Top Story GM: The Threat of Bankruptcy General Motors' senior management, business experts, and some members of Congress think letting the automaker go Chapter 11 would be a disaster Slide Show: Famous Defunct Auto Brands
Business 2008. 11. 12. 15:54GM: The Threat of Bankruptcy
GM's senior management, business experts, and some members of
Congress think letting the automaker go Chapter 11 would be a disaster
GM: The Threat of Bankruptcy
GM's senior management, business experts, and some members of Congress think letting the automaker go Chapter 11 would be a disaster
GM Chairman and CEO G. Richard Wagoner Jr. Getty Images
Over the past several days, while General Motors (GM) Chairman and Chief Executive G. Richard Wagoner Jr. has repeated his mantra that "bankruptcy is not an option," the specter of a Chapter 11 reorganization is circling GM's downtown Detroit headquarters like vultures.
When it reported its third-quarter earnings on Nov. 7, GM said that it may
face cash
reserve levels (BusinessWeek.com, 11/7/08) by the New Year that would put it
at the threshold needed just to meet payroll and continue some level of normal
operations.
It has already suspended most of its future product programs. It has stepped up the pressure on the White House and Congress, especially the Michigan caucus, to find a way to get government help. "The third-quarter results made it clear that, without government intervention, GM is headed for bankruptcy," Gimme Credit auto analyst Shelly Lombard said.
Circuit City Isn't a Model
Bankruptcy lawyers say the automaker could benefit from a prepackaged bankruptcy, which would be a reorganization that is worked out among the automaker's creditors before the case ever gets to a bankruptcy court judge. "It would be messy but ultimately could help the company restructure itself a lot faster," says Mark Bane, a partner at New York law firm Ropes & Gray.
The biggest obstacle to any bankruptcy is the lack of availability of debtor-in-possession (DIP) financing, which is liquidity normally provided by banks and private equity firms that a company in bankruptcy needs to reorganize itself. Indeed, the question of bankruptcy has been on the minds of GM's top executives. On Nov. 6, GM North America President Troy Clarke told a gathering of auto suppliers that obtaining DIP financing would be "practically impossible" given the state of the credit markets and the size of GM's obligations. "But that's where the government could come in," says attorney Bane, "providing the liquidity GM would need to massively reorganize under Chapter 11."
The worst-case scenario for GM, say most experts, is a spontaneous Chapter 11, like the one filed by electronics retailer Circuit City (CCTYQ.PK) on Nov. 10. But a prepackaged filing could be set up to make sure that the vast majority of auto suppliers would continue to get paid on time.
Hoping for Liquidity
Others disagree. Kimberly Rodriguez, a partner at Grant
Thornton, an accounting and management consulting firm that works with auto
companies and suppliers, says bankruptcy is a "last resort." Rodriguez says that
in better times GM and Ford (F)
have provided liquidity to its biggest suppliers who would have otherwise been
forced into Chapter 11, which is very messy and destructive. "The government
could play that same role for GM, and it will be a lot more orderly," says
Rodriguez.
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