I don't know if anyone caught the news but General Motors may be heading towards a "technical" bankruptcy as it appears that it won't be able to make its bond payment due on June 1 http://www.startribune.com/... and the government won't underwrite any further bailouts unless the company can get concessions from bondholders and the unions. While the unions appear to be unwilling to give any more concessions (and they've given a ton) the real problem is that the bondholders have no incentive to give concessions as the deal that they could get in a bankruptcy proceeding is probably at least as good as anything they'd get from the negotiations and might be better (as debt holders tend to have an advantage over most stakeholders in bankruptcy proceedings). More after the fold.
If General Motors goes into bankruptcy there are a few possibilities that need to be thought about:
- The surgical bankruptcy that certain elements of the Obama administration are talking about which would get the company out of bankruptcy within a couple of months. This would break GM into 2 different entities a Good GM (made up of Cadillac, GMC, Buick, and Chevy) and a Bad GM (all other brands, retiree benefits, etc.). If this is even possible the remaining GM would be capable of rocking and rolling in the general automotive market. However, there are 2 negatives in that 1. this might not even be possible (retirees and bond holders could fight to prevent being included in bad GM and the bankruptcy judge's rule would be supreme so who knows if its possible) and 2. the other brands for GM help keep things like GM POwertrain viable, and the lack of those brands would effects costs in GM Powertrain and other areas.
- A more chaotic bankruptcy like many others. If GM could get financing they could still survive, albeit not quite in the shape foreseen in the Good GM scenario above. However, they could also linger in bankruptcy creating economic havoc like certain automotive supplier companies that have been struggling for a long time (Visteon, Delphi, Dana Corporation).
- GM ceases to exist. A majority of companies that go into bankruptcy basically end in something like 5 years. This scenario is fully capable of causing economic chaos across the United States and specifically in Michigan as most suppliers would also go belly up. The only automotive suppliers I think could survive this would be Severstal Steel (has business with Nissan and Mitsubishi as well as the Big 3, and its part of a Russian Conglomerate), Borg Warner (diversified customer base, including John Deere, as well as solid enough liquid asset holdings), Magna International (liquidity is solid), and possibly TRW Automotive Holdings (Affinia Holdings, a private maker of after market parts is technically in the auto industry but as its primarily replacement parts it should be fine).
Depending on the status of GM Michigan's economy may be boned, but it looks slightly better if the Obama administration can pull off option #1. In the case of Option #1 the Michigan economy would like the following, employer wise:
Automotive:
New GM (Cadillac, Buick, Chevy, and GMC)
Ford
TRW Automotive Holdings
Severstal Steel (Russian owned, but principal automotive steel facility is in Dearborn)
Borg Warner
possibly Arvin Meritor
Affinia Holdings
Software/Tech/Tech Support
Compuware
EDS (Detroit Facility)
Secure-24
ePrize
Syntel
Google (Ann Arbor Adwords office)
Chemicals
Dow
Wacker (its a German company but with an Adrain, MI facility)
Building Products
Masco Corporation
Guardian Industries (depending on what the Davidson family decides)
Other Manufacturing
Kaydon Corporation (Ann Arbor) – KDN
Tecumseh Products (Ann Arbor) – TECUA
FAAC Incorporated/Arotech (Ann Arbor) – ARO
Productivity Technologies, Inc (Fenton) – PRAC
Pump Engineering (Monroe)
Pharmaceuticals
Pfizer (Kalamazoo facility)
Sircon Corporation
Neogen Corporation (Lansing) - NEOG
Pipex Corporation
Caracoa Pharmaceutical Laboratories (Detroit) – CPD
Perrigo (Allegan) – PRGO Fortune 1000 Company
Biotech
Aastrom Bioscience (Ann Arbor) – ASTM
Alternative Energy
Energy Conversion Devices/United Solar Ovonics (Rochester Hills) - ENER
Hemlock Semiconductors (Hemlock)
Project Nextenergy start-ups
Furniture
La-Z-Boy Chairs (Monroe) – LZB
Steelcase (Grand Rapids) – SCS Fortune 500 Company
HermanMiller (Grand Rapids) – MLHR Fortune 1000 Company
Medical Devices/Equipment
Stryker (Kalamazoo) – SYK Fortune 500 Company
Somanetics (Troy) - SMTS
Terumo Cardiovascular Devices (Ann Arbor)
Rockwell Medical Technologies Inc. (Wixom) - RMTI
Insurance
Meadowbrooke Insurance Group (Southfield) - MIG
American Physicians Capital (Lansing) – ACAP
Auto-Owners Insurance (East Lansing) Fortune 500 Company
Home Building
Pulte Homes (Southfield) – PHM Fortune 500 Company
Champion Enterprises (Auburn Hills) – CHB
Real Estate Investment Trust
Taubman Centers (West Bloomfield) – TCO
Sun Communities (Southfield) – SUI
Ramco-Gershenson Properties Trust (Farmington Hills) – RPT
Agree Realty Corporation (Farmington Hills) – ADC
Radio
Saga Communications, Inc. (Grosse Pointe Farms) – SGA
Food
Kellogg (Battle Creek) – K Fortune 500 Company
Dominos Pizza (Ann Arbor) – DPZ
Meritage Hospitality Group (Grand Rapids) – MHGU
Other
X-Rite Incorporated (Grand Rapids) – XRIT
Universal Forrest Products (Grand Rapids) – UFPI Fortune 1000 Company
Urban Science (Detroit), Data Mining
Illitch Holdings/Little Caesar’s LLC/Olympia Entertainment (Detroit)
Valassis Communications (Livonia) – VCI Fortune 1000 Company
Kelly Services (Troy) – KSA Fortune 500 Company
As the above list indicates Michigan has diversified their economy more than in the 70s, however, the state probably needs the automotive industry to revive somewhat for at least the next 10 years to allow the state time to change its reputation (I'm not sure how Michigan ended up with a reputation as "backward" as between U of M, MSU, and Wayne State the state has 3 legimately good research universities but it has). If GM ceases to exist in the next 5-10 years the state will probably be screwed for at least the next 40 years, so GM surviving for at least a little while is crucial.