GM bankruptcy best option; Obama team already planning

Published Tuesday, April 14, 2009 @ 8:59 am

• 

The potential bankruptcy of General Motors is carrying with it all the drama of an extra-innings game seven. And the Obama administration is starting to play serious hardball, as it appears the Treasury Department is underway with orchestrating a game plan to strategically direct the global automotive all-star into a bankruptcy scenario that will quickly re-organize the company without doing permanent damage to its brand.

The President’s auto industry task force is working tirelessly to get the car maker back on its feet as soon as possible. Insiders do not believe that the company will succeed if they try to rebuild outside of court, despite the $13.4 billion that it was granted by the government.

Members of the task force are preparing the current plan in case the company can’t reach its June 1 deadline to settle with bondholders, who carry $28 million in GM debt, and representatives of the United Automobile Workers Union. The union is having a hard time agreeing with any settlement arrangement because enough risk is not being taken on by bondholders. In stakes this large and when dealing with an organization that is as historically firm in its negotiating as the UAW, it looks good that the June 1 date will be the day GM officially files for bankruptcy.

The bankruptcy plan being bandied about is quite unique, calling for the creation of a new company that will buy the old company’s best assets, and leave the remainder to be liquidated by the old company over several years while still in bankruptcy.

Very soon after the current version of General Motors files bankruptcy, the new company would buy the assets that are considered “good” and emerge from bankruptcy in as little as two weeks with the help of up to $7 billion in federal financing. The “bad” assets will remain with the old company and be handled by the government over a much longer period of time and requiring, some experts believe, up to $70 billion in government funds, much of which would go to health care commitments.

Even though the company’s talks with the government have increased and a viable plan is in the works, there would be substantial work to be done should the plan go into effect. The company would have to address how every facet of its operation will be impacted by bankruptcy and how it can be rendered profitable once out of bankruptcy.

Perhaps the most critical aspect of all these dealings is the impact consumers would feel. General Motors has already mounted an aggressive brand bolstering campaign, encouraging car buyers to have confidence in their vehicles and backing it up with a promise to cover up to nine months of car loan payments if an owner loses their source of income. While such an agreement sure sounds nice, it’s possible that sales strategies like these, which are also being carried out by Ford and Hyundai, only perpetually foster a sense of gloom in the marketplace. For example, what do these big companies know about the future economy that consumers don’t?

Whatever happens, a great deal rides on the future of General Motors. And it appears the only sound strategy for the company is to work alongside Obama’s task force, enter into bankruptcy, and help get itself, and America, moving again.

← Previous post • Next post →

« Getting Into Debt • The Benefits of Filing Bankruptcy Under Chapter 13 »