When I moved to the UK, I was shocked by the price of petrol. “Britain’s an oil PRODUCING nation,” I kvetched to my accountant. “How could the populace allow their government to tax their petrol to the point where it’s the most expensive gas in Europe?” “Do you have any idea how much income tax you’re paying?” my personal pencil pusher asked. “If I were you, I wouldn’t worry about it.” In the same sense, I wouldn’t worry about GM CEO Rick Wagoner’s Gulfstream. It’s as nothing compared to the amount of money he’s pissed away on, well, everything else. Of course, it’s not the money, it’s the principle.

Now if you think I’m about to launch into a boilerplate tirade about Wagoner’s spendthrift ways in relation to the sacrifices made by the hard-working men and women who’ve either lost or are about to lose their Generous Motors entitlements, think again.

Firstly, I’m not convinced that any member of the United Auto Workers (UAW) has made what I’d call a genuine sacrifice in the last, oh, thirty years or so. Whenever the MSM announces “job cuts” at GM, they singularly fail to mention the fact that the UAW members are not looking at a final paycheck and a faretheewell. They’re paid some 90 percent of their working salary not to work. If they agree to go, they get a big kiss-off. Benefits cessation? As if. There are professional parachutists who can’t manage that kind of soft landing on a clear, windless day.

Symbolically speaking, Rick’s jet is no more “gold-plated” than the UAW’s compensation.

The real affront here is the same one identified by Car and Driver writer Brock Yates back in the day, and Michael Karesh in his recent editorial: GM’s disconnect with its customers.

Yates described a corporate culture in which no perk was beyond reproach. From an endless succession of immaculate automobiles to personal riches beyond imagination, GM’s suits were the big swinging dicks of Detroit. Despite— and also because of— their rewards, they lost any sense of accountability to the people who kept them in the style to which they became accustomed.

Rightly or wrongly– and I’m thinking rightly– Wagoner’s jet travel signaled the taxpayer (and thus the taxpayer’s duly elected representatives) that Detroit’s sense of entitlement has not changed. The Gulfstream as revealed Wagoner as a Big Wig who literally flies above the concerns of the common man. Sure, lots of CEOs have jets. But they’re not asking for a publicly-funded bailout by threatening the entire country with economic collapse.

Americans aren’t stupid— especially when it comes to their money. They “get” the connection between a CEO swanning around in a big ass jet and his company’s inability to build a product that Joe the Consumer wants to buy. They can also connect the dots between that failure as the CEOs appearance in the nation’s capitol with The Mother of All Begging Bowls.

“I had several business meetings this morning,” Wagoner told ABC, when confronted by his jet-oriented corporate profligacy. GM’s CEO instinctive reply shows that he believes his importance is more important that appeasing misinformed public sentiment (from people who clearly can’t identify with the demands placed on the CEO of the world’s largest automaker). In this Wagoner’s woefully mistaken.

Wagoner’s mach .88 Grosse Pointe myopia failed not one but TWO constituencies. First, GM’s “base,” the millions of people who drive a GM product or depend on same for their living. Hey Rick, come see what it’s like to drive one of your cars! Second, taxpayers. Voters who love America, but don’t love wealthy people who think they know better than they do, when, clearly, they don’t. Once again, still, GM has shown that it’s forgotten who puts food on their table.

So now what?

Chances are Wagoner will return to DC via a commercial flight. He might even, hold your nose, fly economy. Wrong answer. That would make the CEO the butt of humor and embolden the press to dig even deeper into the real disgrace: his salary. It will be seen, rightly, as cynical posturing, rather than genuine contrition.

Alternatively, commentators have suggested that the CEO should drive to Washington in a plug-in hybrid electric – gas Chevy Volt prototype. It would demonstrate that GM has something called “a future.” Wrong again. This kind of grandstanding will invite examination of GM’s product plans, which are now frozen, delayed and or disarrayed. Call it The Emperor’s New Automobile.

The only possible PR angle that will work here: Wagoner arriving via an American-made compact car: the Chevrolet Cobalt. To successfully suckle, Rick needs to do commute in GM’s penalty box, to display a politician’s knack for the “common touch.” Of course, Wagoner doesn’t have the slightest idea what that really means. Which is why he had to go to Washington in the first place.

A run on the bank. That’s what will happen as soon as Congress adjourns without a bailout plan for the Detroit 3. Hard-pressed suppliers and creditors will force GM to do what must be done: Chapter 11. I guarantee it. GM and Chrysler will sink into bankruptcy before they even think about the annual Holiday shutdown. A few Senators and hundreds of thousands of workers within America’s automotive industry don’t want to see that sad day arrive. But arrive it will. And as the Capitol Hill hearings proved beyond a shadow of a doubt, Detroit needs a thorough cleansing.

The hearings didn’t do much of anything to bolster the case for bailing out Chrysler, Ford or GM; or the industry as a whole. In between the grandstanding and the personal stories by our elected officials, a few key questions were asked. And neither GM CEO Rick Wagoner nor Chrysler CEO Bob Nardelli could give a straight and honest answer.

Simple questions like when would you run out of money? (“Uh, it’s hard to say.”) If we give you this money, how do we know you won’t come back looking for more? (“We have a plan in place, we think it will work.”) What changes will you make to restructure your business? (“We have already restructured and we’re doing more.”) The only real answer we got was from the guy whose union has had Detroit’s nuts locked in a vice for years; he accurately ranked the depth of despair among the Three. GM’s in the worst shape of all and everyone knows it.

Bingo! That’s all the supply chain needed to hear. If Congress doesn’t allocate the “bridge to nowhere” loans, they’ll all be looking for immediate payment on their invoices before they ship one more part to GM and Chrysler. (Give credit to Mulally, he was smart enough to say he doesn’t need the money now, or maybe ever. Just wanted to have access to it if needed.) And that’s why Rick and Bob can’t answer the question about running out of cash. No loan, it’s the next day. Loan granted, and we stay afloat for three or four months.

Uh, Rick…Bob…you two geniuses just sealed your fate. Kind of like the mistake the prosecution made with O.J. You didn’t go for the kill and put the burden on the defense to prove otherwise. Just waffling on the answer about the cash end game gave Congress the excuse it needed not to get into a political showdown. You had to put the onus on Congress that this situation can’t wait for Messiah Obama. It’s a clear and present danger – and you didn’t scream loud enough. And you forgot to show everyone a truly credible plan too.

Congress won’t act. Pelosi owes the “Greens” too much (she’s from the land of fruits and nuts) for her job and they won’t let her touch the Department of Energy money. No chance. Pigs will fly before they give that up to save Detroit. Hank Paulson won’t even discuss tapping the TARP billions for the auto industry. He’s an ex-Wall Street guy and that money goes to save his buddies, not union employees. The Republicans won’t let a new bill get passed; they’ve got all the auto industry they need right there in the South.

So it’s a deadlock. Congress will do some posturing, but will punt on coming to an immediate solution. Maybe they’ll come back in December for a more thorough hearing on the situation but that will be too late. Another round of deliberations on the road to nowhere.

Even if Detroit gets the $25 billion to stay afloat, it’s just money that enables management to keep making all the same mistakes as before, rewarded for their own incompetence. But it’s not the end. Based on their current cash burns, all of these companies will use nearly the exact amount of cash as their respective share of the loans by the end of the first quarter of 2009. By then, GM will have more than $53b in debt and no turnaround in sight. Chrysler will be back at the starting line, with no new products and no hope. Ford probably won’t even tap into the line but will need the funding later.

Congress should take the easy road on this one and do nothing. It’s the right thing to do. Inaction is action. That’s the message to the Detroit 3 – fix your own house. You made the mess of things, and didn’t come to us with ANY plan how you were going to change the way you do business. Half of the country doesn’t want to help you and they don’t buy your products. And Congress shouldn’t set a precedent of becoming the lender of last resort for troubled industries.

