GM’s kids are moving back home

Almost a decade after spinning off the auto parts maker Delphi and more than two years after Delphi filed for bankruptcy, General Motors is still grappling with the costly legacy of its former subsidiary.

With credit markets in turmoil and the clock ticking to save a $6.1 billion financing package needed for Delphi to exit from Chapter 11 protection by its target, the end of March, GM has stepped forward as a lender of last resort.

GM’s latest offer: $2.25 billion that had been scheduled to be paid out to the automaker in cash can instead be converted into debt for Delphi.

If the current exit deal falls through and another is not cobbled together, GM said, that could disrupt production, complicate its relations with the United Auto Workers, and drive up the final cost of its exposure to Delphi, which filed for bankruptcy in October 2005.

I find this story an excellent metaphor for the New Suburban Fable: save like mad (possibly assume debt); send kids to University; have them end up moving back home for want of money, affordable housing, the comforts of your middle-class life. Watching them consume your golden years while you wonder exactly what it was all for. If The Corporation can be individual, it sure as hell can be a besieged parent of boomerang children.

It is also a nice example of the wonderous over-investment of the 90s, as well as the magical financial re-tooling of corporate America that continued until, say, last Summer. All this anti-vertical-integration behaviour, using private equity groups as a weird sort of anti-middle man (rather than adding to the cost of doing business – the reason why vertical integration makes sense in the first place – their leveraged buyouts of spun-off corporate sections were supposed to generate so much cash for a company that everybody would get well in the long run) – it seems like a funny thing happened, on the way (laughing, for a little while) to the bank.

I shouldn’t be the least bit surprised to see parent company having to re-embrace formerly spun-off critical suppliers, over the next year or so.

Oh, if only the easy money had continued. We should have known all along that Dad was getting wise to us now


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