Think bankruptcy might be an option worth exploring for General Motors? Worried that the Volt might have been a tad too ambitious? Clearly you must be sick in the head. Reasonable people just don’t think that way. After all, why listen to bankruptcy lawyers and university researchers when you can get the truth straight from GM. You think those eggheads know more about GM than GM? Think about it. And while you’re suspending your disbelief, head down to GM’s Fastlane blog. You’ll get your facts straightened out faster than you can say “Stockholm Syndrome.”
First up, Fastlane takes on those who suggest that perhaps the responsible legal solution to GM’s problems lies in bankruptcy court. In a post titled “Why Not Bankruptcy?,” GM’s Tom Wilkinson takes issue with Harvard Professor Mark Roe.
Bankruptcy reorganization takes cash – lots of it. For a company like General Motors to operate in Chapter 11, it would need massive debtor-in-possession loans. With credit markets frozen, there is realistically only one source of such loans – the federal government. We estimate loans needed to reorganize GM in Chapter 11 could top $100 billion, far more than the out-of-court fix envisioned in our restructuring plan.
Yes, but if we keep bailing GM out without addressing major issues that can not be resolved outside of bankruptcy court (debt, labor, dealers), then we’ll just have to pay that money eventually anyway.
Wilkinson also brings up the “nobody will buy from a bankrupt automaker” canard, conveniently ignoring GM’s sales free-fall.
While “clearing the decks” sounds refreshing, the reality would be anything but. The bankruptcy process would bring financial hardship to millions who rely on GM – and upon whom GM relies. GM suppliers, already pushed to the edge by the recession and credit crisis, would in many cases follow GM into bankruptcy, jeopardizing the flow of parts GM needs to produce vehicles – and generate revenue. Fewer health care dollars would have a real impact on employees and retirees, as well as on local health care providers.
All of which is already happening, and will continue to happen as long as the government requires “viability” as part of the bailout deal.
Moving on to the Volt, GM’s new car czar, John Lauckner, refutes a recent Carnegie Mellon study that shows the Volt’s 40 mile EV range to be not cost effective. Sort of. Lauckner argues that constant recharging of lower-capacity batteries would be “inconvenient.” As opposed to dropping $40K on a Chevy. Which is awesome.
He also says the Volt’s batteries are cheaper than the study suggests. Again though, if you aren’t making a profit at $40K MSRP, how cheap can the system be?
Finally, Laucknet argues that incrementalism of the kind advocated by the Carnegie Mellon team is the only reason GM isn’t competing with Toyota.
Some years ago, GM didn’t introduce hybrid technology as quickly as we should have because it wasn’t considered ‘cost effective’ at the time – and we aren’t going to make that mistake again.
So never mind the naysayers, set the controls for the heart of the sun. What could possibly go wrong?
Am I the only one who finds that pic disturbing?
A bankruptcy with government backing and continued payments to the supply base is the best solution to restructure and save as many jobs as possible. GM is too big and has too many obligations for any other scenario to be effective. Period.
Holy toledo! From GM’s Viability Plan, the very first bullet point reads, “GM’s Plan details a return to sustainable profitability in 24 months.”
Since they are broke now, does that mean their viability plan includes 24 months of taxpayer bailout?
The link from Harvard Law Professor Mark Roe says, as well as only a bankruptcy professor could, why Chapter 11 is the best option for GM:
http://online.wsj.com/article/SB123595238770705115.html
By the way, Obama went to Harvard Law School.
GM Fastlane ignores the fact that General Motors was looted and has, for all practical purposes, no unencumbered shareholder value left. As such, it is flying like an airplane that has had both wings removed at 35,000 feet and sold for the money they brought in.
We’re being asked to get a bunch of Caterpillar crawlers together and build a runway to 35,000 feet to save this thing. That’s not a rational plan.
The social costs to Feed the Greed at General Motors will be far more obvious and destructive if you calculate in what programs will be slashed to get money to throw at GM.
That money has to come from somewhere. Show us where the money will be coming from and calculate what it means to those of us who had no part in this debacle we are being dragged into paying a hefty price in human sufffering for.
Economists call it “Opportunity Costs.”
DIP loans are operating loans that fluctuate with business activity and have a chance at being repaid, because things substantial enough are being done under the power of the court protection so that the wrongs have a chance of being fixed.
Anything and everything else pre-Ch11 is/has been give-away, and has no chance of being repaid.
Period.
I thought GM was supposed to be a company, not a jobs program.
Any supplier who hooked too much of their wagon to GM is foolish or unlucky, but not receiving my sympathy to maintain the GM jobs program.
And the $40k Volt is insanity at every level – no profit for GM, no payback for the consumer, and IMO it will provide a very unsatisfactory driving/ownership experience.
“set the controls for the heart of the sun”
Cool. One day Verdi. The next? Early Pink Floyd.
Two reasons TTAC should damn the arriviste naysayers and carry on full speed ahead.
Err…back to your regular programming…
I think I’ve found an explanation. Tom Wilkinson still hasn’t recovered from Scarecrow’s fear toxin. Bankruptcy still has these fools up at night.
If the bailout is all about saving jobs, why is it that every day I see headlines reading “GM to slash XXXXX jobs”? What jobs are being saved here? At the rate they’re going, there’s only going to be 10 people working for this company in another month.
If GM was my dog, I would have shot it five years ago. What a collection of nutbags.
This says it all (From Fastlane).
There is no question that GM needs to restructure its operations and its balance sheet. The detailed plan we submitted to the U.S. Treasury on February 17 does precisely that.
Proof positive that GM sees absolutely no difference between a PLAN to do something and things actually happening. GM did not get into this situation because they couldn’t develop plans….
Wilkinson also brings up the “nobody will buy from a bankrupt automaker” canard, conveniently ignoring GM’s sales free-fall.
It’s not a canard. Part of GM’s sales free-fall is attributable to fear that the automaker isn’t a going concern. I think the ~10% difference in the sales declines for the domestics (down 44-53%) versus the transplants (down 30-40%) is the fear that GM, Ford & Chrysler will go out of business.
GM is bankrupt. It’s baked into the cake now — the cake that GM wants to have and eat, too, by avoiding official bankruptcy.
“I thought GM was supposed to be a company, not a jobs program.”
That was before GM and Chrysler became government wards. Like those old Chinese steel mills, their purpose now is to crank out subpar material for the sole purpose of occupying those who would otherwise be unemployed, cranky, and inconveniently revolutionary. However, this being the USA, the Terrible Two will pare down their labor force in bits and pieces, boiling frog style, to appease their fickle masters until there’s only a withered remnant operation left building antiquated fleet vehicles: Checker II.
Can anyone think of any other time in American history when an insolvent private company (banks excepted) begged for money from the government?
GM acts like taking taxpayer money instead of declaring bankruptcy is normal. It’s not.
Am I missing something? Or is this an unprecedented raid on the treasury that GM should be ashamed of, not proud of like this Fastlane article author seems to be.
Did anyone notice GM stock actuall rose yesterday?
I was just looking at the ticker to the right yesterday and for the first time (that I could remember) GM went under $2.00. I commented to my co-orkers. Just now it is at $2.20.
Of course, this means nothing…