GM Bankruptcy: What Do You Think?

Miranda Marquit — Wed, 04 Mar 2009 18:10:03 +0000

One of the interesting sideshows that has been going on in the business world has been the debate over whether or not GM should declare bankruptcy. Mark Roe, writing for The Wall Street Journal, argued on Monday that GM would be better off with bankruptcy restructure:

There are other reasons why a Chapter 11 resolution may be the best solution for GM. Bankruptcy may be the only way for GM to fully confront its operational problems, deal with its legacy costs, reconfigure its dealer network, and achieve a viable labor agreement.

But one issue that has not been discussed much is that bankruptcy usually leads to a sharp change in management. There are turnaround teams expert at restructuring troubled companies, and they may well be more effective than GM’s current management. It’s no surprise GM’s management isn’t advertising this fact, but taxpayers and the government should know about it.

Naturally, GM wanted a chance to respond. In the plan presented to the US government, arguing for aid, the company spelled out its case against bankruptcy. And, yesterday, on GM’s FastLane Blog, Tom Wilkinson of GM made his rebuttal:

Finally, while “clearing the decks” sounds refreshing, the reality would be anything but. The bankruptcy process would bring financial hardship to millions who rely on GM – and upon whom GM relies. GM suppliers, already pushed to the edge by the recession and credit crisis, would in many cases follow GM into bankruptcy, jeopardizing the flow of parts GM needs to produce vehicles – and generate revenue. Fewer health care dollars would have a real impact on employees and retirees, as well as on local health care providers. Should GM’s pension plans be turned over to the federal government, the result would be reduced benefits for some retirees and greater expense for the taxpayers. The deck in question turns out to be one that millions of ordinary Americans stand on.

It’s an interesting back and forth. However, one thing is pretty clear: No matter whether the government continues to provide support to GM, or whether GM declares bankruptcy, ordinary Americans are likely to bear the brunt of most of the costs.