Enough Already: Bankruptcy for GM and Chrysler
It looks like this is the end of the road for General Motors and Chrysler as we know it. Over the weekend, the Obama administration rejected the restructuring proposals of both GM and Chrysler and ordered them back to the drawing board —AGAIN! Chrysler has 30 days to complete a proposed alliance with Fiat and GM has 60 days to restructure or face bankruptcy. The government also booted GM CEO Rick Wagoner and will not contribute any more aid to the flailing companies until its demands are met.
These companies have been virtually bankrupt for years now and it is unfortunate that is has taken this long for these companies to start restructuring. This process needs to happen QUICKLY and bankruptcy is the best option.
As I sit here writing this post, the WSJ is reporting that the Obama administration supports bankruptcy for both GM and Chrysler. The government’s plan would split both companies into both “good” and “bad” components, where the “good” components would exist as standalone companies or be acquired. The “good” automakers would not hold billions of dollars of retiree and health care obligations that have strapped these companies for years.
This is clearly the right solution and is long overdue. However, I don’t believe bankruptcy will be as quick and painless as some people expect. Both GM and Chrysler are complex organizations in complete disarray, and it would be unreasonable to expect them to reorganize under bankruptcy in 30 or 60 days. It will not take a year however, as GM and Chrysler have had bankruptcy attorneys devising plans for such a move over the recent months.
To protect against hysteria from auto buyers, the government has already agreed to back the warranties issued by both GM and Chrysler. It is important for auto buyers to understand that this bankruptcy will be a REORGANIZATION not a LIQUIDATION. The government needs to get this through the heads of consumers but of course, some people just wont buy the cars of GM and Chrysler regardless.
We need to get this process started now and force everyone back to the bargaining table so we can return these automakers to profitability. It’s a shame we will have to wait another 30 to 60 days to do something that should have been done a long time ago.
Why is everyone after the car companies…where is the hulabaloo for AIG?? Yes, a lot of rhetoric but hard nose for AIG? More like a hard slap on the wrist! I agree that the car companies got sloppy through the years and didn’t take care of business but allowing corporations to leave this country for cheaper labor…BIG MISTAKE.
How would you feel, do you think, if you were one of the retirees or depending on health care that you had earned and were entitled to?
Wagoner had implemented a turn around plan that was on the verge of success. He had developed better products, renegotiated his labor agreements, and installed up to date manufacturing processes. He spent a lot of money doing this because he knew that the company wouldn’t survive unless he did.
The one thing that he did not have control over was the economic crisis that has been caused by the banks and legislation. By passing adverse legislation, the government made the taxpayers liable for the banks losses and since the banks are represented by the Fed, the taxpayers are going to pay. Adverse legislation has also caused the taxpayers to be liable for auto company losses, but they don’t enjoy the same situation as the banks so they will be forced to suffer.
The bank business people are well aware that the auto companies are now poised to be successful as soon as the economy recovers and they want back in. They are taking this opportunity to get Obama to put one of their own in charge.
Auto maker problems were not caused by bad management or union contracts. When the companies were doing well, the banks sent their own people in or financed corporate raiders who took over the companies and forced them to issue dividends instead of paying their labor liabilities or investing in R&D and new facilities.
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