And when Congress doesn’t act, the chips will start to fall. The market will determine its own solution fast enough, within hours. The cash calls at GM and Chrysler from suppliers will overwhelm these two companies faster than a Corvette ZR-1 or a Dodge Viper SRT-10 ACR. It’s going to be an ugly crash.

GM’s at the cliff’s edge looking deep into the chasm and sees…nothing. How pathetic. Here’s a company with $150b in annual revenues and all they can say is “give us the money or else.” How lame is that? Frankly, it speaks to the complete lack of leadership and direction at this company. GM has not advanced one shred of evidence that it knows what to do if it goes onto the government welfare roles. In fact, all we’ve heard is “more of the same” restructuring and downsizing that’s been completely ineffective to date in stemming the tide. That dog just won’t hunt. But if GM’s Board of Directors and executive managers had a clue, this is what they would do heading into the showdown with Congress…

First, outline a demonstrable plan for the road to recovery. Something akin to the plan laid out by Ford. A strategy whereby we have an idea of what products we can expect, realizable market share goals, and a stated return to profitability. To date, all we’ve heard from GM is nothing more than downsizing, the Chevy Volt and better products are on the way. If you think about it, GM’s been playing this tune (sans Volt) for more than thirty years.

The plan has to address all of the shortcomings found in the company today. Let’s look at these by major area of interest:

Brands – GM’s trying to field a roster of brands that have little meaning to the public. Eight brands for a 15 percent retail market share doesn’t compute. GM needs to pick two or three brands and then develop, foster and love them with unique vehicles. It’s too costly to support GM’s minor brands, even if they’re commingled in “sales channels.”

Dealers – If GM cuts brands, it also loses those dealers. So what? Franchise laws protect franchisees from many actions of the franchisors, but they don’t guarantee future outcomes. Nothing stops GM from outlining a five-year or even ten-year termination play. The dealers will sue. Let them. Let them join a class action suit; GM will just drag it out forever in court. By that time, either GM will be a stronger company with the ability to make some payoff to these franchisees or it won’t. That’s a risk that needs to be taken, now.

Financial Creditors – Cram-down! Put it out there now. Make them take a whole bunch of newly issued stock now in return for an 80 percent cut in debt obligations. They can’t count on government money to pay them off, and they’ll be lucky to recover 20 percent in a bankruptcy anyways. And there’s zero chance they’ll ever get ahead of the government in standing if GM does get a bailout; the government always collects ahead of everyone else.

UAW – United Auto Workers boss Ron G. needs a wake-up call. Big style. He’s hoping his Democratic pals in Congress will come to his aid and protect his flock. Too bad he’s barking up a very small tree. He forgets that big swaths of this country are anti-union, and those Southern Senators would like nothing more for the UAW to go down in flames and stop trying to organize their foreign-brand assembly plants.

GM should scrap the Mother of All Health Care Funds (a.k.a. VEBA) now; it can’t afford the big upfront payment required. Instead, GM should unilaterally reduce hourly retiree health care payments. Make these retirees suffer with the same crappy HMO care the rest of us get. Let’s keep in mind that salaried retirees get nothing now for health care (except a modest boost in pension payouts as an offset).

Rick Wagoner – Gone. He hasn’t done the job. Stop pretending that Red Ink Rick knows what to do – because he doesn’t. In fact, it’s not clear the guy has ever done anything that set a new direction for GM besides his “foresight” with regard to its China JVs. It’s always been more of the same: praying that the next “new” rig from GM would be the spark that lights the fire of American consumers. Find an outsider as CEO with strong industrial experience, a person appointed to be czar who can break down GM’s muddled and stifling bureaucracy.

Board of Directors – Toast. They should resign too before they get dumped. Better to die with your head attached than sacrificed in shame on the altar of bankruptcy. They’ve allowed this charade to go on way too long. Since the current shareholders are going to get massively diluted anyways, they won’t be able to control Rick’s puppet board any longer. Instead, the financial creditors should pick nominees for the Board using their newly-issued stock as leverage.

Bailout –  Stop whining. Stop blaming everyone and anything but yourselves for your current predicament. You look stupid as a company. GM should stand up and tell the truth we’ve all known for years: their problems are entirely of their own making. Man up!

There’s an old adage told by aviators all over the world. When your airplane is in trouble, do something, anything, to change the outcome. Doing nothing and you’re sure to hit the dirt. Right now, GM’s doing nothing besides begging– and not getting much sympathy. Maybe it is time to roll the crash trucks?

In the legend of Faust, the protagonist sells his soul to the Devil in exchange for knowledge and power. Needless to say, things end badly for one member of the transaction (hint: it’s not the guy with the horns on his head). A “Faustian bargain” has come to mean a deal where you surrender what’s truly important to achieve an ultimately worthless goal. Yes, I’m talking about GM. If the artist once known as the world’s largest automaker avoids Chapter 11 via a bailout deal with Washington (a.k.a. Mephistopheles), the contract will ensure its final, irretrievable doom.

In this case, as in so many others, the road to Hell is paved with good intentions. Ostensibly, bailout supporters want to “protect” Uncle Sam’s “investment” in GM– otherwise known as fighting a rearguard action against those who see a GM bailout as GMAB (Good Money After Bad). To that end, lawmakers crafting the $25b-plus suckle are talking-up the “strings” attached to the cash.

Speaking on yesterday’s Face the Nation, Barney Frank laid out his prophylactic proposals. The Massachusetts representative tasked with writing and proposing the bailout bill says the feds will only tender taxypayers’ money to Motown mismanagers if the beneficiaries agree to end to shareholder dividends, ban bonuses for employees who earn more than $200k a year, and submit to a government oversight board with power to veto corporate decisions.

First, the idea that GM would pay out shareholder dividends when it’s nose-up in the North Atlantic makes no sense at all. Oh wait. They already did that, didn’t they? For years. OK, well, what difference does a dividend payment make when GM is burning through one— make that two billion dollars per month? More to the point, since when does the U.S. federal government have the right to decide if and when a publicly-held company should or should not set a dividend? Frankly, Frank, it’s none of your goddamn business. At least it SHOULDN’T be.

As even a casual reader of this series will know, I consider GM CEO Rick Wagoner’s tenure at the top an utter failure. The GM Board of Bystanders that elevated and supported Red Ink Rick in his Reign of Torpor is criminally liable. In fact, there is but one group of people on planet Earth who could make more of a mess of GM than its current administration: politicians. To wit…

For better or worse (worse), politicians are paid a flat fee. Here in the real world, executives work for a salary and an annual bonus. In the ideal real world, the bonus is tied to something called “performance,” sometimes involving a personal target, sometimes company-wide. Many times, the system works (hence its existence). Other times (i.e. Rick Wagoner), it doesn’t (hence GM’s destruction). Normally, the free market cleans up the mess.

Removing the executive bonus system to satisfy a politician’s idea of class warfare is patently ridiculous. If GM is to recover, it needs [NEW] top executive talent. To attract same, it can either pay-out bonuses for top performance or… what? Inflate the base salary and benefits to skirt the issue? Maybe so. But again, is anyone more uniquely unqualified to make that decision than Washington politicians?

This brings us to the third leg of this inherently unstable federal stool: an oversight committee. With veto powers, no less.

The Wall Street Journal reports that the bailout bill will require the automakers and their unions to draw up plans on “how the companies would return to financial health in the longer term.” Congress will then appoint “guardians” who will tell GM how to implement the Congress-approved plans. Oh, and there could also be a Car Czar to tell the oversight committee what to tell GM executives.

Yeah, I want to buy a car from THAT company.

In truth, I’d rather the feds just GIVE GM the $25b, no strings attached. At least GM would have to come back with their begging bowl after they’ve pissed the cash away, rather than simply slipping an item into next year’s appropriations bill. I mean, when was the last time a federal organization said, right, we’re done. Disband us, close the office and fire the secretaries so we can all go home?

