Re: GM and its impact on FIRST
 

Thank You Karthik, now if someone could explain all of this in layman's terms. I fail to understand how this works, to me it appears as though GM is saying, "This is not the GM you are looking for" to its creditors. On March 31 they had $54.4 billion in consolidated debt and now they have $17 billion in consolidated debt. Now, I KNOW they didn't pay off all that debt so where did it go?

Also, if I understand this correctly those people that owned stock in GM just got the shaft

And one last question, New VEBA, what is it?

EDIT: Yes, I read the article, I am just confused by it...

Re: GM and its impact on FIRST
 

As our team has been sponsored by General Motors, I have followed GM's fortunes with a bit more than passing interest for the past six years. I will add, however, that I have followed this as an interested amateur, rather than a professional financial analyst. What I am posting here is my understanding of the situation -- which contains some truth (hopefully!) -- but can hardly be regarded as a complete and definitive explanation.

I don't know how much of the international aspect of GM's bankruptcy has been covered in the American media, however as shown in the link posted by Karthik, the Canadian and Ontario governments are also a significant part of the current process. I suspect other governments (Germany/Opel, Australia/Holden, etc.) may also be involved. GM is a BIG company, and this is not just an American story.

There have been a number of factors that have contributed to the current situation, not least of which is health care benefits owed to American employees (most Canadian health care costs are a govenment responsibility) and pension benefits owed to workers around the world.

Frankly, I have some sympathy for a company when their main financial problem stems from taking decent care of their employees. Yeah, this wasn't exactly an act of generousity (see CEO pay packages if you would like an example of that), rather the result of some very challenging labour relations. Nonetheless, I think GM has been a good corporate citizen in many ways, sponsorship of FRC being but one.

Unfortunately, it seems, that the health care and pension funds were not "fully funded". In other words, there wasn't enough money in the fund to pay out the benefits that were promised. In Canada and, I believe, the US, it is a government responsibility to establish rules surrounding private pension funds to ensure they are properly costed and funded and the government in Canada, at least, didn't do a particularly good job in this regard. So I do see that "the government" (keeping in mind that the US, Canadian and Ontario governments at least are involved in North American operations, and other governments with overseas operations) in Canada, at least, was part of the problem and should be part of the solution.

This was compounded by high fuel prices, which caused consumers to switch to more fuel efficient vehicles a year or two before GM was ready for that to happen, a crash in the stock markets -- which devalued GM's pension and health funds, AND the sub-prime mortgage mess in the USA which made it more difficult for people and companies around the world to arrange financing.... and if you can't get financing for your new Pontiac Solstice, then you might not be able to buy it. In short, GM was doing a mighty job of struggling with some serious long-term issues and obligations when it was nailed with an economic "perfect storm" hardly of its own making.

At this stage, therefore, it appears that GM is no longer able to pay all of its debts. Bankruptcy is a natural, and sensible protection for creditors (people who are owed money) to help ensure that a person or company is paid back as much of what they are owed as is possible. It also helps to ensure that people are paid back in the proper order.

By reorganizing GM will have to convince a court that this arrangement provides the maximum benefit for creditors in terms of the amount that they will likely be paid on the debt owing to them over the long term.

As Andrew points out, this means that a lot of debt "disappears". That is money that GM owes, but simply cannot pay. That sucks for the creditors, but is how bankruptcy works. It isn't a good thing but, like amputation, is sometimes neccesary. The important part is that GM will be able to pay employees (albeit under slightly different terms), service waranties, continue profitable products (GMC and Chevy trucks will ALWAYS have a market, even if it isn't as huge as it once was) and introduce new products. GM retirees and those receiving health benefits will also continue to receive benefits... although possibly at a reduced level. Yes, there will be billions of debt left unpaid... but there are also billions of dollars of debt that the new GM will pay off.

As for the shareholders, as Andrew correctly points out, they are the absolutely last priority to be paid. That is because shareholders are owners, as opposed to creditors, and is one of the risks of purchasing stock. So rather than saying that they "get the shaft", I would suggest that is simply one of the downsides of owning a business when it goes bankrupt... it doesn't matter if you own GM, or a corner store... if your company goes under, you get what is left after everyone else is paid. On the other hand, bankruptcy is actually part of a framework which protects owners from being personally liable for the debts the company owes.

That is hardly the complete story... but might help explain some of what is going on. Chrysler faced many of the same problems. Ford, I understand, was able to re-finance much of its debt prior to the sub-prime debt crisis in the USA, and also had good earnings from a strong European division, thus avoiding... or at least postponing... a day of reckoning.

