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Ultimately, I think bankruptcy would speed things up for GM. The problem they have is that, by trying to work outside of bankruptcy, they have some challenges, some potentially insurmountable. They will need to have some kind of legislation to be able to cut loose dealers. That brings the various state governments in, because that involves state law, and trying to change this at the federal level brings a whole new universe of scrutiny that makes the current coverage look like a casual glance. This scrutiny, and the need for new law, brings with it a new time dimension: they need a lot more of it, because the wheels of power will turn oh-so-slowly on this.

GM will also need to continue to try to work with the unions, creditors, suppliers and shareholders, and each will want to make sure that the others are "doing their part". So there is a lot more time needed to go back and forth to negotiate deals with everyone.

Inside bankruptcy, this becomes far easier to deal with. While still not trivial, it would be easier for them to shed brands (and with it dealers, capacity, etc.), rework existing debt, work further deals with the unions and revisit their supplier arrangements. This would happen with oversight provided by a judge and a receiver. As you said, it would reduce the amount of attention to the process, and it would likely take less time (1-2 years) vs. the 3-4 year process that seems to be underway now (no way a government funded bailout with government panels acting as the board approving pretty much every decision will take less than 2 years).

Will they take a hit under bankruptcy? Yes, they will. Some people won't buy from a bankrupt company, but right now, people aren't buying anyways. They might as well take the hit, "rip off the bandage" as it were, and get this over with. The current and future uncertainty are hurting them anyways.

I think one issue that has to be considered is how will bankruptcy affect the other players in this. In order to "save" taxpayer money the government may exacerbate problems for Ford and the suppliers and be forced to offer them aid instead of GM. The suppliers are already hurting and bankruptcy for GM means they will suffer even more based on what I've read.

"B or not to b"? Either way agree with 1487 that they will get tax payer money.

Bankruptcy will be the only long term solution to the problems. There is no PERFECT solution.

But I reject the argument that bankruptcy will cost more than this slow drip of funding over the next few years. The idea that GM just needs a temporary infusion in order to get over this bad market is a farce.

And the renegotiated contracts with the UAW are not a long term solution either. Bankruptcy is the concentration of crisis. It focuses attention on the real issues, and washes away the politicial bartering that is inherent in the current "solution." The UAW doesn't need to renegotiate with GM, it merely needs to lobby Congress. The supplier don't want it because of the real danger of wiping their accounts receivable away or diminishing them. Instead they just want all of us to pay for it.

The inordinate fear of Bankruptcy is hurting the process on both sides. Those people that would not buy a car because of filing Bankruptcy are already avoiding buying a car from GM. The report that came out last week from the internal auditors has already conceeded that Bankruptcy is a real threat. Does the actual filing make the situation worse? I would argue that we are trying to split hairs at this point. GM has been mortally wounded. Having the government avoid the "B" word is merely rearrainging the chairs on the Titanic.

It's like taking off a band-aid. GM seems to want to take it off 1/16 of an inch at a time, and hope that at some point things will magically change and it will stop hurting.

I'd rather they just rip the stupid thing off already. Yeah, it's gonna hurt. But it's gonna hurt either way, and at least this way it's over with and we can all move on.

If the economy keeps tanking, and GM has absolutely no control over this, they have no viable business plan (nobody else does either) and when will we decide to stop giving them money? Might as well give them a big chunk now via government sponsored bankruptcy and be done in a year.

And don't forget that bankruptcy means cutting the pensions of a few million americans too, those that worked for GM, and those whose 401K's have GM stock.

From 1487:
"Go bankrupt and the anti-GM feelings and rhetoric will only crank up and that will be a HUGE reason for many to stay away."

Webster's defines the adjective "bankrupt" as the following:

1 a: reduced to a state of financial ruin : impoverished ; specifically : legally declared a bankrupt b: of or relating to bankrupts or bankruptcy

Looking at the first part of this definition, impoverishment, GM is, in fact, already bankrupt. They simply refuse to legally declare it. That they continually plead for additional funding to stave off the declaration is full proof of their financial insolvency. Their auditors have even declared that their continued operations are a "going concern".

I agree with Karl and the others here who continue to champion Chapter 11 bankruptcy. Politicians are leeches whose morals and direction are dictated by personal and political whim and popular opinion. You do not want such individuals telling a company where to go or determining whether a company is fit to survive, because such individuals do not understand the common man (despite all their fine rhetoric), nor do they honestly care. A bankruptcy apart from their corrupting control can only be a good thing.

