GM Likely To File Bankruptcy Next Week

Multiple outlets are reporting GM may file for bankruptcy next week (CNN for example). Speculation is that the "bad" assets will be cut out and the "good" assets packaged into a new company which would emerge. Automotive News (subscription required) reports GM's bankruptcy plan calls for another $30 billion in Federal loans, bringing the total close to $45 billion.

This begs the question (sort of tongue-in-cheek), why couldn't they just go bankrupt with the debt they already had? Isn't this just trading one mountain of debt for another, with added strings and loss of control?

A lot of people (bondholders, shareholders, dealers, employees and the American public taxpayers to name a few) are getting a raw deal. Is it necessary? No one knows but it IS going to get uglier before it gets better, if it ever does.

It's also interesting that the Chrysler filing was likely a test case (see my earlier post), it's not yet out of bankruptcy, and GM is getting ready to file already. The urgency of the government deadlines is rushing decisions which should be made at a more prudent pace.

Chrysler Goes Belly Up (For A While)

Chrysler has filed for bankruptcy reorganization, in part because bondholders did not accept a Treasury offer of about $2.45 billion for their $6.9 billion in debts. It would be interesting if some of those creditors had insurance policies on those
bonds that would pay them more in case of default than the Treasury offer.

Anyway, this isn't the end. Chrysler will be reorganized and come out and "merge" with Fiat. The UAW membership has overwhelmingly accepted wage and benefit concessions (considering how that's much preferable to not having jobs). In the
mean time, Chrysler will slash its dealership network to match its reduced output and sales. And output for the next 30 to 60 days is going to be zero as it idles all of its assembly plants. I don't think the market is going to miss those cars
that are not produced.

After the reorganization, Bob Nardelli will also exit as CEO and the company can figure out how to start paying back the loans from Uncle Sam. This is sort of a short preview of what GM might eventually go through. Sort of like a test case
without a merger partner. More details will follow in the coming weeks.

It's kind of like an alcoholic going to rehab after getting divorced before getting married again. When he comes out he's going to be bossed around (guided) by his new second wife and living on the payments from Uncle Sam. And there's still no guarantee that he won't fall off the wagon.

But he'll have a lot fewer debts, his ex-wife won't even make him pay alimony so long as he goes away, and maybe he'll have fewer other creditors as well. Except for Uncle Sam wanting his money back. Then eventually the couple will have kids and, with any luck, the kids will turn out to be far better than the ones from his previous marriage.