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In Detroit, Mixed Emotions Over GM’s Bankruptcy Move

June 1, 2009 at 6:30 PM EDT
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Paul Solman reports from Detroit on how General Motors' bankruptcy filing may impact different company stakeholders -- from union members to bondholders to car dealers -- and explains why the company chose reorganization over liquidation.
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GWEN IFILL: Now more on the General Motors story. Economics correspondent Paul Solman spoke to GM stakeholders, from workers to bondholders to dealers. His report about the company’s fight for survival is part of our series on making sense of financial news.

JIM DOLLINGER, Buick salesman: This is a 2009 Buick Lucerne. And I want you to understand the quality of this car.

PAUL SOLMAN: In grim Flint, Michigan, the upbeat Jim Dollinger, also known as Buick Man.

JIM DOLLINGER: It’s elegant. It’s understated. It’s classy. It’s powerful. It’s substantial.

PAUL SOLMAN: By his own admission, GM’s most successful Buick salesman ever, Dollinger is a reminder of something we’ve heard for years.

JIM DOLLINGER: Wouldn’t you really rather have a Buick?

PAUL SOLMAN: No, not just that old line, but that bankruptcy isn’t the end of the world. Buick Man is hoping, like many in Michigan, that even as GM incredibly shrinks and makes orphans of Pontiac, Hummer, Saturn, well, the sun will come up tomorrow.

Just to be clear: You don’t even work at this dealership anymore.

JIM DOLLINGER: That’s irrelevant. This is about you and the car, not me.

PAUL SOLMAN: I see. All right.

Meanwhile, petitioning for Chapter 11 bankruptcy is about giving hobbled firms and those tied to them a chance to keep selling. By contrast is a Chapter 7 liquidation, says law professor Laura Bartell.

LAURA BARTELL, professor, Wayne State University Law School: Where the company that existed prior to bankruptcy sells all of its assets, the proceeds are distributed to its creditors, and it ceases to exist. The alternative is a reorganization under Chapter 11.

PAUL SOLMAN: What’s the point of a reorganization?

LAURA BARTELL: Survival.

PAUL SOLMAN: If GM had liquidated, dumped assets in a bonfire sale of its former vanities, and died, its creditors, from banks and bondholders to the UAW, would have gotten a dime or less for each dollar of GM promises. That’s the threat GM used to wring concessions, says Bartell.

LAURA BARTELL: You have to come along, get with the game, or I’m going to jump off the ledge, I’m going to shoot myself in the head, I will convert to a Chapter 7, we’ll liquidate the company, and you will get virtually nothing.

Union complaints

PAUL SOLMAN: Though it isn't GM saying this, so much as the government, since it's government loans that let GM keep on trucking, and the U.S. will own 60 percent of the new GM, being referred to as "Newco."

The plan is to put the good parts of GM -- Chevy, Cadillac, Buick, trucks -- into Newco. The question behind this story, then: how major G.M. stakeholders -- suppliers, dealers, holders, and the UAW -- are reacting to the concessions they've been muscled into making.

Flint UAW workers Thursday, before the vote to freeze wages, end performance bonuses, reduce holidays, cut retiree benefits, and agree over time to match the pay of non-union plants.

And after the vote.

Jerry Harris had voted yes. Out of desperation?

JERRY HARRIS: Well, you can see how the economy is out here, man. You know, hey.

PAUL SOLMAN: Ben Matta is president of this Flint local.

Is this contract an act of desperation?

BEN MATTA: I believe it is. We obviously know what the alternative is if we don't get it ratified.

PAUL SOLMAN: Even UAW President Ron Gettelfinger used the d-word.

RON GETTELFINGER, United Auto Workers president: Desperation and survival. It's pretty dramatic from a standpoint of our membership.

PAUL SOLMAN: Current membership and future membership, since new workers, the so-called second tier, will make only $12 to $14 an hour. In return, the union keeps the current wages for first-tier jobs of roughly $65,000 a year, and it gets almost 20 percent of Newco, the new GM, though that stock will be owned by the retiree health fund, the VEBA.

RON GETTELFINGER: The Voluntary Employee Beneficiary Association that looks after retirees that's controlled by independent directors, so we as a union do not have any of that stock.

PAUL SOLMAN: For its $30 billion or so in future health claims, the VEBA gets $10 billion in cash from the government, a $2.5 billion note, and stock in Newco.

RON GETTELFINGER: Now, this company has to succeed for that stock to be worth something to supplement that VEBA. And that's what we want to see happen.

PAUL SOLMAN: Newco also has to succeed to meet future UAW pension payments. In a sense, G.M. has become a retirement community that supports itself by selling cars.

RON GETTELFINGER: Three hundred and seventy-three thousand retirees and surviving spouses at General Motors.

PAUL SOLMAN: And how many workers?

RON GETTELFINGER: Sixty-one thousand.

Retirees react to the news

PAUL SOLMAN: So do retirees have reservations about the deal and the man who made it? We assembled a group of them.

DIANNE FEELEY, UAW GM retiree: Brother Gettelfinger, why don't we come in with an aggressive policy, an industrial policy that talks about how we have to have a transportation and energy industry and not just an auto industry?