The federal proposal to “save” GM et al. is not a bailout. Not anymore. Now it’s a Faustian bargain between a failed company and a power-mad government. If approved, it will allow your duly elected representatives to gain control of an American carmaker to manipulate it for their own ends. Anyone who thinks those ends will be determined by a desire to create product and customer service excellence is seriously, dangerously deluded.

Leave it to the B&B to really transcend the as-good-as-defeated General’s Battle of the Deficit-Bulge, aimed right at the German taxpayer’s money,  a.k.a. Government loan guarantees for Opel. Tireguy typed: “The imminent bankruptcy of GM could endanger seriously Opel, although Opel is still profitable.” Deutschland appears to agree. As we shall soon see, some may have a slightly less philanthropic angle. Let’s get right to the point: Opel, Heim ins Reich, anyone? Indeed, some in Germany seem to be itching for a re-match of the Ardennenoffensive. Opel is GM’s heavy artillery in the bastion Europe. Some 75 percent of GM’s European business comes from Opel. If the not-so-secret plan survives, the offensive against General “Nuts” Wagoner will be fought partially in Brussels, coincidentally not far from Bastogne. The broken record called history repeats, again and again. Executive summary of the order of battle follows. Right this way, please!

At the home front, the General begs for money, as amply chronicled in 190-and-growing episodes of the bailout watch. The General’s attack on the federal reserve troops gets bogged-down in the swamplands of Washington. If there is a chance of success, the EU shouts: “Incoming! Unfair trade practices!” With a cruise missile en-route via the WTO. Further hand wrangling ensues. That’ll keep ‘em busy. Meanwhile, back in Germany, Opel falls into the honey-trap of government money, loaded with caveats. GM goes bust, Germany forecloses Opel to keep Opel open.  A white knight. Dankeschön. What did Willy Brandt say? “Jetzt wächst zusammen, was zusammen gehört.” Germany and Opel, together again. Re-united, 80 years after Opel had sold out to GM, also coincidentally, during a prior Great Depression of 1929. Sound far-fetched? You think, Porsche’s financial engineering was/is easy? Compared to that, a grab of Opel would be child’s play.

Quick summary of what happened after “Bailout Watch, German Edition, Zwei: “Angela, I’m Sorry. Opel Deserves Less:” Silence from Berlin. What do you expect, everybody who’s somehow related to money was already on their way to Washington, to attend the G20 gabfest widely misnomed as Bretton Woods II. (Some leaders of state call it a Bretton Woodshed, because they want to take America behind it.) Berlin signaled they’ll take up the Opel matter once back from DC.

Amongst the German states, Demant’s plea caused considerable chatter, especially emanating from states where Opel has factories, and voting workers. General consensus: “Loan guarantees? A definite maybe. Let’s think about it.”  Most hectic is Opel’s home Hesse.  On Monday, their cabinet shall clear the draft of a law that is being typed up over this week-end. Come Wednesday, the state of Hesse will convene its parliament to hopefully approve loan guarantees to the tune of €500m for Opel, but, mind the fine-print, “also for the parts suppliers,” Autohaus reports.

There are 1600 parts suppliers in Hesse alone, already buying hats to have them ready in their hands. Rhineland-Palatinate, where 3350 workers assemble components for Opel (and, as we shall soon see, all of GM, which hasn’t paid their bills) has signaled that they might sign-on also, “in the interest of our workers,” quoth Palatinate’s Premier Kurt Beck. In Eisenach, Thuringia, where 1728 workers assemble the diminutive Corsa, help is not being ruled out. But it comes loaded with blasting agents. Again, if Opel gets help, scores of parts suppliers won’t be left out either.

Then, Mike Mohring, head of the ruling CDU faction in Thuringia, proposed a “car summit,” chaired by Berlin, with all German auto makers and representatives of the parts suppliers around the table. That according to the Handelsblatt. Imagine your competitors and creditors having a sit-down, deliberating your fate. No good for Opel can come from that one. North Rhine-Westphalia, where 5000 workers make the Kadett and the Zafira in Bochum (they also make axles and transmissions for all of GM, which as we shall soon see, is in arrears) was last to at least “show willingness”  to underwrite the loan guarantees, their paper WAZ reports today. That’s the good news.

Now, let’s serve up a little something to cleanse the palate for the Euros on the collection plate circulating amongst Deutschland’s Länder. The Sueddeutsche Zeitung, based in Munich, home of BMW, dropped the bombshell that Opel is in tatters, because they are waiting and waiting and waiting on €2b of unpaid bills from Opel to GM. The unpaid bills are sitting on the desk of “Red Ink” Rick. The check isn’t even in the mail. The paper has the info from “sources amongst the states.” Looks like someone at Opel spilled the unaccounted-for beans to their Premier, he told it to another Premier, the driver of the state BMW overheard it, and it landed in the Munich paper.

Opel needs loan guarantees, because GM can’t pay? That’s no grounds for amusement, especially not in states where GM doesn’t have plants, but Volkswagen, BMW, Daimler, et al have. Just to make matters more interesting, those other companies also make EU-like noises along the lines of unfair trade practices. They say it might be against the law if Opel gets its exclusive snout in the German trough. “All, or nothing!” is their war cry.

Interesting also the latest utterings from Opel-Chief Hans Demant. After wagging his tail at Wagoner, Demant suddenly seeks a little distance from the sinking mother ship. He says, the guarantees are a precaution for the “theoretical case that the financial streams with GM in the USA  go dry.” (Translation: When GM gets blown up with a compound commonly known as C7.)  If that is the case, then “Opel will need the cash to continue.”

A-ha! Dermant, no fool, already pandering to interested third parties? If you ask Europe’s auto makers, they all think Opel is doing just fine. Their cars are respected competition. Opel’s numbers are generally regarded as black. If there is any recent red, then it’s caused by GM who sucked Opel dry. Soon, they’ll be black again. Opel is contemplating a rigorous austerity package. Even travel expenses and bonuses for managers aren’t sacrosanct. At Opel. Not in Detroit.

Anyway, remember Demant’s hint that GM shouldered him with €1b of losses? It takes experts versed in the arcane arts of transfer pricing between arms-length parties to get to the murky bottom of this, but rest assured, they will. Before Opel will see even a single governmental cent, they will have to open their books as wide as the coat of a dirty old man in Central Park. Germany’s Minister of Economics, Michael Glos, says “solid numbers must be put on the table so that we can analyze the situation.” Ouch, the auditors.

Next thumb-screw to come: Opel will have to prove that “the money won’t flow back through the Atlantic and vanish in a big hole in Detroit,” as one industry wag said it to the nods of all not associated with Opel. Demant was surprisingly prepared for this: “Any monies will only be used for investments into R&D and tooling in our European plants. Under no circumstances would the money go abroad.”

“And where is the re-match of the Ardennes?” some will undoubtedly question. Glad you did ask. Eins: Rest assured that if the loan guarantees come, there will be language to get the German assets into the hands of the German guarantors in case of a default.  If needed, a default can be assured via WTO action.  Zwei:

Whenever matters automotive are being discussed in Germany, no story is complete without a quote from Prof. Dr. Ferdinand Dudenhöffer, automotive wag extraordinaire, who once was suspected by Spiegel magazine that he was in Daimler’s deep pockets (Dudenhöffer sued, Spiegel retracted.) Handelsblatt printed a long interview with the Professor: “Opel has only two chances left. One chance is that they get sold to an interested party with money. The other chance is that GM gets bailed out by the US government.”

Note: Dudenhöffer is on the side of the 60% of the Americans who predict bankruptcy for GM, heck, all of Detroit.  Note: A sale is first of Dudenhöffer’s short list of chances. Yet he cautions: “To find a buyer, in the midst of a crisis, will be tough.” Someone hatching (or hedging) plans to get Opel on the cheap? We haven’t heard the last of it….

