It’s not too early to start thinking about how the next great crisis in the auto industry will shake up the world.
With the general economic slow down worldwide, declining auto sales and uncertainty surrounding the future direction of the automotive market, another automaker meltdown isn’t out of the question.
And because the high profile federally-financed bailout for GM has generally gotten poor reviews from politicians, voters and Wall Street, General Motors is a good place to start to look at what the next automotive bankruptcy could entail.
Already there is at least one suit pending that threatens to undo the work of the first bankruptcy.
“The new General Motors Co. (GM) could be undone by a lawsuit that pits general creditors against hedge fund,” reports Bloomberg, “including Elliott Management Corp. and Fortress Investment Group LLC (FIG) over $3 billion, the car company said in a lawsuit that went to trial today.”
The trustee for the old GM is contending that certain hedge funds got special treatment from the company while the company was preparing for bankruptcy. The trustee is asking for the court to reverse almost $3 billion in claims by the hedge fund.
If that happens, GM claims that it would essential nullify the sale of new GM by the old bankrupt GM, which will create a mulligan for the entire bankruptcy since 2009.
The court trial began yesterday. If the plaintiffs are successful, it would result in GM being restored to pre-bankruptcy days, a situation that GM characterizes as “chaotic” according to Bloomberg.
Barring those developments, there is sizable room for worry.
While GM has a big cash stake of about $34 billion according to Seeking Alpha - a little less if you look at figures from Capital IQ- the company also has $134 billion in pension liabilities, of which about $25 billion is currently unfunded.
In fact, the company is trading at about the same amount of cash they have in the bank. That’s usually not a very good sign for a publicly-traded company.