Why GM Should Embrace Bankruptcy

[doh]

http://seekingalpha.com/article/8411...y?source=yahoo

Tom Krisher has a good overview of the travails at General Motors, where the stock is trading at a 50-year low, battered by speculation that the company might end up declaring bankruptcy.

Bankruptcy actually seems like a very good idea to me, since it might well be the only way for the company to implement the kind of radical reorganization which is necessary for any possibility of future profitability.

For instance: GM has eight - count 'em - brands, including marques like Pontiac and Buick which were instrumental in giving American cars a bad name, and which today get absolutely nobody excited. Heidi Moore wonders whether they might be for sale, and I'm sure that GM would love to sell them if it could, but the problem is that their value is almost certainly both large and negative. As her colleague Jeff McCracken explains:


The cost of buying out a dealer, given state franchise laws, is prohibitive. In many ways, the legacy costs of too many under-fed or under-invested dealers are as financially painful to Detroit’s auto makers as the legacy costs of its UAW contracts.
Chrysler several years ago paid handsomely to kill off the Plymouth brand. In a widely publicized move, GM pulled the plug on the vaunted Oldsmobile brand in 2000. GM spent $1 billion alone in 2001 to buy out Olds dealers and wind down some plants. Litigation with hundreds of Olds auto dealers drug dragged on for years and the final tally is estimated at close to $2 billion.
Ford has weighed killing its Mercury brand for years as well, but as a recently retired Ford executive once said: "That could cost close to $2 billion, or you could keep losing a couple hundred million a year. Given how your bonus is paid for this year’s performance, it’s easier to kick the can to the next person."


In other words, the dealers hold all the cards, right now, and are preventing GM from slimming down. But if the company were to declare bankruptcy, a lot of the leverage currently held by the dealers would evaporate; they would simply join the long queue of creditors.

[jkennedy293]

If GM files for bankruptcy no one will want to buy their cars, and they'll be in a far worse position than if they had to buy out the dealers.

[CamaroCrazy]

Bankruptcy is not the cure-all solution for what ails GM. It will not take care of the "problems" of brands, product portfolio, excess manufacturing capacity, labor unions, costs, and whatever else you want to point to. It will not help GM's bottom line, long term viability, or image.

Making the best damn cars on the road however, that is the answer.

[New_Mexico_Sunset_on_Rt66]

Originally Posted by jkennedy293

If GM files for bankruptcy no one will want to buy their cars, and they'll be in a far worse position than if they had to buy out the dealers.

I agree. The perception hit would be huge, "Who would want to be a car from a bankrupt company?". But on the flip side, considering the state of their perception currently, and over time the consumer would become aware that they are in better shape by getting rid of the health care costs (the govt would pick that up), etc. It may not be a real negative over the long term (+20 years), in the short term though it will be a real negative, and something to over come.

I am sure the folks in the Ren Cen are doing all they can to avoid it. And I also hope it can be avoided. On the positive, GM's product mix is the strongest in their history and perceptions are changing. GM is in a dip right now in large part because of the economy. That will turn around.

[dindak]

Stupid. Bankruptcy is not an option and should never be. It all looks good on paper but reality is, sales will drop off a cliff.

[TriShield]

Originally Posted by dindak

Stupid. Bankruptcy is not an option and should never be. It all looks good on paper but reality is, sales will drop off a cliff.

Sales have been sliding down a hill at an ever accelerating rate for years and are off the cliff already.

GM has mismanaged themselves to the point where C11 is not only inevitable, but necessary if they want to save the company at all.

[Michael_S]

Originally Posted by TriShield

Sales have been sliding down a hill at an ever accelerating rate for years and are off the cliff already.

GM has mismanaged themselves to the point where C11 is not only inevitable, but necessary if they want to save the company at all.

But who's going to buy cars from a bankrupt company?

GM may be bleeding heavily right now, but I would call bankruptcy the stake through the heart. Game over.

[bigdav160]

Let's see ..........

Didn't Chrysler go bankrupt?

How about Nissan?........yes

While Chrysler has new problems, bankruptcy is not always the end.

[windvale]

If it happens, it won't be because somebody *chooses* it as much as the conditions will *dictate* it.

For what it's worth, I think it will happen, it if managed right it can be a very positive thing. It'll be like an "Intervention", if you've ever watched that program on A&E network...

[dederer]

Bankruptcy is risky. PTS was in bankruptcy, had a strike and is out of business. lots of people lost their jobs.

[Ming]

As long as it is a plan to reorganize and pitched as a "rebirth" then I am for it.

If it is just some last ditch, final moments before death effort with the same yahoos at the wheel after Bankruptcy with their neverending quest to push SUVs and Trucks while paying lip service to small, affordable, fuel efficient cars? Then forget it.

Any bankruptcy needs to be accompanied by a gutting of management at GM, followed by a shiny new business plan that takes the best names of GM (Cadillac, Chevrolet), and dumps all of the excess baggage.

I'd even change the generic-sounding and unexciting name of "General Motors" to something like Greater Momentum that also uses "GM" but has a forward-looking sound to it, like BP uses "Beyond Petroleum" now.

[mrgto]

Originally Posted by Michael_S

But who's going to buy cars from a bankrupt company?

GM may be bleeding heavily right now, but I would call bankruptcy the stake through the heart. Game over.

Who would fly on a bankrupt airline? Do you have any clue about C11?

[Sixthrock]

Originally Posted by mrgto

Who would fly on a bankrupt airline? Do you have any clue about C11?

Ya mean like Delta?

[mrgto]

Originally Posted by Sixthrock

Ya mean like Delta?

Among one of a few....

[Cortazzo]

Ugh, i would hate to see GM dump it's pension obligations onto the taxpayer in the form of the pension benefit guarantee corp, and I bet you wouldn't make any friends with the UAW either. They were still quite meddlesome to delphi while they were/are in bankruptcy protection. GM should just keep running the same models of pontiacs, buicks, and gmc's until no one buys the and the dealers all have to shut their doors. Dealer protection laws really prevent a lot of innovation to get the cars to the consumer in a faster and more affordable way. You shouldn't have to lose billions so your bloated dealer network can exist in perpetuity.