[Once again, our anonymous bankruptcy lawyer has put his skills to use on our behalf. His C11 plan’s a bit technical, and it sounds crazy, but it just might work.] The process kicks off with a GM Chapter 11 filing. The U.S. Treasury then gives GM a secured debtor-in possession line of credit for $40b. The line of credit is secured by a first security interest on all GM assets, being junior only to the existing secured line of credit. The fed’s $10b of the line of credit is used to support essential suppliers through loans and pre-payments, perhaps tracking the existing GM model for financing its suppliers.

On the first day of the case, the bankruptcy court gives interim approval to $5b of the total credit line and schedules a hearing ten days later to approve the balance of the $40b loan facility. It’s likely that GM would prepay essential suppliers before filing Chapter 11, and could get court approval to make pre-payments for post-chapter 11 shipments.

A GM chapter 11 case will be expedited. The chief judge assigns multiple judges to handle different aspects of the case, recognizing that speed is essential to a successful reorganization. The case is filed on a Friday evening; the initial financing approvals is in place before the markets open on Monday.

The reorganization plan itself is fairly straightforward:

-Taxpayers have a $40b first lien on all assets. If GM’s debtor-in-possession financing cannot be refinanced, then the taxpayers can negotiate the terms upon which they will extend their loan to GM. Taxpayers will get warrants to buy New Equity to reward them for the risk of financing GM in Chapter 11.

-$40b of bondholders get their pro rata share of any new unsecured debt issued by GM ( the New Debt) and their pro rata share of the new common shares (the New Equity) issued by New GM. No interest will be paid on the New Debt until taxpayers are paid in full.

-Trade payables of $39b, the $25b owed to the UAW, and any other unsecured claims, also get their pro rata share of the New Debt and New Equity.

-Old equity gets nothing

-New management gets a bonus incentive pool consisting of five percent of the new equity

-Old management gets their pick of a gold watch or a HUMMER

And there you have it. Although the size, scope and possible failure of a GM C11 is daunting to management, unions, suppliers and political representatives, a filing is the only way that taxpayer money can be protected– short of witholding federal funds entirely.

Dear President-elect Obama,

Upon taking office, you will immediately face some tough decisions about the future of the government’s role in “saving” Ford, GM and Chrysler. As you know, the Detroit-based automotive industry has already bent the ears of your political colleagues, particularly Speaker Pelosi and Senate Majority leader Reid. These Democratic leaders in Congress seek membership approval to provide taxpayer dollars to prevent these automakers from impending collapse. While we respect the efforts of Congressional leadership, and we share their desire to enhance and protect America’s industrial base and employment therein, we ask that you spare a moment to listen to the opinions of people who do not share their belief that massive federal funding will achieve these goals. First, our qualifications.

We have been involved with the American automobile industry for decades. We are factory workers, designers, engineers, managers, mechanics, dealers, part suppliers, enthusiasts, journalists, and consumers. Together, we represent the combined voices of the “front lines” of our industry. We are loyal to our country’s economic self-interest and seek but one outcome: an American auto industry that builds vehicles admired and desired by the American public.

Over the last three decades, for reasons too numerous to elaborate, the majority of Americans (especially passenger car buyers) have switched their loyalties to foreign-owned brands. You will hear various explanations for this failure from the men in charge of Detroit: unfair foreign trade, currency manipulation, fuel economy regulations, health care costs, union collective bargaining agreements, the current credit crisis and more. We urge you to discard these explanations and only look at sales trends for the past three decades. Again, for whatever reasons, American consumers mostly abandoned Detroit.

By the same token, American automakers abandoned their customers, by failing to invest its profits in flexible assembly techniques, new powertrains and platforms, and better design. By failing to spread their investments in a range of vehicles to meet consumer needs, or fully embrace the fuel efficient future that Congress has dictated. To rectify this situation, urgent action is required. But you, as president-elect, must face this crisis with a clear understanding of the limitations you face.

First, accept the fact that jobs will be lost no matter what you do. The American automobile industry has too many products, brands, bureaucrats and dealers relative to the size of its market share. Until it can recapture– or at least maintain– market share, it will continue to contract. As any process of recovery will be slow and arduous, Ford, GM and Chrysler will have to shed thousands more jobs. With or without federal aid, this “downsizing” should continue, and sometimes with less than gracious outcomes.

Second, admit that Chrysler has no future. Actually, it had no future when Daimler sold it to Cerberus. Worse, Cerberus never had any intentions to invest the capital necessary to make a go of it. It has no future products in the pipeline today, and hence is undeserving of rescue.  To best protect Chrysler’s past and present employees’ pensions and interests, Chrysler must be allowed to fail and be liquidated.  At least some jobs will be saved as the company’s best assets get sold to other automakers, and proceeds will be returned to the debtor’s estate for apportionment among its stakeholders.

Third, understand that GM and Ford needs bespoke funding solutions. Your administration would be well advised to create a menu of funding options, each with different levels of security interest and control assumed by the federal government. Ford and GM’s executive management and their Boards will have the option to choose among a variety of solutions to resurrect their companies’ fortunes.  If an initial solution does not work, any return to menu will incur significant costs and dilution.  A “one size” solution to the problems of both automakers is not wise and simply doesn’t work.

For example, the cash needs of GM vastly outweigh those of Ford. GM does need a massive financial restructuring, Ford doesn’t. Taking a few billion here and there at GM won’t restore profitability at the company, it just prolongs the agony. Any analyst will tell you that GM needs perhaps $25 to $50b as part of a proper restructuring that includes a major “cramdown” on all stakeholders (including the United Auto Workers’ health care association). This “last resort” menu option then gives the taxpayers a significant interest in the company in return for the cash, with a small piece left for the creditors. And as its largest stockholder of sorts, the Feds get to call most of the shots at GM.

At Ford, the company has done most of the work necessary to restructure itself to long-term profitability in the near future – when auto sales come back to trend if not sooner. The amount of government assistance needed to ride through the crisis is considerably less than what’s required at GM. As a result, Ford will take a different menu option. Less money taken with less risk to taxpayers means less government influence and equity dilution for existing stockholders.

Fourth, the current management team at GM must be replaced, even if GM selects the lowest funding level option off the menu we prescribe. While we do not believe that government should involve itself in the highest levels of American enterprise, if it does, it should do so whilst protecting the financial interests of the American taxpayer. Any funds to GM must come with a wholesale revamping of this company’s Board of Directors and its senior management team.

Fifth, do not fall into the political trap of demands made by the UAW as deserving of a bail-out of their VEBA plan, regardless of what happens to each of the Detroit Three. The UAW itself is a business, with its own motivations for profit (for its members) and metrics of success. Its fortunes must rise and fall with its respective employers and not be treated as an independent party at the political bargaining table for government funding. If you grant a payout to the UAW, you set a future course for enterprise in this country that has long term negative consequences by insuring employment stability. Russia abandoned that principle two decades ago, and for good reason.

We wish you all the best for your future and that of our country.

It’s the morning after the day of. The day General Motors admitted to the world that they don’t have enough cash to last until the end of the year. And for once, GM’s standard-issue PR ploy– leave the bad news until Friday afternoon, reveal some corrective action (axing 7k jobs) and downplay its significance– worked against the General’s generals. GM’s impending bankruptcy was buried beneath and within President-elect Barack Obama’s first press conference. The story was denied bailout-fueling urgency. It’s the ultimate condemnation of GM CEO Rick Wagoner’s administration: they can’t even exploit their own incompetence for the company’s survival.

“Red Ink Rick” bears no small amount of responsibility for this, the ailing American automaker’s final PR debacle. In an interview with GM goodfella Phil LeBeau, Wagoner contradicted the public statement accompanying The General’s cataclysmic third quarter financial results, which read as follows: “Even if GM implements the planned operating actions that are substantially within its control, GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business.”