AL BENCHICH, UAW GM retiree: A strategy that creates jobs, that protects good-paying jobs, not one that lets them all go away.

JOHN MARTINEZ, UAW GM retiree: Ronnie, how can you expect future autoworkers to support our union?

BILL CARR, UAW GM retiree: When they are the watchdogs over our pensions, do you think they're going to take care of us? Are they going to be their brother's keeper?

FRANK WARREN, UAW GM retiree: Did you really get a good look at General Motors' books before you handed over more concessions from us?

PAUL SOLMAN: Gettelfinger had an answer for each, which we've posted at our Online NewsHour Business Desk. But for brevity's sake...

RON GETTELFINGER: The only thing I ask them to remember is this. General Motors could not make the payments of their bills at the end of December. They would go into Chapter 7, and they would have dissolved. We did the absolute best that we could under the circumstances.

PAUL SOLMAN: But for all the retiree misgivings, it's only the workers who vote, and they ratified the new contract by a 3-to-1 margin, sobered as their ranks have thinned by 200,000 at GM alone in the past decade.

It's been happening at GM suppliers, as well. They have axed more than 300,000 jobs since 2002 while the number of suppliers plummeted from 1,900 to 1,100 in just the past year.

Supplier consultant Sheldon Stone.

SHELDON STONE, Amherst Partners: It is very likely that that supply base will be reduced by as many as 200 more suppliers as they emerge out of bankruptcy.

PAUL SOLMAN: Which is as it should be, says Stone.

SHELDON STONE: Because essentially it is Darwinian and it's survival of the fittest. And the fittest in this case are the suppliers who have the greatest financial health, as well as the ability to supply what GM needs.

Dealers feel cheated

PAUL SOLMAN: As for those who don't survive, well, at least all suppliers got several billion dollars in payments from GM that were due to be paid tomorrow but moved up to last week so they wouldn't get snarled in bankruptcy court.

OK, onto a third set of stakeholders, GM dealers.

Are you selling any cars? Nobody is in there.

VICTOR GEORGE, Chevrolet dealer: Well, my sister-in-law, who lives in Georgia, sold her Honda, flew home, and bought a Malibu from us. She thought she'd help out any way she can.

PAUL SOLMAN: Chevy will live on, but not Victor George Chevy in Lapeer, Mich. GM is cutting him off, as Chrysler is the family Jeep dealership in Flint.

VICTOR GEORGE: In bankruptcy, you can pretty much throw every contract you've got out the window.

PAUL SOLMAN: The George family has been selling cars north of Detroit for 83 years.

VICTOR GEORGE: But never dreamed that -- never dreamed that it would come to this.

JIM DOLLINGER: Bankruptcy is most unfair to the dealerships.

PAUL SOLMAN: Like every group, the dealers feel they're being asked to give away too much. Super salesman Jim Dollinger, who consults to a number of dealers, says it's not their fault the product didn't move.

JIM DOLLINGER: The question is, how do we sell cars? And if management can't come up with a strategy to sell Pontiacs, we don't get rid of Pontiac. We get rid of the management.

PAUL SOLMAN: Buick Man, a stockholder who's run for a seat on GM's board, blames the crisis on decades of mismanagement from the top.

JIM DOLLINGER: I still own the common stock. And any probably savvy investor would have sold it long ago looking at the downward trend and the value of the stock. Today it's worthless.

Stockholders feel betrayed

PAUL SOLMAN: Of course, stockholders took the big risks hoping for the big rewards. But even investors in supposedly safe bonds are being battered at GM.

While many bought recently on speculation, Judy Buchholtz and her husband invested five years ago, putting nearly a third of their retirement money, $98,000, into GM debt.

JUDY BUCHHOLTZ, GM bondholder: Bonds are a loan to a company. And we assumed that we would get our return. We didn't buy, you know, common stock or something else.

PAUL SOLMAN: Or tech stock or...

JUDY BUCHHOLTZ: Or tech stock, or cotton, or, you know, something like that.

PAUL SOLMAN: Instead, they bought GM bonds because of faith in the company and in the country with whose future it was once synonymous.

JUDY BUCHHOLTZ: We believe in General Motors. My husband did tool and die for the big three. No one was ever allowed to park a foreign car in our driveway. We are loyal to our, you know, big three.

PAUL SOLMAN: The loyalty Buchholtz feels has not been repaid. And she and her husband have rejected a deal 54 percent of bondholders have agreed to. For their $27 billion in GM debt, they would get 10 percent of the new company, worth about $500 million at today's stock price, which could rise to 25 percent if the stock price goes up.

But, finally, will Newco make it at all? Law professor Laura Bartell.

LAURA BARTELL: There is a high rate of recidivism among Chapter 11 debtors, companies that collapse back into bankruptcy. If you pledge too much to satisfy your old creditors, that leaves you with insufficient cushion to finance your operations going forward.

PAUL SOLMAN: It also depends on how deft they are, how competent they are going forward.

LAURA BARTELL: No question. They'd better have a good business plan.

PAUL SOLMAN: And, one might add, a lot of luck, including when and how the economy recovers.