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Bill Ackman Says GM (GM) Should Go Bankrupt
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Hedge fund manager Bill Ackman said the biggest U.S. automaker, General Motors (NYSE: GM) should file for bankruptcy rather than taking money from the government.
"It has been hamstrung for years because it has too much debt and it has contracts that are uneconomic,'' Ackman, manager of the Pershing Square Capital Management LP, said on the Charlie Rose show yesterday. "The way to solve that problem is not to lend more money. They should do prepackaged bankruptcy.''
General Motors is currently petitioning the U.S. government for aid after saying last week that it may not have enough cash to operate this year. GM's CEO Rick Wagoner has said bankruptcy "is not an option."
Ackman told Rose that GM needs to reduce its debt to a more manageable level. Ackman said that the 'bankruptcy' word scares people, but it is simply a tool to help repair a debt-ridden balance sheet. A Chapter 11 bankruptcy filing enables a company to seek protection from creditors while still continuing to operate.
Ackman said the government should ensure GM uses funds to retrain workers and shouldn't put money into the company if it will only be used to service existing debt. "The welders at GM could help on the infrastructure of the country. That's a much better use of taxpayer money," said Ackman'.
Bill Ackman is the successful hedge fund manager who profited from going short MBIA (NYSE: MBI) and Ambac Financial Group (NYSE: ABK). Additionally, Ackman was also short Fannie Mae and Freddie Mac when they were seized by U.S. regulators.
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Wheel of fortune
I was going to try for a wheel of fortune reference, but I'll leave that for someone more clever than me. GM filing for bankruptcy would hurt tremendously in the short term, but would make them a stronger company in the long term. The short term pain will help them "come to Jesus" (not in a religious way) and correct the wrongs.
where did the $ go?
Apologize for naivitee here, but when I heard large companies going down the tube, Wall St drowning, banks shutting, retail sales down, unemployement up, I am a least a bit baffeled as to where all the money went and where is it now? What will 70b do that all the lost cash failed to do? Just trying to re learn basic econ101 and old fashion budgeting that seemed to work up until now.
Tax Payers Footing the Bill
Even with Chapter 11 bankruptcy, if GM is allowed to dump their pension obligations on the PBGC as the steel industry and airlines have, we, the tax payers, are going to have to bailout the bankrupt PBGC for billions of dollars. Government instead of subsidizing ethanol production--which has had only adverse effects and solved nothing--should redirect those funds to help the automakers instead move away from gasoline combustion engines.
White elephant in the room
Everyone knows the 800 pound cat in the room is the Unions. No one wants to say what everyone already knows, that they will need to take a huge paycut for GM for survive. Something that will occur in chapter 11. If they are burning through $7 billion in cash per month, what is another 50 billion going to do? certainly not fix the real problems with most of American auto manufacturers
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Clean Sweep
Engine Charlie on Nov 21, 2008 11:36 AMChapter 11 bankruptcy is indeed GM's best bet for survival. But since a restructured, unencumbered and efficient GM means farewell to the management which allowed its current economic distress (including the UAW's extortionate demands), don't expect GM to take its medicine willingly. CEO Wagoner has made it clear his gang doesn't recognize its own incompetence despite Exhibit A: GM's staggering loss of $2 billion a month. Operating capital will have to run out before necessary improvements can begin. Therefore, no bailout. Regular banks refuse to give easy money to GM -- why should the US Treasury?