Declarations of cost to the taxpayers under a Chapter 11 also are, and correct me if I am wrong, based upon the expectation that the only creditor who will lend to GM in its current state is the federal government, and that any individuals laid off will file for unemployment. If the former is true, then GM finds itself likely facing Chapter 7. This may be the greater reason they refuse to file. If the second is true, then it becomes a moot point because if GM cannot reduce its overhead, they are doomed to eventual failure anyway and those individuals will eventually be out of work.

This is perhaps the most salient point: GM cannot continue operating at its current expenditure rate. In order to continue operations, they MUST cut costs. It does not matter if they are able to "retain jobs" if in so doing the company dies. So either you save the company and stiff the workers, or let the workers keep their jobs and watch the company slowly bleed to death.

GM needs the power that Chapter 11 provides to renegotiate contracts. Trying to stave off a declaration of bankruptcy is really just putting off the inevitable.

About the suppliers: bankruptcy or not, the suppliers are hurting anyways. Bankruptcy might actually give them more certainty (although not any more money), rather than less, just because they'll at least know the rules of the game they are playing. Right now, its not clear what will or will not happen.

Declaring bankruptcy doesn't necessarily mean you stop paying suppliers, pensions, salaries, etc. You can if necessary, but if the goal is to reorganize and emerge from bankruptcy with a viable company, then many entities that are "downstream" will still need to get paid something. Various airlines have been in and out of bankruptcy several times, but they still paid the leases on the jets, paid for fuel and paid salaries while they were in Chapter 11. What typically gets suspended first is payments to creditors and any dividends to shareholders. After that, its a matter of sorting out who you have to pay to keep the company going, and who you can put off until later (or stop paying entirely). The supervising judge and the trustee are the ones who approve who gets paid, when, and how much.

How those bills are paid are either from existing resources and revenue (which they don't really have) or from financing (typically debtor in possession). What would make more sense than Treasury basically writing them a check is to "encourage" the banks who have already received a significant sum of money to finance the bankruptcy. The point of TARP and other funds was to get the banks lending again, and here's a case where it makes sense, and would pay off in the long run. Without that "encouragement", though, the banks aren't likely going to help.

If the whole thing will end up in Chapter 7 (where they are liquidating everything and winding up the business), then yeah, you stop paying everything. In some cases, the board of directors may be personally liable for some things (in some cases, they can be liable for unpaid salary, expenses and vacation, but that varies from state to state), but they would usually have insurance to cover that sort of thing (part of their Directors and Officers or D&O insurance).

I don't think (and very much hope) that GM isn't in a situation where its Ch 7 bankruptcy for them, and the fire sale sign goes up. I think Ch 11 makes sense, because it gives them and everyone who depends on them a known structure and known set of rules. Right now, there is too much uncertainty, because no one knows what the rules really are now, and what the rules need to be for GM to survive.

I prefer bankruptcy restructuring of GM under current law vs. congress attempting to write new legislation. Don't think this congress is sufficiently competent to make a better GM restructuring law. Not sure what percentage of GM buyers understand that GM is already insolvent. For those who understand the current state of GM, getting bankruptcy restructuring started now reduces, not increases, uncertainty about warantee service. Smart consumers already demand prices discounted to used car levels to compensate for uncertainty about GM's future.

"So either you save the company and stiff the workers, or let the workers keep their jobs and watch the company slowly bleed to death."

"Don't think this congress is sufficiently competent to make a better GM restructuring law."

Amen, pushrod and george2040. Brett is also correct; I would rather buy form a company in Chpt 11, than one I think is about to enter. If they are in Chpt 11 they have to honor any warranty as long as they continue in operations. If they are about to go Chpt 11 they honor the warranty until they go to Chpt 11.

Going Chpt 11 hurts a lot of people; waiting too long to restructure, and going completely out of business hurts even more.

"Bankruptcy will be the only long term solution to the problems. There is no PERFECT solution.

But I reject the argument that bankruptcy will cost more than this slow drip of funding over the next few years. The idea that GM just needs a temporary infusion in order to get over this bad market is a farce. "

Wrong again. Read the plans, they clearly lay out what needs to be done and how viability can be acheived outside of bankruptcy. Chapter 11 is not the ONLY solution, its the preferred solution of people with certain views about the UAW and GM in general.

