Rebel Traders – Analysis Without The Hype

Remember the nearly $85 billion of “YOUR” money that was given to General Motors and Chrysler to rescue them from themselves? Yea, that $85 billion. Tax payers awoke one morning and discovered that they owned two car companies that unfortunately has since the mid 1980’s produced poorly designed and manufactured vehicles. It did not matter if you wanted to be part owner of a car company, but you are. And you are also taking a loss on “YOUR” investment.

Washington — The Obama administration will tell Congress Wednesday that it expects to lose about $30 billion of the $82 billion government bailout of the auto industry, two administration officials familiar with the report said today.

The estimate — the first public accounting of losses connected to the rescue of General Motors and Chrysler — is in line with what the Government Accountability Office, the Troubled Asset Relief Congressional Oversight Panel and former auto czar Steve Rattner have suggested. (Source: Detroit News)

While $30 Billion is slightly less than a previous estimate, it is still a loss of 37% of your money and you didn’t even ask to be invested in it to begin with.

Breaking News:

The United States Supreme Court will NOT take the case to the full court for open hearings. The following is the Supreme Court order released moments ago.

It looks as if the ‘rule of law’ has been considered a ‘non issue’. This is very dangerous going forward for other companies who need or want to sell bonds for the purpose of raising capital.

From a personal point of view I am very disappointed that the Supreme Court has made this decision.

Breaking News—

Supreme Court Justice Ruth Bader Ginsburg put a temporary hold Monday on the deal to sell Chrysler to save it from collapse.  Her order, however, simply gives her or the full Court more time to ponder whether to postpone the sale further, or allow it to go forward.  The order can be found here.

It would have taken the votes of five members of the Court to grant a full postponement.  Ginsburg’s brief, unexplained order said only that the bankruptcy court’s decisions approving the sale were “stayed pending further order” by her or the Court.

The Justice acted just minutes before a 4 p.m. deadline that the Second Circuit Court had set last Friday. At that hour, a delay ordered by the Circuit Court expired.  If Ginsburg had not acted, the sale would have been cleared under the terms of the lower court’s order.

The action had almost no legal significance, however.  The deal remains in legal limbo until Ginsburg, as the Circuit Justice, or the full Court takes some definitive action.

Among the likely explanations for her action:

* Ginsburg may have decided to share the decision on what to do with her eight colleagues, and they needed more time to think or talk about it.

* Members of the Court may have decided that they wanted to give some explanation, or perhaps some may have decided to dissent and wanted a chance to prepare a statement saying so.  In the meantime, it was her task, as the Circuit Justice, to impose a limited stay.

* Ginsburg or the Court may be waiting to see how the Second Circuit explains its decision to uphold the terms of the sale.  The Circuit Court issued no opinion on Friday, indicating that such an explanation would come “in due course,” although the expectation was that one or more opinions would emerge from those judges on Monday.

The wording of Ginsburg’s order — “stayed pending further order” — is the conventional way by which a Justice or the Court carries out an action that is expected to be short term in duration, and not controlling — or even hinting at — the ultimate outcome.  Any speculation that her order meant the Court was leaning toward a further postponement would be unfounded.

The Circuit Court had given Ginsburg no option other than the one she chose if she wanted more time for herself or the Court to consider a large stack of filings for and against the idea of delaying the deal.  Those papers began arriving at the Court electronically shortly before midnight Saturday and continued up until shortly before 10 a.m. Monday.  Court aides worked through the weekend gather them and get them ready for action, although Ginsburg herself may have begun studying them.

In the forms used by the lawyers seeking delay, the applications were considered emergency matters for the action of a Circuit Justice — that is, an individual member of the Court assigned to deal with such temporary matters from a specific geographic federal Circuit. Source: Supreme Court of the U.S. Blog

Thank goodness is all I have to say. I hope the rule of law will prevail and the Government will not be able to circumvent the laws any longer in this matter. I hope this goes to the full Supreme Court for a formal hearing.

The paperwork is piling up at the United States Supreme Court on the matter of the Chrysler bankruptcy. Recall that the the primary issue at hand is the bondholders are not receiving fair treatment under the bankruptcy proceedings. It is argued that certain bankruptcy laws are being broken and bondholders are being given a bum deal (to which I agree).

