Should GM Be Allowed To Go Bankrupt?
General Motors should be allowed to go bankrupt. - Inspired by Michael E. Levine
In a WSJ op-ed, New York University Law professor Michael E Levine argues that, GM's decline is inevitable and the company should be allowed to go bankrupt.
The costs of tackling GM's problems, he argues, are huge. "After 42
years of eroding U.S. market share (from 53% to 20%) and countless
announcements of 'change,' GM still has eight U.S. brands…(and) about
7000 dealers." Toyota on the other hand has three brands and fewer than
1,500 dealers.
"GM knows it needs fewer brands and dealers,
but the dealers are protected from termination by state laws. This
makes eliminating them and the brands they sell very expensive. It
would cost GM billions of dollars and many years to reduce the number
of dealers it has to a number near Toyota's," writes Levine. "The cost
of terminating dealers is only a fraction of what it would cost to
rebuild GM to become a company sized and marketed appropriately for its
market share. Contracts would have to be bought out. The company would
have to shed many of its fixed obligations. Some obligations will be
impossible to cut by voluntary agreement. GM will run out of cash and
out of time."
Even if the federal government agrees to a
bailout, much of the cash will be routed to unproductive areas, argues
Levine. GM will inevitably be back for more and more assistance.
Slate's Daniel Gross argues differently.
He acknowledges that GM is a disgrace, however states that the company
should be bailed out: " General Motors wouldn't be a typical
bankruptcy. GM's management argues that the very act of filing for
bankruptcy eliminates the possibility of recovery since people would be
reluctant to purchase expensive, long-lived assets (cars and trucks)
from a bankrupt entity. And because of GM's size and the place it
occupies in the supply chain, the company's failure would likely
trigger the bankruptcy of hundreds of suppliers and other companies
that rely upon it."
Bankruptcy? No, but. You can't bail these clowns out and leave the current management in place without specific radical change mandates and real oversight. They will just continue to do what they have always done. And that's what got us all into this disaster in the first place. This is a huge problem which needs time to sort out and, unfortunately, there is no time. This country is in big trouble and the multimillionaire auto industry leaders will never be held accountable for their misdeeds.
Posted by: Peter A Reese | November 19, 2008 at 10:27 PM
Chapter 11 is reorganization, not bankruptcy. GM and Chrysler could file for Ch 11 and still plod along, but would get breathing room from creditors and union contracts. It's not unusual at all for a large company to use Ch 11 as an opportunity to make much needed changes deeper than they could otherwise. Ford might not even need Chapter 11.
Posted by: Explainer | December 03, 2008 at 08:38 PM