" the economy keeps tanking, and GM has absolutely no control over this, they have no viable business plan (nobody else does either) and when will we decide to stop giving them money? Might as well give them a big chunk now via government sponsored bankruptcy and be done in a year."

bankruptcy cannot fix the revenue issues. Since the government is providing funding either way the entire thing is a gamble that banks on the auto market starting to recover next year. If teh gov finances Chap. 11 and the market is at 10M units in 2010 and 2001 GM can come out of Chap. 11 and still fail- or they can not come out at all. What happens to taxpayer money if they cannot emerge from this glorious Chapter 11 process? If anyone bothers to remember, when the aid talk first started the big issue was making it to 2010 when new contracts with the UAW came into play. GM's costs are automatically going to be reduced in 2010, they were clear about that long before the financial crisis hits. No plan can be executed without revenue flow and what they need more than anything is a stabilization of the auto market.

eidolways:

A few points to consider: Gm's labor costs are not that far out of line with competitors and many actual experts note that the costs of labor are minor relative to the total price of a car. Shaving $10/hr off UAW wages isn't going to save GM when it only takes 20 hours to assemble a car. You seem to be one these people who is enamored with this concept of blowing up union contracts and saving billions. First of all declaring chapter 11 doesnt guarantee deep cuts in contracted pay. Secondly, GM's real cost disadvantage is its legacy costs which could be pushed off onto the Feds via bankruptcy. At this point in time the ONLY way Chapter 11 will be allowed is if its government backed- that means taxpayer funded. Even some Republicans have stated that GM cannot go into Chapter 11 without the government due to the lending environment. Its not common for companies as large as GM to undergo Chapter 11 and a huge amount of capital is required.

You also say they are "continually" returning asking for money. Thats because the government made them do so. They asked for more money the FIRST time but Bush gave them $13B after Congress failed to act. Anyone with common sense knew they were coming back because $13B wasn't what they asked for. Your salient point about cost structure is duly noted and not news to GM or anyone else paying attention. This is one reason why they are shedding 47k employees worldwide and cutting salaries. They know how to cut costs, but they need revenue. They also need a reduction in debt which is being negotiated now. The debt reduction is likely more important than changing UAW contracts.

1487: you are correct, that bankruptcy can't fix their revenue problem. As for stabilizing the market: who knows when that will happen. There's not a lot that can be done to make it happen, it has to happen on its own.

As for what happens to the government money if they fail: most of it is gone anyways, Ch 11 or not. To fail, they go into Ch 7 bankruptcy on the way to liquidation, and the gov't lines up with the rest of the creditors (although it appears they'll be first in line). They'll recover something from the sale of the various assets, but not likely anywhere near 100%. These loans aren't without some risk, no question.

I don't think the idea is that Ch 11 will fix the revenue problem, per se. What it does is give them more flexibility to address cost, and as you pointed out, their debt is a bigger issue than the UAW issues. Outside of Ch 11, they can negotiate as best they can, but the current debt holders will continue to play the "we'll give in as long as the others do their part", forcing GM to continue multiparty negotiations with creditors, suppliers, dealers and unions, without being able to just sit them all down and do it once. Ch 11 gives them the ability to take it all in front of a judge and the trustees, and then the judge can (if necessary) basically dictate the terms that are best suited to keep the company viable. Outside of Ch 11, that requires negotiations, renegotiations and in some cases, new law to allow GM the ability to make the changes they need to make.

With costs under better control, that could allow them to at least start to make a profit on the product they do sell. They still have to deal with the issue of product mix, being able to react quickly to shifts in consumer tastes, and sell more of something. But that takes time, and time is not on their side. Lowering costs on what they have now can happen in a shorter timeframe, hopefully buying them time to address the more fundamental structural problems of their business.

eidolways and 1487: the concept of interim funding while trying to build a plan for the future isn't unusual, at least in venture funding. I don't think that was exactly the government's plan, but the approach is fairly typical. Lenders don't normally hand out money without asking how it will be spent, and in the case of the government, they would also end up being investors in the long term. Again, I don't think this was by design, I think it was more a fluke. It is also a bit unusual for it to happen with multibillion $$ nearly 100 year old companies.

To be honest, I don't know that GM had thought through what they needed to do to return to profitability. I think they had a good idea of what they needed to maintain the status quo, but I think they assumed their "plan", such as it was, would bring them to profitability. I had a chance to quickly review their viability plan, and I don't think they get it. There was also an excellent paper on GM culture (written by a consultant and former GM insider) that seemed to do a very good job of outlining why GM culture will continue to get in the way of real change. It seems to me that GM is still on a road to a dead-end. They have too many brands, too many dealers, too much debt, insufficient flexibility in the manufacturing to be able to respond to shifting consumer demand, and no real vision of what they want to be as a company.

