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General Motors and bankruptcy: Would Chapter 11 be so bad?
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Would Chapter 11 really be so bad? What if General Motors would file for “protection from creditors”? Many companies have filed Chapter 11 and survived, including major airlines which are back and flying. Chapter 11 is not dissolution of assets.
The government loans are in effect a soft bankruptcy, the federal government serving as a lender of last resort because General Motors can’t pay all of its bills. Without that cash, which constructively isn’t really its own, GM would be staring into the teeth of Chapter 11 or worse.
Harlan Platt, a Northeaster University professor specializing in corporate turnarounds, told the Associated Press what every man on the street knows: “A company which has borrowed $13.4 billion and has asked for billions more around the world is obviously in trouble.”
Fears that customer confidence would drop like a stone if Chapter 11 were to be filed doesn’t account for the lack of consumer confidence not only in GM but in the economy as a whole. It’s hard to be optimistic when one has been told by a new president who was elected on promises of “hope” and “yes, we can” is suddenly warning we’re on the precipice from a catastrophe from which we may never recover.
We at Examiner.com have already had readers asking whether an automobile from GM’s subsidiary Saturn is a safe buy. We think so, and we think that were General Motors to go into Chapter 11, the American public would learn about bankruptcy laws faster than they conquered the geography of the Middle East. (OK, many are still befuddled by Iraq, Iran and Afghanistan, but there are fewer players in the bankruptcy procedures).
Much has been made about the information in General Motors’ Form 10-K, a document that among other thing lays out a company’s financial status for the Security and Exchange Commission. It’s no surprise that GM’s 10-K for 2008 was, how do we put this gently, dreadful. General Motors, however, said in a Statement today, “Given GM’s public statements on our liquidity position dating back to the end of 2008 and more fully disclosed in our February 17 viability plan submission, the opinion rendered[by auditors] in our 10-K was not unexpected.”
“The opinion is dependent on a number of factors including our ability to execute our viability plan, compliance with our U.S Treasury loans, volume recovery of the industry, and access to additional funding from the U.S. and certain other governments. Once global automotive sales recover and GM’s restructuring actions generate the anticipated savings and benefits, the company is expected to again be able to fund it own operating requirements.”
In other words, we’ve already taken everything into account laid it on the table, and if the world economy doesn’t go white side up, we should be OK.
“I think the government forced the hands of everybody,” said Professor Platt. “In 18 to 24 months, I anticipate they will be profitable, in the black. A mean and lean competitor that will be world class.”
We have driven most of General Motors new product and believe that indeed the cars GM is building are already able to compete head to head with carmakers around the world. In the end, it’s product that matters.
From that standpoint, does Chapter 11 really matter? Probably not, though we believe that much of the current commotion is journalists smelling blood in the water, and if it bleeds, it leads.
The truth is there’s nothing new in this news.
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