“As we close the quarter, we’ve got 16.2b in available liquidity,” Wagoner soothed the CNBC reporter. “Um, that’s well above, ah, what we think our minimum operating crash requirement is.”

Huh? When Tracinda investor and Lion of Las Vegas Kirk Kerkorian scored a seat on GM’s board for Jerry York, his consigliore pegged the amount the General needed to keep the lights on at $10b. (Back when $10b was a lot of money.) Other sources say it’s $14b. Even using York’s lower number, GM’s currently burning through cash at a rate of $3.2b a month. So, at best, GM’s got two months to go. They won’t make it to New Year’s.

So why isn’t Wagoner facing the inevitable and telling the American public “bail us out or we’re NSFWed?” Because, apparently, the CEO who’s been at the helm during GM’s descent into desperation reckons his latest cost-cutting measures will make the company’s fourth quarter cash burn “look more like the first two quarters of the year.” Even assuming GM’s burn rate returns to a retro-style $1b per month, the automaker has what, an extra six months?

As the scorpion said, it is in my nature; Wagoner is a born prevaricator. Now that the company has passed the point of no return— the point where even $25b in direct federal aid can’t resurrect GM’s market share, strengthen/trim brands, develop market-leading products, promote those [theoretical] products and bank enough profits to pay off existing debt (never mind any new obligations to American taxpayers)– Wagoner will continue to bluff and bluster until all hope of a C11 resurrection disappears.

No surprise there. But I must admit that I am surprised by the mainstream media’s reaction to this non-turn of events. TTAC’s Best and Brightest have crammed my in-box with links to stories analyzing GM’s Q3 results, and the looming prospect of a Chapter 11 filing. The AP’s Tom Krisher’s report, “GM’s Running on Fumes,” is typical of the coverage: we knew it was bad, but not this bad, but anyway, Congress will bail ‘em out. In other words, GM’s admission of a terminal liquidity crisis is a bit of a false sunset.

None of the reports puts the focus where it should be: GM’s busted business model. The fact that House Speaker Nancy Pelosi’s United Auto Workers-shaped trial balloon– we’ll stuff $25b into the Detroit union’s VEBA health care fund– wasn’t immediately shot down as the most ineffectual bailout idea ever created by hand of man reflects the ongoing myopia afflicting the press.

GM’s bailout boosters will eventually come ‘round to the idea that there must be some kind of radical change at GM for the company to qualify for federal aid. But their idea of “radical change” is likely to be politically rather than economically-driven. Jobs, jobs, jobs will be the order of the day. Not cars, cars, cars. Wagoner, Lutz and the rest of the gang who couldn’t talk straight may be forced out (to survive on the hundreds of millions they plundered from their employer). But the priorities will not shift.

What GM needs is root and brand overhaul, a cathartic cleansing of existing dealer agreements and union contracts and obligations. Not to mention an entirely new mindset regarding product development and brand promotion. As we’ve stated here for the last three years, the only way GM can accomplish these tasks is through the federal protections of bankruptcy law.

Rick Wagoner’s ultimate argument against doing the right thing, the only thing that can save GM: no one will buy a car from a bankrupt automaker. By the same token, no one with any sense buys a car from an automaker headed for bankruptcy. With or without intelligent press reporting, GM’s death throes are becoming clearer every day. As is the final, inevitable result

With a bit of luck, I’ll finish this editorial before House Speaker Nancy Pelosi tells America how Washington will save Detroit by spending your tax money on a domestic automobile industry beyond salvation. I doubt it. As we’ve previously reported, our duly elected representatives have already met with the titanic captains of Ford, GM, Chrysler and the U.A.W. in a closed-door session. I’m sure they got their ducks— and our bucks— in a row. Nancy will sing an ode to the working man and pen a paean to the importance of American heavy industry. Grim faces will then face a grim task: figuring out the fastest way to put Ford, GM and Chrysler on federally-funded life support.

GM first, of course. It’s out of money. Today’s third quarter financial report admits that the American automaker doesn’t have enough cash to last until the end of the year (actually next month). While GM’s impending implosion virtually guarantees prompt federal mammary provision, “prompt” may not be good enough. In truth, GM is a breached and rudderless ship slipping into a sea of red ink. If Pelosi and pals don’t get the bailout done in a couple of weeks, the public will see GM’s situation as one that’s beyond repair.

Now that the GM bankruptcy story has “broken,” the mainstream media will start asking the tough questions that TTAC’s been asking for years. Such as, who is this NSFW who’s run GM into an iceberg, and ram it repeatedly? Why was this corporate helmsman paid over $100m in salary and benefits to do so? (Someone might even mention Wagoner’s bankruptcy-proof pension.) Why should we believe a thing he says? And why is he still here?

When Congress doled-out $700b to the financial industry, the average American had no clue what the Hell the money was for, why it was needed and what was going to be done with it. Credit swaps? Sub-what? They revolted. And then the stock market dropped and the bailout bill passed. But cars are a different matter. Cars they know. What are the chances that GM’s going to build a car I want to buy using my tax money? Sure, I want to protect jobs. But I also want to protect my tax money. So… screw it.

GM has but one weapon to counteract this argument: the plug-in hybrid electric – gas Chevrolet Volt. The Volt is a damp squib stuck in development Hell. GM may have fooled the financial community (and itself) with its constant talk of the next Next Big Thing, but with gas prices hovering at $2 a gallon, the wind has gone out of the Volt’s sails (sales?). It’s too much, too late.

Detroit’s bailout backers face another problem: there is an alternative.

Our anonymous contributor’s pro-bankruptcy editorial contains the kernels of a GM bailout backlash, based on sound business principles. Once Ms. Pelosi’s emotional appeal to working class values loses its emotional resonance, pundits will argue against “throwing good money after bad.” The General’s public will cotton-on to the idea that it’s not a case of bailout or die. It’s a case of bailout AND die.

As Bill O’Reilly would say, the bailout bonanza also has an “unresolved problem” segment. Cerberus. Chrysler’s owners are a deep-pocketed private equity firm. If they glom onto a federal bailout– and ChryCo CEO Bob Nardelli was in that room with Pelosi– voters will NOT be happy subsidizing Feinberg’s fat cats. Or, for that matter, the Ford family, who still control The Blue Oval through their special class of stock.

It’s no wonder we’re hearing rumblings that Detroit is willing to consider taking federal bailout bucks with ”strings” attached. They recognize that the PR war– and thus the bailout itself– is not a done deal. They know they need to appear “willing to work” with legislators to “ensure that taxpayers’ money is protected.” Yada yada yada. Just get this thing done. Whatever it takes.

Of course, the truth of the matter is that there’s nothing federal funds can do to “save” Detroit. Chrysler is a basket case, and Ford and GM have no long-term future  without a Chapter 11 reorganization.

Under C11 protections, using debtor-in-possession financing, GM and Ford can shed onerous labor contracts, kill brands, terminate dealers and get out from underneath mountainous debt and build something American want to buy. In fact, there’s only one way the feds can help GM and Ford, and the hundreds of thousands of current and former workers who depend on their survival: withhold our money from their coffers.

GM is dead. Chapter 11 is the only method by which a new GM can rise from its ashes.

After the initial media support for a potential GM – Chrysler hookup (e.g. Jalopnik.com’s Ray Wert), the bandwagon began to roll like a snowball down the proverbial mixed metaphor hill, and everybody soured on the deal. We even charted how individual commentators changed their positions and eventually “threw Chrysler to the Wolves.” In Monday’s New York Times, Andrew Ross Sorkin said that GM CEO Rick Wagoner’s continued employment is a “minor miracle.” But the commentatorati are still behind the curve re: the government’s rumored $10b “intervention” in the GM – Chrysler merger. In the main, they have’t even acknowledged that the bailout is happening. That, and the critical fact that it’s structurally designed to fail.

