NEW YORK (Reuters) - General Motors will file for Chapter 11 bankruptcy protection on Monday at the U.S. Bankruptcy Court in the Southern District of New York before markets open, according to U.S. government sources with direct knowledge of the preparations.
The bankruptcy has become the most carefully orchestrated Chapter 11 filings in the history of American business.
The following are comments about the company’s bankruptcy made before the government sources comments:
PETER KAUFMAN, HEAD OF RESTRUCTURING AND DISTRESSED M&A AT
”It didn’t have to be this painful. By the time this is over the government will have spent $100 billion of taxpayer money and to what end? Is there any guarantee of a viable or competitive company? No.
“The only winner in this that I can see is the union. The taxpayer is not a winner. Bondholder rights have been trampled. And our system is a loser because we have reconfirmed -- as we did in the Chrysler bankruptcy -- that this administration will rewrite the rules of bankruptcy when it sees fit.”
”They’ve done the easy part -- they’ve gotten rid of all these liabilities. Now the hard part begins, which is making GM and Chrysler competitive. If they don’t do that, then we’ll be doing this all over again in a few years.
”The immediate implication is that the companies are going to get smaller and so market share is up for grabs, which means that rivals like Toyota, Honda, Nissan and Hyundai are going to gain share.
“In the long run, we are likely to have a bunch of companies with 15-20 percent share and rivalry is going to be more intense going forward.”
CHOI DAE-SIK, ANALYST, HI INVESTMENT &SECURITIES, SEOUL
”In the short term, Korean automakers could see some benefits from this bankruptcy filing. There will be a short period of time during which they could take advantage of GM’s reorganization period.
”But Korean carmakers may have a lot to worry about once GM gets reborn as a healthier, smaller government-owned company. The new GM is likely to have better marketing power and benefit from having the state as its owner. Also, making smaller cars and developing environment-friendly vehicles is the only way for GM to go.
“GM’s bankruptcy is a part of U.S. auto industry’s restructuring, which means U.S. automakers would be able to get back on track after some confusion. Korean carmakers would benefit for the time being, but it would not last for, say, longer than 6 months. Once GM restructures, Hyundai and Kia are expected to return to their current market share level.”
”I think they have a much greater chance of emerging as a healthy company now than they did just six months ago when nobody wanted to pick up the debtor-in-possession financing. Nobody gave them any possibility of emerging as a whole company.
”They have taken that six months to get everything in order to already portion out some of the unwanted properties. Now I think we are looking at a much greater chance of them doing it.
“It is still going to be painful, we are still going to see plants close, we are still going to see communities suffer, but we actually have a cabinet-level person in place now to try to mitigate those effects.”
”GM’s bankruptcy has widely been expected for some time, so this will hardly come as a surprise to market participants. South Korean auto shares’ reaction ... is also muted for now.
“In the short-term, there might be an industry-wide disorder, as a giant U.S. auto player falls, but in the longer-term, South Korean automakers will likely be helped by this as it offers an opportunity to increase its market share.”
PRACTICE AT THE LAW FIRM DEBEVOISE & PLIMPTON LLP
”GM is a bigger company with more moving pieces -- but if they have 50 percent of bondholders on board, I think we have good reason to expect GM to move through bankruptcy court with similar speed to Chrysler.
”One of the beauties of a 363 sale from the government’s point of view is that the findings that a court needs to make aren’t as demanding, so there aren’t likely to be too many unexpected obstacles to its journey through bankruptcy
“Chrysler will make GM’s case easier as it has provided an example for going through the court quickly.”
”GM’s bankruptcy has been already factored in by markets.
”What’s far more important for Japanese car makers is how much auto sales in the U.S. will recover. As long as there are problems in the financial system, auto sales will be under pressure as consumers need credit to buy a car.
“Once that problem in finance is fixed, I expect U.S. auto sales will rebound to 15 million units a year from around 9 million units. But it’s still not clear how long that will take.”
MICHAEL SOHN, ANALYST, WOORI INVESTMENT & SECURITIES,
“GM dealers are expected to step up incentives and Hyundai or Kia will have to follow suit. More bankruptcies by components makers are very likely and this will disrupt part suppliers to not only GM but also Toyota or Hyundai.”
“The weakness in auto demand will linger. But in the long term GM’s fall can help Korean car makers as demand can shift to brands with stronger incentives and improving competitiveness.”
TAD RIVELLE, FOUNDING PARTNER AND CHIEF INVESTMENT OFFICER
”For the economy, I think this is pretty actually miserable news for the unemployment backdrop. The desire for a government-orchestrated bankruptcy filing between Chrysler and GM is to more or less prevent any kind of disorderly liquidation process.
“The fact that GM bonds are trading next to nothing shows that the bad news has been priced in. This was a slow-moving downfall of GM and the markets have been expecting it.”
“GM’s bankruptcy is a long-known factor. In the short-term, auto and auto parts industry will face some chaos, but in the longer-term, South Korean automakers are expected to enjoy a market share growth.”
”It’s very similar to what Chrysler went through, the key difference is they don’t have someone like Fiat. They are going to follow the exact same plan, I guess trusting that Chrysler is going to reach a happy resolution on Monday.
“Lehman Brothers’ bankruptcy is still ... bigger on the asset side, but Lehman didn’t have as many employees or physical assets to deal with as General Motors. It’s going to be an expensive case even though they plan to sell it quickly and the residual part of the case that’s left in bankruptcy could take quite a while to resolve.”
UNIVERSITY OF MARYLAND ECONOMIST PETER MORICI MADE PRIOR TO
Said GM has long had two problems that bankruptcy reorganization is supposed to address, but probably will not resolve despite months of restructuring -- a bad capital structure and expensive labour costs, even after an agreement with the United Auto Workers union on concessions.
“It will come out of Chapter 11 with the same and a politically inspired board.”
“We want them to survive. Obviously, they have to slim down and get competitive to do that, but it took an awful lot of government money and delay to get to the point we could have gotten to months ago.”
”As you know the market cap of GM has eroded at an accelerated rate. It’s goodwill value is evaporating as we speak so it doesn’t benefit anyone really to slow the process down.
“It has to move fairly expeditiously to conserve what going-concern value is left in the company. At the same time you have to balance due process rights. And that’s going to be the tension in this case.”
”This was telegraphed for a while, so I wouldn’t expect a huge move in the markets by this news. There are other issues happening such as Treasury issuance and the flight away from the dollar ... Tim Geithner in China and Ben Bernanke speaking this week.
“I think perhaps we should not forget Chrysler will come out of Chapter 11 very soon. I think GM needs to be buried.”
Reporting by Phil Wahba, Kevin Krolicki, David Bailey, Michael Watson, Shin Ji-eun, Jennifer Ablan, Marie-France Han, Jungyoun Park, John Crawley, So-eui Rhee and Caroline Humer