ON A CLEAR DAY YOU CAN SEE GENERAL MOTORS

4/3/09

A valued friend and college buddy sent me an e-mail in which he asked my opinion regarding the possibility and the implications of a GM bankruptcy. My answer was sufficiently insightful, if I may say so myself, to merit a post:


4/3/09

It looks like some kind of bankruptcy is baked in the cake for GM; earlier this week, we read about the "Good GM, Bad GM" plan that looks like it could only be achieved in the context of a bankruptcy. The naive and starry-eyed Obamacrats are talking about a "quick rinse," as if a GM bankruptcy could be so simple.

Further, if the bondholders don't want to play ball, GM could impose a settlement on them, which would almost surely lead to bankruptcy. The bondholders know they have the Bush/Obama administration by the short hairs here because Obama, owing so much to the UAW specifically and to organized labor in general, would like to avoid a bankruptcy, and certainly a "conventional" bankruptcy, if doing so is at all possible because anything like a “conventional” bankruptcy, in addition to wiping out the equity holders and giving the bondholders, certainly the unsecured bondholders, a huge haircut (or maybe a decapitation), would also have a severe, negative impact on the pay packages of current UAW workers and the retirement benefits of its former workers. It looks like the latter is a foregone conclusion in any case; the stock going into the VEBA, whether it is existing GM stock or stock in the proposed "Bad GM" should prove quite worthless. (And, no, I don't know how Obama dances around the politics of that one.)

On the positive side, GM might emerge from bankruptcy the low cost producer. (That "might" has two meanings here; it might emerge from bankruptcy and it might emerge from bankruptcy the low cost producer.) When you combine that position with the enormous progress the General has made in product, global reach, etc. under Rick Wagoner and Bob Lutz, the new GM would be a terrific company; I'd be interested in buying stock in the new company. The only thing I would do with the existing stock is short it, which is impossible at the moment--no stock to borrow.

I touched on this issue earlier this week in the Pontificator, but only from the standpoint of Rick Wagoner's firing.

I think I'll put this response up on the Pontificator as a post.