My goal is to have our team find some new sponsors, to keep GMC as part of our team name in recognition of all they have done for us, and to be around to work with them when... not IF, but WHEN... they are able to support FRC once again. It may be sooner than we think.... they have some great new product coming out.

Phew... I didn't mean to type that much.

Jason

Re: GM and its impact on FIRST
 

I believe it is accounted for by "a new Debtor-in-Possession (DIP) financing of approximately $33 billion" mentioned early in the article.

Re: GM and its impact on FIRST
 

From reading the article and dozens of news reports, this is how it sounds like it'll all work: (if anyone can clarify or correct any points here, please do)

The "New GM" will buy all the assets of old GM, as well as automatically transfer all employees that aren't being laid off. The debt owed by old GM is poof, gone. How did it disappear? The US and Canadian governments, as well as UAW and select bondholders "bought" the debt for differing percentages of the "New GM". The concept of buying debt for [partial] ownership is based around the idea that if reorganized, the company would return to profitability and those which bought the debt would now own a profitable company, which can be used to pay off the debt they incurred. As such, the old GM stock is now poof, gone as well.

The US Feds don't want to own GM forever, and are seeking to begin selling off their share of the company in a few years as soon as "new GM" returns to profitability to regain the money they lost in "buying" the debt.

Sacrifices will have to be made to enable the company to balance its books, and they will close more plants, lay off more employees, and seek reductions in benefits. These are crucial in order to allow the company to return to profitability.

However, despite all of this, there should be no negative impacts on consumers. GM has dedicated themselves to their customers, current and future, and will honor all warranties, etc. They will also continue to pay all employees through the reorganization period.

Re: GM and its impact on FIRST
 

Does anyone ever really *WANT* to lose any FRC team? In this discussion, I think we should be careful not to accidentally tread upon the ashes or smoldering embers of any struggling or previously-folded teams who might not be of the same level of recognition as some the more widely-known GM teams. It is always disappointing when teams lose any financial and/or human support. Many teams have faced the same or worse challenges and have managed to adjust, quietly.

These GM teams are filled with a bunch of skilled, creative, intelligent people who truly care about FIRST. I expect most of their teams will find ways to adapt to any changes that are thrown at them and survive in some form. Some have most likely been proactive enough to have already enacted plans to diversify their mentor and sponsorship bases prior to this bankruptcy announcement.

With facilities closing, merging, idling, etc., it will be difficult for every FRC team under the GM umbrella to survive. Delphi has been playing the bankruptcy game for four years now. A few of our teams have folded during that time. Funding levels for most team have been reduced (and truthfully, they were in decline for many years prior to our bankruptcy in 2005). Many, many key mentors have also been displaced from their jobs, making it especially tough for those affected teams to adapt. BUT, it is important to note, the majority HAVE survived. Teams have accepted the reasoning behind the reduced funding and have adapted without complaint. Delphi thankfully continues to provide some level of support to its teams and is still supportive of its employees and their volunteer efforts.

It would be nice to think that GM will follow a similar path as Delphi here, but it remains to be seen how GM (or the government) will address its FIRST team sponsorships. Regardless of their decisions, it is logical to believe that GM teams will face many challenges in the coming months similar to those which Delphi teams have been facing. If GM elects to cut the majority of funding to teams, it is possible that a few may no longer be able to sustain operations as a result. Those who have depended upon a single large funding and/or mentorship source and have made no plans to diversify prior to now will be especially under a lot of pressure to reinvent their operations in a short amount of time. It will be unfortunate if some teams fail to adapt, but the FIRST community must be ready to accept the real chance this might occur, and it might begin to talk about how it can best be proactive in helping with the "transformation plan" of any and all teams who may be about to enter such unusual, unfamilar, and difficult situations.

Re: GM and its impact on FIRST
 

I think Art pretty much nailed the gist right there. The exchange of debt for ownership stake is the core concept.

Re: GM and its impact on FIRST
 

Thank You Jason, Alan, and Arthur. I think I better understand what is going on now.

Re: GM and its impact on FIRST
 

Re: GM and its impact on FIRST
 

I drove by the local Chevy dealership today, it was empty. The owner also has several other dealerships in town, they apparently moved everything to their other GM dealership and consolidated.

It was a shock...

Re: GM and its impact on FIRST
 

I've lived in the shadow of NY City for too long. I agree, there are some places where the above it far from true.
Test-drive their products if you're in the market. Convince others to do so.
Well, either they will learn how to fundraise or they will disappear.

