell, speaks outside the Criminal Justice Center in Philadelphia Tuesday. His client was convicted of killing three babies in his clinic, and will serve multiple life sentences.
    Credit: AP/Matt Rourke

  • A photo taken Monday captures Vice President Joe Biden's response to a Milwaukee second-grader's innovative proposal to end America's epidemic of gun violence. This guy!
    Credit: AP/Jenny Aicher

  • Sen. Rand Paul, R-Ky., flanked by a grouper-eyed Michele Bachmann, addresses the IRS' admission that it targeted Tea Party groups in advance of the 2012 election. In an op-ed for CNN Thursday, the Kentucky senator slammed the president for his faux outrage.
    Credit: AP/Molly Riley

  • Ousted IRS chief Steven Miller is sworn in on Capitol Hill Friday. Miller testified before the House Ways and Means Committee on the extra scrutiny the agency gave conservative groups applying for tax-exempt status.
    Credit: AP/J. Scott Applewhite

  • Attorney General Eric Holder pauses as he testifies on Capitol Hill before the House Judiciary Committee Wednesday. Holder is under fire, among other things, for the Justice Department's gathering of phone records at the Associated Press.
    Credit: AP/Carolyn Kaster

  • O.J. Simpson sits during an evidentiary hearing at Clark County District Court in Las Vegas, Nev., Thursday. Simpson, who is currently serving a nine-to-33-year sentence in state prison for armed robbery and kidnapping, is using a writ of habeas corpus to seek a new trial.
    Credit: AP/Las Vegas Review-Journal/Jeff Scheid

  • Major Tom to ground control: On Sunday astronaut Chris Hadfield recorded the first music video from space, a cover of David Bowie's "Space Oddity."
    Credit: AP/NASA/Chris Hadfield

  • When it rains it pours. President Barack Obama speaks during a news conference Thursday with Turkish Prime Minister Recep Tayyip Erdogan, inexplicably inspiring an #umbrellagate Twitter meme.
    Credit: AP/Jacquelyn Martin

  • A smoke plume rises high above a road block at the intersection of County A and Ross Road east of Solon Springs, Wis., Tuesday. No injuries were reported, but the the wildfire caused evacuations across northwestern Wisconsin.
    Credit: AP/The Duluth News-Tribune/Clint Austin

  • Recent Slide Shows

  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11

Related Videos

Comments

 17 Comments

Comment Preview

Your name will appear as username

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>

follow salon

Most Read

Popular on Reddit

links from salon.com

From Around the Web

Presented by Scribol
listener_new_rect The Listener: Chekhov's story mirrors Russia's own

Recommendations