So, the idea that they will "keep coming back for more": of course they will. As 1487 pointed out, they only got enough to presumably get them through to March 31. However, to just give them everything they wanted without any sort of scrutiny would have been a mistake (look at the mess the bank bailout turned into, with essentially blank checks written with no thought to oversight or accountability). Had they gone to a bank or private investor, the general approach would have been very similar (having been there myself, on a much smaller scale): what do you need now to get you through the short term, and what is your plan for the long term and why does it deserve further funding? This approach reduces the risk to the lender, since in the worst case they are only out the interim funding and not the whole thing. Even if the total amount had been agreed to, very few if any investors or lenders give you everything all at once. Typically, it is handed out either on calendar milestones (so much each year, amount to be confirmed and reviewed) or on business milestones (sold ### units, make ### profit, etc).

I'm going to offer an intriguing position for everyone: GM needs to go bankrupt so that Ford can live.

Face it: the US needs the auto industry and at least ONE of the US automakers NEEDS to survive. We can theorize about no GM or no Chrysler, but not about losing all three.

GM and Chrysler need to grin & bear bankruptcy and stop begging for bailout money that won't help without major restructuring. A smaller GM and an extinct Chrysler may be just the rallying point that Ford needs to survive.

Let's not forget - Ford did the RIGHT thing and mortgaged themselves to the ying-yang plus build reliable cars. If the government and consumers must pick a winner out of the three - and capitalism and the current market suggest that this is a very real need - then it NEEDS to be Ford, not GM and certainly not Chrysler.

I think that will be the key to ending this recession in general - the news and the political focus needs to shift on helping those who are best able to make it for now lest we all fall to the depths.

roar02ram: I would actually expect 2 US automakers to survive, and I fully expect Ford will be one of them.

Ford has done a lot of things right. As you mentioned, they built up a large pile of cash by getting debt when it was fairly cheap, and still have credit facilities available. They've not only improved their product, but their product's perception (although they still have a ways to go. Full disclosure: i am a current Ford owner). They also have been pretty clever, and are benefiting from a lot of what GM and Chrysler have been asking for, and Ford has managed the appearance of things well. They sat in front of Congress with their 2 amigos, laid out their case, and then said "no, we don't need any money right now". They got the Jobs Banks concessions, and got it ratified by the UAW first. They got their VEBA contributions changed, and did it first. They were the first to make an offer to exchange current debt for equity. They made a big show of keeping a line of credit going. GM and Chrysler are all asking for, or trying to do, the same things. Ford just keeps doing it first or at the same time as the other too, and are making sure everyone knows about it.

I expect GM to survive, or more precisely, that there will be company called General Motors around for a while yet. It may look very different, but a company that can sell 2 million cars a year in the US alone will still exist in some form. Its not that they are "too big to fail", its that they will have to adjust to living within their means for the short term so that they have a chance of having a long term. Consumers are still choosing a lot of GM product. GM just needs to be able to make enough in the short term (by cutting costs without compromising the existing product) to survive long enough to eventually build product they can charge a premium for. That will take time, and won't happen in the next few months, or even 2-3 years. Toyota took a decade or more to build the reputation they had today (which really got started in the '80s) over the reputation they had in the late '60s and early '70s. GM needs to be realistic about how long it will take to turn around customer perception.

I expect Chrysler will be gone. Jeep will probably survive, possibly the Ram and Caravan, but the Mopar we know today will probably disappear. It's sad, because they have some cool product (as much as I would like a Challenger, I also would like to stay married! :-) ), they just can't seem to sell enough or make enough profit on each to make a go of it. Honda sells about as many cars and trucks and Chrysler does now, but they are able to command a premium, and are more profitable (or less unprofitable?). Chrysler just can't seem to do that. I also don't see the US government funding Chrysler if Fiat has a significant role, and Fiat says they won't play unless the government helps. Further, what Fiat brings to the table, their expertise in small cars, is essentially too late: Chrysler needed to have that conversation about 3 years ago. Fiat has no money to put into Chrysler, and need more manufacturing capacity like they need a hole in the head: they've got too much in Europe now.

No matter what happens to GM and Chrysler, whether Ch 11 bankruptcy or continued accumulation of gov't debt through bail-out funds, the US government is going to foot some of the bill. Both need money: they can't just cut their way to prosperity. Since the banks aren't going to lend them anything, and they are reluctant to go to their shareholders for more (and their shareholders don't have more to give them anyways), that leaves the lender of last resort, the US Treasury. I think its very likely GM would come out of Ch 11 in some form (fewer brands, less capacity, fewer dealers, less debt). I could see Chrysler starting in Ch 11, and winding up in Ch 7 liquidation and not emerging from bankruptcy at all.