I present three documents for your reading pleasure, the first is the application for stay filed by the Indiana Pension Trust (bondholders), and the following two are responses from Chrysler and Creditors.

A group of bond holders that are a part of pension funds in the state if Indiana have appealed to the high court for a hearing.

WASHINGTON — A group of Indiana pension funds opposed to Chrysler LLC’s sale to Fiat SpA filed an emergency appeal with the U.S. Supreme Court to stay the sale while they continue their attempts to block it.

The emergency stay request, filed shortly before midnight Saturday, came after the 2nd U.S. Circuit Court of Appeals in New York approved the acquisition of most of Chrysler’s assets by a group led by Fiat, the Italian auto manufacturer. A U.S. bankruptcy judge early last week approved the sale. A coalition of consumer groups lodged a separate stay request early Sunday morning, arguing the sale terms applied to the deal would wrongly shield the new company from injury lawsuits involving current Chrysler vehicles.

The stay requests asks for the extension of a temporary hold on the sale put in place by the appeals court until Monday at 4 p.m. EDT or when the high court decides whether to intervene.

“Absent a stay, the court will be deprived of the opportunity to decide critical, nationally significant legal issues relating to management of the economy by the United States government,” the pension funds said in their stay application.

“Chrysler bankruptcy carries profound implications for the Nation’s economy. Nearly everyone will feel the impact,” the funds added.[...]

The Indiana pension funds have argued the sale is unconstitutional because it puts the rights of junior creditors ahead of the rights of senior lenders. The funds also argue the U.S. Treasury Department has overstepped authority given to it by Congress under the Troubled Asset Relief Program by financing Chrysler’s restructuring.[...]

I for one hope that the the Supreme Court will decide to hear this case and not simply send it back down with no opinion.

The rule of law concerning the bond holders is paramount and critically important going forward for all business dealings in this nation.

Over the weekend I posted an article called GM Bond Holders Prepare For War. In the article I wrote why it is that the rule of law is important with regard to bankruptcy proceedings. Bond holders of a company that enters into bankruptcy are entitled to receive first consideration under the law.

I argued what the long term implications could be if the Chrysler, and the soon to be General Motors bankruptcy game playing with secured debt holders would mean for future bond sales of other companies.

A rare event happened on CNBC today, they interviewed someone who spoke of the law and was not a ’stock pumper’. Watch Indiana state treasurer Richard Mourdock discuss his battle.

First it was Chrysler, now General Motors (GM) releases their plans for dealer closings.

GM Statement Regarding Dealer Network Communications

DETROIT, May 15 — In conjunction with conversations General Motors started with its U.S.
dealers today, GM issued the following statement:

As noted in our recent S-4 filing and updated Viability Plan, General Motors plans to reduce its dealer network from 5,969 stores today to approximately 3,600 by the end of 2010.

This process starts today, as GM begins contacting dealers regarding its long term planning. Approximately 1,100 underperforming and very small sales volume U.S. dealers will be advised that GM does not see them as part of its dealer network on a long-term basis. In most cases, existing franchise agreements run through October of 2010.

In addition, we will be updating about 470 Saturn, Hummer and Saab dealers on the status of those brands and we will be discussing how the remaining dealers will support our retail plans going forward. While additional cuts will be made, we believe the vast majority, over 90 percent, of the remaining dealers will be offered a chance to remain with GM. However, specific dealer issues, further attrition and additional possible dealer network actions are expected to bring
the number of future GM dealers to around 3,600 by the end of 2010, as described in the Plan. The actual number could vary given levels of attrition, etc. outside of GM’s control.

“We have said from the beginning that our dealers are not a problem but an asset for General Motors,” said Mark LaNeve, GM Vice President of Sales Service and Marketing. “However it is imperative that a healthy, viable GM have a healthy, viable dealer body that can not only survive but prosper during cyclical downturns. It is obvious that almost all parts of GM, including the dealer body, must get smaller and more efficient.”

“In response, we are letting them know about our long term plans. GM’s viability plan calls for fewer, stronger brands as well as fewer, stronger dealers. We have taken a very difficult step by identifying those dealerships we’d like to keep in the GM dealer network and those with whom we will have to wind down our business relationships,” LaNeve said.