Let’s start with the likely government strings. This is after all, common sense. If the merged GM/Chrysler is going to enjoy the benefits of our largess, they should be held accountable for what happens next. He who owns the gold makes the rules. At least in theory. In theory, you and I might demand that the entire executive floor of the Renaissance Center be fired. But the U.S. government doesn’t see it that way. All indications are that the men who’ve gutted GM will keep their jobs and eviscerate what’s left of the American automaker(s).

But it gets worse. One of the politically-fueled requirements of this politically-fueled bailout: Chrysler-GM must keep as many jobs intact for as long as possible. That’s 97k union jobs that someone’s duly elected officials want to protect. But any analyst with a high school diploma or better knows that both GM and Chrysler are currently too big to survive; too many managers, brands, factories, dealers and workers. Unless the new entity makes job cuts, merging the two automakers makes no sense whatsoever. How do you achieve any benefits if you can’t replace two jobs with one?

At this point, the bailout request from GM and Chrysler is a $10b package (in addition to the $25b previously allocated for plant retooling for more fuel-efficient cars). The combined debt of GM and Chrysler is $52b. GM alone is burning through $1b per month, just to keep the lights on. Even if their collective debt vanished or could be put on hold (a process we once referred to as bankruptcy), bailout number two only provides enough cash to keep GM-Chrysler (a.k.a. American Leyland) rolling for another two years– at best.

The automotive business runs on a five-year cycle. From a product perspective (remember products?), General Motors and Chrysler can’t do anything significant during those two federally-subsidized years. We know exactly what will be on the showroom floor in two years’ time. GM’s “great hopes” were the Chevy Cruze and Volt. While the Volt’s feasibility is debatable, the Cruze (a much easier to build conventional car) is slated to go on sale as a 2011 model some time in 2010. That’s it. Time’s up for GM. Giving them money without restructuring is like heading into the bottom of the ninth, losing, and insisting the other team takes its turn at bat.

So why will the government attempt the bailout anyway? Because “something must be done.” GM and Cerberus (Chrysler’s owner) have powerful friends in Washington. The United Auto Workers may be a shadow of its former self, but it still knows how to deliver votes. And American government officials have always loved dumping cash into the economy right before an election (see Edward Tufte’s 1978 book Political Control of the Economy). Second, class warfare. This bailout makes up for the first “thief in the the night” raid on the public purse for Wall Street fat cats. This one’s about protecting “real jobs” for “middle class working stiffs” who “build stuff,” thus protecting our “industrial base.”

If GM filed for bankruptcy and the government sat back and watched, people would be angry at the “failure to respond.” So they will take a futile action instead, with $10b or more, lots more, to make the problem a little less grave (or at least look that way). It’s a cover-your-ass play on an epic, tragic scale.

As a result, it’s unlikely anyone in Congress or the lame-duck White House will oppose a bailout. Nobody wants to be the first to oppose the bailout when their election opponents are in favor of it. Nor does anyone have a strong desire to go toe-to-toe with the UAW weeks before a local, state and presidential election.

From any rational perspective, it makes far more sense for the government to do something else with the money headed for Detroit. The feds could simple hand every blue collar at GM and Chrysler worker a $100k tax-free check. They put it into schools; provide health care for a pile of people. Or give the American people a tax break. Or simply not spend money they don’t have.

The average American has no idea that GM is run by a bunch of nimrods. And even if they knew about the Machiavellian machinations behind the automakers’ recent struggle for survival– including hiring a raft of ex-treasury officials to lobby their former employer for tens of billions of GM bailout bucks– they wouldn’t care. That’s all Inside Baseball stuff. Joe the Public has enough on their proverbial plate just running the kids to school, keeping food on the table and putting a roof overhead. But when it comes to buying a new car, well, that’s a horsepower of a different color.

As they should, American car buyers have acted– and will continue to act– in their own automotive self-interest. You can debate about the “perception gap” between GM and its rivals’ products until you’re blue in the state, but the bottom line remains: consumers prefer transplants’ products. It is this sharp end decision that has effectively (if not legally) bankrupted GM. And there’s no indication whatsoever that General Motors has the weaponry needed to reverse this trend.

In fact, there’s little reason to suspect that GM will EVER have the products needed to sustain the 20 percent plus market share it needs to justify its existence. I repeat: no matter how many tens of billions GM– or GM-Chrysler– sucks from the federal taxpayer, it has no chance of staunching the wounds that are draining its lifeblood. Too big too fail or not, taking money from American taxpayers who have exercised their freedom to buy what they want to sustain a company who cannot produce what they want to buy is a special kind of madness; on a scale that dwarfs even the UK’s British Leyland debacle.

Morality, ethics, principles and pragmatism aside, there’s history here as well. GM’s decision to marry its fate with Chrysler to stay afloat is pregnant with irony and foreboding. If Chrysler hadn’t suckled on the federal tit back in ’79, and then paid back its loan guarantees, GM’s current plea for federal assistance may have lacked sufficient credibility to succeed. Thanks to Snoop Dog’s golfing buddy, GM can point to Chrysler as a successful model of government intervention in the U.S. automobile industry.

It’s a simple idea that resonates well even (especially?) with an uniformed public: you did it before; you can do it again! Hell, you guys even made a profit from the Chrysler bailout– uh, guarantees! Yes, well, one small problem: Chrysler’s about to go away. Assuming GM merges with Chrysler– hoovering any remaining ChryCo cash and releasing 2 Big 2 Fail’s song “Obama’s Yo Mama”– the argument that Chrysler is a template for recovery kinda sorta disappears. In other words, the deal transforms the success of the last bailout– uh, loan guarantees– into an abject failure.

Sure, GM won’t touch Chrysler initially– for that very reason. But the media ain’t dopes. They’ve already picked-up the scent of the story that gives them an instant, persistent info-stiffie: job losses. As TTAC commentator thalter points out, “spending government money to facilitate layoffs is not going to sit well with the American people.” That’s doubly true if and when GM’s monumental management compensation and Cerberus’ deep pockets come to light.

GM is counting on speed and stealth to get their bailout bucks before the truth hits the public consciousness (a.k.a. public hearings). CEO Rick Wagoner and his minions know they’re already behind the eight ball from a PR perspective; the average American reckons all this trouble is Detroit’s own fault, for building gas-sucking SUVs rather than… something else. As sure as eggs is eggs, bailout fatigue, a genuine conservative backlash and the post-election diminution of Michigan’s political power are all coming down the pike.

And just like the $700b bailout bill, the chances are good that GM will sneak under the wire and get their money. But here’s the thing: it will be a Pyrrhic victory. The attendant publicity may paint GM as a victim, but it will also paint a big ass L (for loser) on every single one of its 1,274 products. Even as GM makes its case to reporters (under the guise of anonymous sources), wooing the politicos and Powers That be, they’re stigmatizing their products to the only people who really matter: car buyers.

Zoom back into the micro-level, and this soon-to-be highly publicized bailout will hand American consumers yet another reason not to buy a GM product. Protect American jobs? Of course. But… If, indeed, no one wants to buy a vehicle from a bankrupt automaker, it’s also true that not everyone wants to buy a car from a “troubled” one. Not to put too fine a point on it, when it comes to family finances, there’s no such thing as a sympathy fuck.

Well, it’s official. The Wall Street Journal reports that GM pleaded its case to U.S. Treasury Secretary Henry Paulson. The General’s looking for a mere $10b in “continuation” money to fund its Chrysler “absorption.” That’s a nice cover story for saying that GM cannot muster any other spin on “crying uncle.” Regardless of what Hank “the Hammer” Paulson answers, it’s a safe bet that we’ll be seeing an epic amount of taxpayer money flow into the RenCen’s silos of despondency in the near future. Mark my words: at the end of this, we’ll be saying that never have so many paid so much to so few for so little.

