Why Bankruptcy Is the Best Option for GM

Wall Street Journal ^ | NOVEMBER 17, 2008 | MICHAEL E. LEVINE

[Delacon]

Chapter 11 would better preserve the valuable parts of the company than an ad hoc bailout.

General Motors is a once-great company caught in a web of relationships designed for another era. It should not be fed while still caught, because that will leave it trapped until we get tired of feeding it. Then it will die. The only possibility of saving it is to take the risk of cutting it free. In other words, GM should be allowed to go bankrupt.

AP

Consider the costs of tackling GM's problems with some kind of bailout plan. After 42 years of eroding U.S. market share (from 53% to 20%) and countless announcements of "change," GM still has eight U.S. brands (Cadillac, Saab, Buick, Pontiac, GMC, Saturn, Chevrolet and Hummer). As for its more successful competitors, Toyota (19% market share) has three, and Honda (11%) has two.

GM has about 7,000 dealers. Toyota has fewer than 1,500. Honda has about 1,000. These fewer and larger dealers are better able to advertise, stock and service the cars they sell. GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws. This makes eliminating them and the brands they sell very expensive. It would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota's.

[Spktyr]

And the sooner they go Chapter 11, the better. If they wait until they’re out of cash, the judge may decide that it can’t be saved and order Chapter 7.

[spacejunkie01]

How long are these stupid hearings supposed to last, that start today? what are the true odds of the R’s having the NADS to say no and a bailout not passing?

[screaminsunshine]

It’s the Unions stupid! The bozos in DC do not give a hoot about the industry only the UAW. The Loonies want us to make electric golf carts for cars run by windmills. I think they are INSANE! Let them file Chap 11 and redo the union contracts at sane wages and terms. Car workers are not rocket scientists. But they pay em more.

[EBH]

I agree they should be forced to file.

But...I have a stupid, stupid question...
All these other things we bailed out...why didn’t they file reorganization too? Forgive me, but it is the dawning of a stupid, stupid question. AIG comes to mind we bailed them out to hold the status quo, instead of them doing the good business thing of reorganizing a long time ago.

[SMM48]

Let me guess. Today’s daily bash GM thread?

[Delacon]

I’ve read the earliest the vote can come up is Wednesday. Also that the dems need and cant get 12 republican votes. They’ve got 2 so far. Finally, with enough stink being made, Bush will probably veto if it comes to that.

[Wyatt's Torch]

Bankruptcy is the only solution that allows for a long-term future. A bailout is an aspirin for a patient that has terminal cancer.

[Delacon]

You got it baby. Now go back outside and rejoin your picket line.

[Boiling Pots]

All they have to do is hold on till Jan 20th.

[Spktyr]

They may not have enough cash to last out December. Their quarterly reports have just sent their sales into the tank.

[Boiling Pots]

Why re-organize when there’s unlimited funds by the Government that allows business-as-usual?

[mlocher]

AIG comes to mind we bailed them out to hold the status quo, instead of them doing the good business thing of reorganizing a long time ago.

Your question is not stupid. AIG got caught in the financial meltdown. It was part victim and part poor management. Forcing bankruptcy would not significantly alter their structure. GM, on the other hand, has outdated contracts with both unions and suppliers. While the current cash flow problem is at least partially caused by the financial meltdown, GM was doomed because of poor management decisions over the past 20 years.

[spacejunkie01]

thanks delacon...I worry that it could end up the same as the ridiculous friends-of-paulson bailout where the R’s initially rejected it and then turned around and supported it.

made me sick.

[GBA]

Let them go under and then relocate and hire whomever they choose. If Michigan has turned into a cesspool of socialism, there are plenty of states who would welcome the industry without all of the vampire union entanglements. Perhaps then our auto manufacturers can get back to building competitive cars and trucks instead of failed social programs for union members.

[Spktyr]

Look at the pre-crash market capitalization of AIG or Lehman, then look at the market capitalization of GM. I’m not in favor of any bailout, but if you go look at those two figures, that should help you understand why.

Lehman Brothers, at their peak right before the fall had a market cap of $33 billion. GM’s market cap is only $1.84 billion and hasn’t been much above that for a while.

[spacejunkie01]

AIG is also big part Henry Paulson’s charity case. The current CEO (or at the time of the bailout) was the only non govt person in the initial meeting to give $20b to AIG. Paulson is a scam artist.

[thecabal]

My problem is more with the UAW and their cronies in Washington than it is with GM.

[FroggyTheGremlim]

The unions gave hundreds of millions to the Obama campaign and other democrats.

The unions can use that kind of money to bail out their own companies, save their own (featherbedding) jobs.

I used to be a union guy - United Steelworkers. But the Democrats and their environmentalist massas destroyed the American Steel Industry.

[SMM48]

I will as you go outside and warm up your rice burner.