By the time you are reading this, GM may have already filed for bankruptcy. It is hardly a surprise that the bondholders rejected the offer from GM. On Tuesday when the union agreed to only take a 20% stake in the new company, many speculated that GM would offer the bondholders a much larger stake in the new company. When they did not, the bondholders basically figured they would do better in bankruptcy court.
There are several things that I find interesting. First, why did GM not sweeten the pot by offering bondholders more than the original 10% stake in the company? They clearly had to know this would be rejected. The bondholders have been saying as much for weeks. It is my guess they wanted to enter bankruptcy, but felt obligated to keep up the public perception that they were trying to avoid it at all costs. The reality is they needed to start over and bankruptcy was the only way to clean the slate.
Second, what a strange position the UAW (United Auto Workers Union) will now find itself. The UAW will likely own a large stake in Chrysler and GM after bankruptcy. Some are estimating that the UAW trust will own 20% of GM and have seats on the board of directors. Now as stockholders in GM and Chrysler, how will the union treat Ford in future labor negotiations? How can they possibly negotiate in good faith? They will have great incentive and an amazing opportunity to harm a major competitor? What becomes of Ford employees who are members of the UAW? Will they now form a new union? It should be interesting to see the outcome of all this craziness.
I would love hear your thoughts, please feel free to share.
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