TTAC has chronicled the inevitable slide of the financial train wreck called General Motors. Maybe we’ve had greater foresight than Wall Street. Or maybe we’re just smart enough to see through the “all’s well” smokescreen created by GM’s masterful spinmeisters. Truth be told, it’s neither. The American public has voted for a long time on GM, and that vote marched out the door towards non-domestic brands. And for certain, they’ve never looked at an income statement or balance sheet in a 10K. I’ll say it here: the great unwashed mass of American car buyers know better than we can scribe in 800 words.

So let’s put aside any misconceptions here. There’s zero chance of GM (with its Chrysler sibling) ever again achieving past glories in market share or sales. In fact, the two companies together won’t achieve 30 percent market share. It will be much less, especially as GM simply rebadges more of its own vehicles at Chrysler, Dodges or Jeeps going forward. It didn’t work before (bye bye Oldsmobile) and ain’t gonna work in the future.

Any interested taxpayer has to ask: why should the Federal Government bail out General Motors to preserve the status quo? Why keep this monstrous hulk that gave us more than three decades of shoddy product, misguided investment adventures, and lousy managements? Sure, there were some glimpses of brilliance, and maybe some of GM’s cars and trucks today might be better than ever. Still, it doesn’t seem like Consumer Reports or the buying public thinks its vehicles rank higher than most of the Asian competition. The days of adventurism still haven’t ended with the Chrysler deal. And management-– well how the heck does a CEO who presided over the biggest evaporation of-– name a metric, any metric-– keep his job?

Yes, we certainly feel for the people that will lose their jobs. The suppliers that will disappear. The dealers forced to shutter their stores (well, some of them deserve their fate). They’ve all been given a lousy hand of cards, fed by years of pretending that “the next great vehicle from GM is coming.” It’s time to stop the music and deal with reality.

Any taxpayer monies that go to General Motors must have some very tight terms and conditions. The Feds cannot buy into the story that it’s just a matter of the economic climate today; sunshine is just beyond the next cloud. No way. It’s time for a radical restructuring of GM so that it can emerge as a self-sustaining and profitable enterprise in North America.

The terms should be as follows:

Board of Directors – Completely replaced by an independent group answerable only to the taxpayers – not the shareholders, not the management – no one but us. GM should have split the Chairman’s job from the CEO many years ago – but didn’t. Rick Wagoner answered to himself, surrounded by his handpicked failures, especially lead outside director George Fisher. Kick all of them out. No one from management sits on the new Board.

Management – Hire a new CEO. Find someone like Alan Mulally, an outsider with industrial experience but who has loyalties to no one inside of GM. Make GM’s new leader a czar. Corporations aren’t democracies. GM needs a firm and heavy hand to break down its internal fiefdoms. The new boss answers to no stakeholders save the new Board.

Financial Creditors – Force a cram-down on them. Painful but necessary. The balance sheet cannot remain as structured today regardless of how many dollars the government feeds into the beast. In return, make the creditors the new shareholders of GM, in return for debt foregiveness.

Shareholders – Tough luck, pennies for you. Especially the institutional shareholders that failed to force more action from the Board years ago.

Salaried Employees – The days of guaranteed career growth and job advancement will come to an end. No more buffoons promoted upwards. In fact, thinner and leaner management will now be the “in style” at the Ren Cen.

Organized Labor – We commend your wisdom on the VEBA deal. But you get a cram-down on that too. Retirees will have to take a generic plan versus a gold-plated deal. Everyone has to give. Their “contracts” are being broken. Yours too.

Dealers – If you’re not a Caddy or Chevy dealer, be prepared to wither on the vine. Just like Isuzu did to its dealers. Starve those weak brands of product. They’ll get the hint that their days are numbered.

Maybe this can be construed as “tough love.” But I’ll be damned if my taxpayer dollars go to save the status quo. Ethics aside, a no-strings attached Detroit “continuation” bailout will only continue the misery for all those who depend on GM for their living.

General Motors will soon be a ward of the United States federal government. Make no mistake about it. Without some kind of massive financial injection– not a mere few billion dollars but tens of billions– there’s no real solution to the problems of GM’s legacy of epic, chronic mismanagement. We know that day of a government bailout will come-– and much sooner than even Wall Street wants to believe. In fact, it’s almost upon us.

The Chrysler “absorption” only proves that when you confront normally sane men (though maybe not that smart) with death and destruction, they will resort to a nuclear option, even if it defies their own best interests. Kind of like saying “if we’re going down, everyone else is going with us.” And that makes government intervention inevitable.

When Congress faces the bomb lobbed by GM, it will react in predictable fashion: by making sure that every group gets a shot at the bailout dough. First, labor. Got to protect jobs, especially high paying union jobs. That’s the street cred of the Democratic party. Second, the huge Midwest industrial base of suppliers. They’re vital to keeping the behemoth going. Third, dealers. Can’t throw them out on the street; every state has too many GM dealers already and most of them donate significantly to their respective state and federal politicians to keep their franchises safe from greedy automakers. Finally, all of the associated vendors that now pray every month that GM pays their bills. Well, they can’t be ignored either.

GM’s got a ton of allies in this fight. Besides the aforementioned groups, the biggest supporter of a massive government bailout may turn out to be the national and local media. GM spends upwards of three billion dollars on advertising in the United States every year. Its dealers spend god-knows-how-much additional millions on local TV, radio and print every wee. If that money disappears, there’s gonna be a world of hurt applied. So, sure enough, media owners (think Gannett, Viacom, GE-Universal, Comcast, your local newspaper, etc.) will lobby hard to make sure GM stays in business as is.

Keeping General Motors afloat with government dollars (i.e. your tax dollars) will be done in a manner that keeps the status quo. Same brands, same dealers and few job losses.

Of course, that’s exactly the wrong way to do it. Nothing will change. And while GM might make it through the short term, everything that’s wrong with the company today will merely continue on into the future: too many brands, excess dealers and a labor force that lives by entitlements. And let’s not forget about an executive management team that got us here in the first place. They’ll stay too.

There is an alternative.

The feds should arrange a pre-packaged bankruptcy of General Motors, whereby the Federal Government provides 100 percent of the Debtor-in-Possession financing. No one else can participate. Not private equity (think Appaloosa with Delphi), not the money center banks, and definitely not any investment banks (oh wait, they’re already gone).

GM must shed its excesses that have become unmanageable. TTAC and others have talked about this ad nauseam. Without a bankruptcy, there’s no way to rearrange GM’s balance sheet (without a nasty cram down of the current lenders, and that takes time and politics), wipe out the existing equity (not much left there), and simply get rid of the unnecessary brands and dealers. The laws can’t change just to accommodate General Motors and accomplish any of this if the corporation and its North American subsidiary remain intact and out of bankruptcy.

With a prepackaged bankruptcy-– overseen by a governmental administrator with an independent Board of Overseers-– GM can quickly emerge as a viable, but smaller company. Jobs will be lost. Factories shuttered. Suppliers and dealers will disappear, but not all. (Dealer franchise contracts are deemed executory contracts and can be terminated in a bankruptcy without compensation.)

The key point here: none of the existing GM stakeholders today would have an alternative option under this bankruptcy scenario. There simply aren’t any other lenders willing to provide GM any financing while in bankruptcy, and that would lead to a liquidation for which stakeholders wouldn’t get much. Hence, the government can and should dictate the terms everyone gets if it provides the debtor-in-possession funding.

This plan would cost less to the government (that’s you and me) than a politically-crafted bailout to keep General Motors afloat “as is.” A reorganization exit plan would also bring in new equity and debt to replace all government advances. GM would emerge as a living and breathing entity, not as a dead-corpse walking, as in any other government plan.

And that’s how the nuclear genie at GM can best be contained. Now, if only Washington DC would listen.

Ford CEO Alan Mulally goes to bed every night and prays that GM does a deal for Chrysler. In the morning, Big Al digests his corporate PR brief looking for missives from automotive and Wall Street scribes praising the combination of dumb and dumber. Every afternoon, he reviews Ford’s daily sales figures and wonders when the pain will stop.  And soon, he’ll be rewarded with news he wants: his two Motown rivals will be bedding down together. “Thank you God, baby Jesus, and Fritz Henderson,” he’ll whisper to his wife. “Redemption is mine.”

