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GM to help firm buy Delphi with capital

Bob Moon Jun 5, 2009
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GM to help firm buy Delphi with capital

Bob Moon Jun 5, 2009
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TEXT OF STORY

TESS VIGELAND:We know a little more today about how General Motors is putting our tax dollars to work. You know, those $30 billion the bankrupt carmaker will get in loans from Uncle Sam. The Wall Street Journal reported today that GM will be turning over a sizeable chunk of our money to a private equity firm. Which will then use the cash to buy GM’s primary parts supplier, Delphi. Wait… what?

We asked senior business correspondent Bob Moon to sort it out for us.


Bob Moon: The idea of a leveraged buyout is nothing new, but a leveraged bailout?

Beverly Hills-based Platinum Equity reportedly will put up no more than $750 million to buy the bankrupt parts supplier.

Bill Visnic is senior editor at Edmunds’ AutoObserver. He says the rest will apparently come from taxpayers, by way of GM — more than $2.5 billion.

Bill Visnic: There’s no question that to get GM fixed and get GM sort of charted on the right path towards working again, there was no way you were going to have that happen, or no way you’re going to enable that, without also getting Delphi healthy, basically.

Delphi was a division of GM until it was spun off in 1994. It’s pretty much languished ever since — but Visnic says GM still depends on it.

Visnic: You can’t just have that supplier go away, because you don’t have any other alternatives. There’s no one you can call on the phone and say, “Hey, Monday morning we need you to start supplying this radiator module for us,” because the system simply isn’t set up that way.

While that much may be true, some industry-watchers wonder if there isn’t some other way. Presumably the government funding for a loan this size is, shall we say, more attractive than current market rates. And at Case Western University, economics professor Susan Helper wonders if taxpayers might benefit from a more straightforward approach.

Susan Helper: There could have been, you know, perhaps direct government involvement that would come with Delphi, you know, that the government shares in the upside if this actually works.

It’s not a “done deal” yet. The arrangement must still receive a bankruptcy court’s approval.

I’m Bob Moon for Marketplace.

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