What would help a bit would be for both the government (at all levels) and some of the press (no Karl, I don't mean you :-) ) to stop focusing on just the negative, and put some of this in perspective. Yes, things are bad. We all get that. But this isn't the Great Depression, not anywhere close. Its not that they should make it look like its all all roses and sunshine, because that would be a lie. A bit more balance in the economic reporting would be appreciated, and might get people to start thinking about spending money again. This new spending should be with some rational thought and restraint, but some increase in consumption over current levels will be required for the current recession to end. But hopefully they will at least start to buy some new cars, because I can't do it all by myself (besides, I've run out of places to park any more iron) :-).

I think you guys are underestimating the size of the wound here. GM isn't slowly bleeding, it's gushing $30B.

What we have here isn't a case of a bandaid slowly being pulled off. It's a case of being in the ER and debating whether to operate or not.

It's not a question of whether GM will die (GM will die if untreated), it's a matter of whether GM will seek help before death.

I have a lot less confidence in the guy who shrugs off cancer than the guy who attends his chemo.

1487: "Chapter 11...its the preferred solution of people with certain views about the UAW and GM in general. "

Aren't you being a bit paranoid? :P

pushrod: Thanks! I enjoyed reading your posts on this topic!

estreka: I don't think anyone here is underestimating the magnitude. I think we all get that, without help now, GM won't make it. I just don't think that the current approach is going to get the best results in the shortest period of time. They need to get to the ER, and undergo major surgery now to survive long enough to need chemo. The problem is that they've done a few things to address some symptoms, but don't want to go to the ER, let alone deal with the longer-term issues.

msdaisy: thanks! I appreciate the feedback. I do need to work on making my point in fewer words, though :-).

pushrod:

I have no idea what plan you reviewed but it must not have been the latest plan submitted to the Treasury. The plan is anything but "status quo" in that it outlines changes to product mix, closing of brands, reductions in headcount, closing of factories, etc. There was nothing status quo about the plan at all. Everything you say GM needs to do is what they are trying to do. Bankruptcy isnt going to be good for the debt holders so GM and the government are basically holding the threat of Chapter 11 over their heads. This notion that it cant be done is presumptious- this is not exactly a situation we have seen before. We will know within months if this can be done outside of court. Bankruptcy will result in even greater job losses than GM is already planning and it would shift pensions to the PGC which is already drastically underfunded. That is not exactly a winning situation for taxpayers in my book nor will it help the economy when hundreds of thousands of retirees get their income cut drastically.

You also mentioned inability to adjust to demand quickly. I hear that a lot and I really dont even know what it means. No automaker can adjust quickly when it takes 3 years to bring a car to market. GM does not have as many flexible factories as the transplants because its plants are older. Its that simple. When the transplants set up here they wanted to have as few plants as possible and set up plants that can build cars, SUVs and trucks within the same facility. GM (and the other two) have been moving toward that model but it takes time when you are dealing with a few dozen factories that are decades old. The transplants came here with no baggage and were able to incoroporate state of the art designs in the 80s and 90s. A chapter 11 filing will do nothing to enhance GM's ability to react to trends.

As for your comments about the old school mindset, I disagree. I read a comment from a GM designer or engineer who said that after Lutz came everything opened up. He said lower people could email Lutz directly and expect a response. He said it was night and day vs the old days of vertical management. Also, the book "why Gm matters" documents a lot of the changes within the company and show that it has adopted most of Toyota's ideas about organizational structure and manufacturing efficiency.

If two US companies are to survive they will be Ford and GM. Chrysler is the smallest and has the smallest global reach. In addition, Chrysler is the farthest behind on engine technology, small cars and hybrids. Ford and GM are actually in a similar position from a product perspective.

"They need to get to the ER, and undergo major surgery now to survive long enough to need chemo. The problem is that they've done a few things to address some symptoms, but don't want to go to the ER, let alone deal with the longer-term issues."

What basis do you have for that statement? Their long term issues are wages, healthcare costs, legacy costs and debt. All have been or are being addressed. The crisis has expedited things quite a bit but much of the wage and legacy cost problem was addressed in 2007. GM has not said they dont want to make long term structural changes (they have slashed costs by billions in the last few years) but they have said Chapter 11 isnt going to help their revenue side one bit. The primary argument for chapter 11 is that GM "can't" address their issues without it but that is debatable. Most who are paying attention recognize that GM knows what has to be done, its all a question of how.

1487, GM's largest issue is that it costs them about the same [or more] to make a car, but that car then goes and sells for less than competitors cars. You don't see this as a problem facing them right now?

That seems to be addressed in some areas, like the Malibu or CTS. But I have serious doubts that they can attain this parity across their brand in the next few years. Will the Cruze sell for the same price as a Civic? Even if it's as good or better, I doubt it.

I don't have the answer to the problem, but to me, this is the largest one they face, and one you left out. It's also one that my taxpayer money can't fix, and arguably makes things worse.