In whatever form it eventually takes, the combination of GM and Chrysler will make Mulally’s job leading Ford out of the wilderness of despair that much easier. If only for one reason (among many): the combination of the first and third North American domestic automakers won’t lead to additive sales of two weaklings together. Ford will gain sales at the expense of its sole remaining domestic rival. And in this market, every incremental unit sold translates into good news, no matter how bad sales stink.

Strange to say, the idea of a GM – Chrysler merger predates the recent carpocalypse. GM’s President and COO Fritz Henderson has been pushing for a combination of the two companies since Daimler first offered it for sale. Fritz reckoned then, and now, that GM will gain additional revenues from selling vehicles with no incremental costs. He’ll merely gut Chrysler’s departments which overlap with those of GM (as in all of them) and reap the savings. Kind of the same as getting more units of production out of a fixed asset base; it does wonders for profits and cash generation. So yes, even with three additional brands, overlapping products (save for minivans and the Jeep Wrangler), little downside exists. The deal pencils. We can do this and save the Goodship GM.

Whether intentionally or not, Fritz has forgotten that any synergies from a Chrysler merger will take years to manifest, if ever. Laying off the bulk of Chrysler’s white collar workforce can’t be done immediately. Those folks at Chrysler know how to operate its systems and support the products and dealers. It might take a year or more to migrate ChryCo ops to GM protocols. In the meantime, parallel systems will have to be maintained. And then it’ll cost a bomb to integrate. So no real savings there from the get-go.

And what about Chrysler’s current product line? How will GM save money there when it controls Chrysler? Are we going to see more rebadged products throughout all eleven brands (or ten if Hummer goes away)? Will GM stores sell Chrysler minivans? How much confusion can exist within the combined brand structure? And how does GM expect to shoehorn GM’s powertrains and parts into existing Chrysler products? Oh wait, we’ll say we can do this but in reality we can’t. So no savings there either.

So we’ll save money on advertising, marketing and PR! Why have two departments at both companies when we can condense them into one? Sure, we’ll buy national advertising promoting our new “Financing Available for Everyone” program at eleven different brands! Maybe we can buy office suppliers cheaper? Oh, and now that we’re so large, we can really browbeat parts suppliers for even more savings! And since Chrysler has little engineering staff left anyways, we’ll get our engineers to work on their products. Except they won’t; talk about a dead end for one’s career within GM!

So as GM absorbs Chrysler– and looks for cost savings, synergies, or other things for a player to be named later– the company will experience an organizational meltdown. Chrysler for certain will go into a tailspin, while GM’s bureaucracy leaps at the opportunity to enlarge fiefdoms and impose its will on the remaining and hapless Chrysler people.

But it also means that the total sales for the combined companies will fall. And that’s the window of opportunity for Ford, its only domestic competitor, currently mired in an even deeper trench of confusion and lack of focus. GM’s capabilities to move even faster on a product rationalization plan and cost savings are now hampered by internal infighting over turf control. No one inside of the new GM can make decisions within the new structure– an already big mess just became even bigger!

Meanwhile, Ford continues on its steady path of resurrecting The Blue Oval. Nothing radical; just continuing its focus on product and marketing. Build the best new truck for real users. Bring over superbly-crafted European designs for the small car market to compete with the Asians. Rethink the SUV/CUV. Work on finding cost savings that don’t cheapen the product. Eliminate internal fiefdoms and make it one Ford. Basic blocking and tackling.

If Ford’s corporate cash can last and keep the lights on long enough, domestic car buyers and maybe even some import buyers will consider Ford for the first time. They’ve got everything they need except time. Meanwhile, it sure helps when your biggest competitor decides to do something really dumb.

A Chrysler – GM merger is a mind-boggling prospect on many levels. But the over-arching question is simple enough. Why? Why in the world would General Motors want to combine with Chrysler? Given their respective balance sheets and future prospects, the analogies pretty much suggest themselves. My favorite: the Titanic rescuing the Lusitania. But if you want to understand the logic behind this merger deal, such as it is, we’ve got to explore a different metaphor: “changing horses mid-stream.”

First, it’s important to realize who’s holding the reins at Chrysler. While Cerberus Capital is ChryCo’s listed owner, the private equity group used OPM (Other People’s Money) to bankroll their purchase. Reports at the time of sale indicated that Cerberus owner Steven Feinberg used his [then] bulletproof rep to sweet-talk his “partners” into the deal without due diligence. Be that as it may, JP Morgan-Chase are now in the saddle, to the tune of $6b dollars.

Imagine the Chrysler horse trying to cross a river to get to an equine sale on the other side. The rider thought the river was just a trickle. But it turned into a raging torrent, dragging the horse sideways towards a killer waterfall. And there, right next to the Chrysler horse: a steed named GM. Yes, GM’s also being dragged towards the abyss. But GM’s a bigger beast with more friends ready, willing and, uh, ready to attempt a rescue. So the banks decide to switch horses.

OK, enough with the analogies. Let’s talk turkey. I mean, business.

JP Morgan-Chase reckon Chrysler’s going down, taking their six bil with them. So they’d rather have their money in GM, which will, no doubt, receive a federal bailout (the latest rumors have Uncle Sam purchasing an equity stake, I shit you not). For its part, Cerberus [still] has its eyes on GM’s 49 percent share of lender GMAC. Cerberus is also counting on a federal bailout to save that particular piece of bacon, via the Troubled Asset Relief Program (TARP). So the banks get out of Chrysler, Cerberus gets out of Chrysler AND gets GMAC (which it can then, finally, combine with Chrysler Financial).

Fine. So what the Hell does GM want with Chrysler? Cash. As we’ve reported here many times, General Motors is running on fumes. While the aforementioned bailout is a virtual cert, it all takes time. And time equals money. And GM doesn’t have the money to wait until President Obama gets his team together and cuts a deal to save the United Auto Workers American jobs. Their time horizon is the next six months, they’ve sold all their assets and nobody in their right mind will loan GM a plug nickel.

I know it’s a completely counter-intuitive idea: GM getting the cash in needs for its short-term survival by “absorbing” Chrysler. But there it is. Supposedly, Chrysler has amassed a $11b cash hoard, accumulated through the laborious process of not spending it on future products. And then there’s JP Morgan-Chase, who could do what banks do when they have nothing else to do: throw good money after bad. In other words, they’re good for at least a couple more billion.

So GM merges with Chrysler and lives. Of course, the result is The Mother of All Clusterfucks: a gigantic American automaker with 11 weak brands, well over 100 products (many of which overlap), thousands upon thousands of unnecessary dealers, excess workers and plants and facilities, a completely unworkable bureaucratic structure stuffed with managers (who’ve already proven their abject inability to make money building and selling cars) and incompatible software (for all we know).

On the positive side, GM is headed by a man whose only appreciable professional talent is cutting costs and selling things– and God know there would be a lot of THAT to keep him occupied until the cavalry arrives. Obviously enough, the end result would be the same: a large car company that still doesn’t know how to make a profit. Even worse, if the rumors are right, it would be a large car company that doesn’t know how to make a profit partially owned by the U.S. taxpayer.

Many of our Best and Brightest have labeled this deal “America Leyland,” referring to the disaster that was the combination, nationalization and eventual extinction of Britain’s car industry. Spot on. Should this deal down, that’s EXACTLY where this is heading. But it should be remembered that Leyland took more than a decade to take a dirt nap. GM’s management, as always, is thinking about next week. This is, of course, the reason for their demise.

So those of you who said “see you at Death Watch 567” may well be right. While this prediction may now prove to be accurate, I can hardly imagine a worse scenario for American industry, the American auto industry and all the people who depend on it for their livelihoods.