How to Save General Motors

In its Dealbook Blog, the New York Times presents a solution by several leading bankruptcy attorneys.  GM has an admitted $100 billion negative net worth.  It cannot survive as structured and it cannot be restructured without some strong decision-maker that can cram very unpleasant concessions down the throats of stakeholders.  In any other scenario, that's a bankruptcy process.  The authors recognized that this is not an 'ordinary' bankruptcy, but it is not without precedent.  They also observe:

The current public debate is misplaced over whether or not bankruptcy is the solution to G.M.’s problems. There is a public misconception about what bankruptcy means for a business enterprise. Bankruptcy can mean liquidation, or it can be a means of renewal, taking a financially distressed business and creating a viable company by restructuring or eliminating burdensome contracts, reducing debt, and securing new financing. Chapter 11 is such a process; it is flexible; and it can, and must for G.M., be quick. The paramount goal of the G.M. bailout should be the expedient creation of a viable G.M. Core. A sale to a G.S.E. as part of a Chapter 11 proceeding seems to us to be exactly the process to achieve that goal.

It is worth a read.  And this (or a variation of it) is what's going to happen, eventually, even if the economy suddenly bottoms out and begins a climb back upward.  There's no political process to solve this but for unending government cash flows to these insolvent entities.  And I don't think the taxpayers have the stomach for the kind of cash that will require over the next six months even.  Further, Obama's axing of the CEO of GM, GM's recent change of tune regarding its considering bankruptcy, the strict time lines for GM to strike its own deal as set down by the administration, as well as Obama's commitment that warranties would be backed by the full faith and credit of the US (which was a main argument by the automakers regarding why the could not go into Chapter 11) are not inconsistent with some bankruptcy process being the end game.

See also U.S. Plan Sees Easing of G.M. to Bankruptcy from the New York Times DealBook on April 1, 2009.


via Another View: How to Save General Motors - DealBook Blog - NYTimes.com.