As independently owned businesses, dealer owners will make their own decisions if and when they want to make this information public. GM is not releasing the names of any dealers.

“We are not terminating any dealerships today,” LaNeve clarified, “We will be talking to all of our dealers over the next few weeks, letting them know now in the spirit of open communication, so they are advised well in advance, about our long-term plans and their role in them. Long term, GM should have fewer, healthier dealers, maintaining GM’s current high customer satisfaction ratings, with more sales per outlet.”

The list of Chrysler dealers to be closed in the first round of cuts has been announced. The map below (hat tip zero hedge) shows the locations (orange dots) of dealers to be closed.

(click image for larger view)

Chrysler Dealer Closure Map

To see the entire list with name and addresses of the impacted dealers click the PDF file icon below.

In memos to be distributed as early as this week, General Motors (GM) and Chrysler will tell upwards of 3,000 auto dealers that they are no longer needed (or wanted to be more specific).

General Motors Corp and Chrysler aim to drop as many as 3,000 U.S. dealers and are expected to begin sending notifications as early as Thursday, three people briefed on the still developing plans said.[...]

GM, facing a U.S. government-imposed deadline of June 1 to restructure or file for bankruptcy, is expected to send termination notices to up to 2,000 dealers — a third of its roughly 6,000 U.S. dealers, the sources told Reuters.

Chrysler, which filed for bankruptcy on April 30, will also tell up to 1,000 of its 3,189 U.S. dealers it is terminating their franchise agreements, according to the sources who asked not to be identified because the controversial closure plans have not been yet announced.

The moves to shut down auto dealerships underscores how the economic pain caused by the downward spiral of both automakers — now operating under U.S. government oversight — is spreading beyond their home base in Detroit.[...]

[...]GM wants to cut its dealer network to 3,605 from over 6,246 at the end of 2008. But it has not specified how it would achieve that and how many dealerships would be involuntarily terminated and how many it expected to go bankrupt or shut down on their own.[...]

Source: Reuters

Recall the post I made last week regarding a local Chrysler dealership that went bankrupt. Now imagine what 3,000 additional dealerships shuttered and the empty buildings littering the country will look like. That should kill off commercial real estate values even faster.

And who would want to purchase an abandoned auto dealership facility along with its service bays? No one, that’s who. So expect these empty facilities to be part of the landscape for a long time to come.

Do you own a Chrysler or General Motors vehicle? Don’t worry, President Obama has promised that the tax payers will pay for your warranty service. Except you will have to drive a longer distance in the future to get to a dealership that is still in business.

Before the auto industry imploded the eulogy of their eventual death was already printed and displayed for all to see for years ahead of time.

This photo is of a bankrupt Chrysler dealership not far from me.

Chrysler Dealership Eulogy

Do you remember this full page “Thank You” that appeared in many major newspapers around the nation last year?

(click image for full size)

Well guess what? In bankruptcy hearings today the following statement was recorded by advisers to the bankruptcy proceedings:

… one of the top financial advisers overseeing Chrysler’s restructuring testified in bankruptcy court Monday that there is a “low likelihood” that the automaker will be able pay back its billions of dollars in government loans.

Were we not told that the tax payer money would be a ‘good investment’ by the Government? Oh well, there goes another $8 Billion or so of our money down the drain.

BREAKING NEWS

Late night talks have broken down and it now seems like a sure bet that Chrysler LLC will be forced into bankruptcy as soon as Thursday morning.

The Wall Street Journal is reporting that talks between the US Treasury Department and lenders aimed at keeping Chrysler LLC out of bankruptcy have broken down, making it quite certain that the company will file for Chapter 11 protection Thursday, according to people familiar with the discussions.

The talks with Chrysler’’s lenders broke down after the Obama administration’’s automotive task force worked into the evening to persuade several hedge funds and other lenders to accept a deal to reduce Chrysler’’s debt.

The Treasury boosted its most recent offer to lenders on Wednesday by $250M to $2.25B in cash for the banks and hedge funds to forgive $6.9B in Chrysler debt.  J.P. Morgan Chase & Co., which leads the creditor group as Chrysler’’s largest lender, gave the other 45 banks and hedge funds 90 minutes Wednesday evening to vote on the deal. A large number of the funds voted no and refused to budge, paving the way for an all but unavoidable trip to bankruptcy court.