The point of the first quote above is that teams need to open their eyes and look around town. There are a LOT of small businesses out there, and even a $50 sponsor is better than nothing. A team with one or two sponsors is at a disadvantage, in that they have had little practice in fundraising. But, this can be learned and done, thousands of teams have done it already.

Fact: You can earn over $2000 from a car wash.
Fact: A team can do pretty well on $10k per year, if they try.

The loss of a major sponsor does not have to be a death blow. FIRST teams tend to be creative in many ways, right? Here's another great opportunity for learning.

Re: GM and its impact on FIRST
 

The subject of GM product came up (and seems to come up with every discussion of GM's woes). Of note:

-For all the talk about low-mileage trucks and SUVs, there are always going to be people that actually need the capabilities of a truck or SUV. No administration is going to restrict them out of existence. (For those keeping score, GM currently has the lead on full-size truck fuel economy with the Silverado/Sierra Hybrid at 21/22 city/highway. Excluding hybrids, Ford and GM are currently tied for the lead at 15/21 to Dodge's 14/20 and Toyota's 15/19.)

-I've driven plenty of early-decade GM models at work. Their modern counterparts are universally more refined, more powerful, more efficient vehicles--vehicles designed (if not manufactured) before GM started to accept government loans. Keep that in mind.

Last week, I signed the papers to buy a gently-used 2009 Pontiac Vibe. I bought it because it had the features I wanted (huge room, better fuel economy than my CR-V, good feel on the road, decently equipped) at a price I was willing to pay (albeit one assisted by an employee discount). I picked up on the Vibe after driving several at work, along with hundreds of other cars from just about every volume manufacturer. If car buyers did their homework--talking to owners, reading reviews, taking test drives, weighing their options--then I think the issue of GM's support of FIRST would work itself out. It might shrink relative to years past, it might grow. We should know well before Kickoff.

Re: GM and its impact on FIRST
 

What the impact of GM's bankruptcy on FIRST?

Well, it is pretty apparent FIRST cannot continue to operate at its current rate for much longer. As an organization deeply rooted in corporate dependencies, FIRST cannot ignore the actions of its (and its teams) benefactors. Thousands of dollars per event is simply too much.


I've heard nothing but praise for the 2009 Michigan district event model. The continuation and spread of this seems like a piece of puzzle for FIRST's sustainability.

Re: GM and its impact on FIRST
 

It really bothers me when people are convinced that they know "facts" when they are not true. For example, your "Major win" in efficiency is flat out wrong. In comparable models, the Subaru Legacy fuel economy rating was 20/26 MPG city/highway while the Chevy Malibu/Pontiac G6 is 22/30.

As far as reliability goes, the MSN reliability rating for the Subaru was 8.3 while the Malibu got a 7.9. The rating from Edmunds had the Subaru at 7.3 with the Malibu at 7.5. I would say no statistically significant advantage.

What bothers me about this whole deal is that so many people are spouting "facts" that aren't true that people are starting to believe them. I heard an interview with someone the other day that said, "the reason I bought a VW is because they just have better fuel economy than American cars." CHECK THE FACTS: THAT IS NOT TRUE. As a company average, that is true simply because VW doesn't make trucks. Compare models in the same class and most of the American cars are better than VW for fuel economy (still using midsize cars, the Passat 2.0L 4 cyl gets 19/29 - less than the Malibu/G6 mentioned above which has a 2.4L 4 cyl).

I just don't understand how the buying public gets duped into thinking these things without checking the facts and doing any research.

By the way, feel free to check the numbers yourself at: http://www.fueleconomy.gov/feg/byclass.htm

Re: GM and its impact on FIRST
 

From experience I can tell you that it's because it's quicker and easier to just believe what people tell you than to look it up for yourself.

And with GM shrinking from the picture a little that model likely won't go anywhere. We were told that one of the advantages of the state competition model is that the competitions are significantly cheaper than the regional that our team used to participate in. With a lot of teams funding drying up with GM's chapter 11 bankruptcy the FIRST in Michigan people wouldn't return to a more expensive system when it would mean that potentially massive numbers of teams couldn't compete.

Re: GM and its impact on FIRST
 

I hear ya man. In general the public is lazy, doesn't confirm/double check resources, doesn't bother to understand what statistics are really reporting, and tends to believe what they want to believe based on preconceived notions and internalized bias.

In a culture that all too often gets annoyed when it can't stop at a convenience store for fuel, custom order a deli sandwich, pour a coffee to individual taste, pay for it all, and be on the road inside of five minutes it would seem we've gotten far better at "spouting off" than we have at really taking the time to do our homework.