28 May 2009

Auto Industry Update, GM Bankruptcy Imminent Edition, the Sequel

It looks like some of the larger bondholders have blinked, and have agreed to a slightled debt for equity swap.

Even so, GM's bankruptcy now seems a foregone conclusion.

It's the Credit Default Swap doing this. There are too many players out there who bought the debt cheap along with an under-priced CDS to hedge the risk, and so have no incentive not to burn the house down.

Still, all this has GM playing the turd in the punchbowl in Europe, where it
made a surprise demand for an additional €300 million payment on the sale of its Opel division, and at this point, the Germans are beginning to suspect that the US Treasury is trying to pull this money from Germany to the US:
German leaders expressed frustration with the United States Treasury, citing inadequate guarantees that European assets would be protected from the likely bankruptcy filing in American courts and that German money would be used only for Opel.
There is also the issue that EU regulators are looking to see if the loan guarantees offered are an illegal state subsidy.

Meanwhile, Ford's former parts division, Visteon, and Metaldyne have both filed for bankruptcy, and I think that this likely going to get worse, not better.


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