Projo Cars Blog

It looks as though General Motors, once a bastion of American corporate and popular culture, might be allowed to fail.

Despite efforts by Democrats in Washington, they do not apparently have the votes to pass bailout funds against Republican opposition. And even if they did, President Bush would likely veto any such bill. Indeed, the credit markets have already factored in the possibility, according to Reuters.

GM is now motoring on fumes, with barely enough cash to pay the bills. It might be forced to declare bankruptcy as early as January.

What would this mean? First off, the company would continue operating with no workers being laid off in the short term. But the restructuring could take a number of years and in the meantime dealers would be saddled with having to sell vehicles under the cloud of corporate bankruptcy.

But such a move would give the automaker time to write-off a portion of its debt, restructure it operations and possibly offload some of the onerous legacy - retiree and health - costs that have been bogging it down.

Republicans argue that is the only way GM can truly reinvent itself to produce competitive vehicles. Merely bailing it out, they argue, would not force through new thinking.

Indeed, some $25 billion in loan guarantees have already been approved by Congress for all three Detroit automakers to produce more fuel efficient, less polluting vehicles.

Unfortunately, the Big Three have been tarred with the reputation of holding out for years against innovation, particularly with regards to fuel efficiency, in favor of reaping profits from gas-guzzling SUVs.

That has come back to haunt them.

"The financial situation facing the Big Three is not a national problem but their problem," said Sen. Richard Shelby of Alabama, the senior Republican on the banking committee, in a written statement quoted in the lead story in today's New York Times.

- Peter C.T. Elsworth

 Tags  auto industry bailout General Motors

Comments

Matt said:

Peter, what is your argument for the ability of GM to continue operating after Chapter 11 is filed? I've heard both sides from the series of tubes that is the internet, and I'm leaning towards the side that says chapter 11 would halt all operations, and probably kill the company.

Their argument seems to be that there is no where for this operating money to come from.
1) very few people would be willing to buy a car from a bankrupt automaker, hence no revenue. It's one thing to buy a plane ticket from a bankrupt airline where the purchase is a few hundred bucks, and the interaction with the airline is over the moment you're done traveling. It's hard to imagine people willing to part with $20,000+ dollars on a product that involves 5 years of warranty coverage, and parts for even longer. Especially in an economy that is already the worst in a generation.

2) The other source of operating cash is credit. And the credit markets are frozen. It seems doubtful that any orginization, especially in this market, would be able to loan GM money.

Link | November 15, 2008 10:34 PM
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