New GM CEO Says Bankruptcy Still Possible

By Alan Stewart Carl | Related entries in Bailouts, Cars, Corporate Business

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After months of hand-wringing, bailouts and backlash, new GM CEO Fritz Henderson says bankruptcy is still a very real possibility:

The company, he said, has until June 1 to accomplish changes sought by the government, or it will be in bankruptcy. The 60-day deadline should be enough time, but if it becomes evident that the changes can’t be made by the deadline, GM could go into court sooner, he said.

“It doesn’t have to take 60 days. If it’s quite clear that we’re not able to accomplish what we need to do in terms of operational restructuring, reduction of debt on the balance sheet and what we need to do to accomplish these broad parameters of having a viable business, this will be a management judgment” reviewed by the Obama administration’s autos task force, he said.

Hopefully GM can find a way out of its tailspin, but the company is clearly worried they won’t be able to meet the new guidelines laid out by the Obama administration. Arguably, we should have worked with GM to find a bankruptcy solution months ago, rather than kicking the problem down the road.

By delaying what may be inevitable, we’ve left both GM and the government in awkward positions. The situation should have never gotten to the point where the President of the United States can force the resignation of the CEO of a publically held corporation. While the cries of “socialism” are hyperbolic at best, no one should be happy with the way the government has handled GM.

Perhaps GM can still avoid bankruptcy and the government bailout and meddling will prove to have been a distasteful but necessary step in saving one of America’s key industries. But I can’t help but think that, once again, we allowed a sky-is-falling mentality to prevent us from developing a solution that addressed the core problem.


This entry was posted on Tuesday, March 31st, 2009 and is filed under Bailouts, Cars, Corporate Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

10 Responses to “New GM CEO Says Bankruptcy Still Possible”

  1. ExiledIndependent Says:

    So…wait a minute…why didn’t we just let them go into bankruptcy before we threw billions of dollars at them? Oh, that’s right–we were in such a rush to “do something” that we didn’t think through the consequences or alternatives. Yay Congress.

  2. TerenceC Says:

    It’s not just possible – it’s probable. There is no other way to break the legacy debt and crushing dealer contracts than to go into bankruptcy. GM has had over 25 years to get it’s act together, and the only thing it has succeeded in doing is protecting it’s dysfunctional corporate culture. The board of directors at GM has to change and the only possible way to make that happen was to fire Wagoner. Who else could have helped move that guy out except the President?

    I’m glad Wagoner is gone he was truly out of his element – and the board will finally be changed – have you seen who’s on that board? What a pack of impotent know nothings. It’s an ugly turn of events for GM – but they brought it on themselves. Brazil, China, and Europe received the lions share of the recent bailout money – that isn’t fair to the US worker or the US taxpayer.

    As much as Americans hate to hear it – we need a national industrial policy if for no other reason than National Security. Global corporations don’t care about the USA – they barely care about their share holders. We can’t be a successful nation in the 21st century with industries and ideas that haven’t changed in 50 or 100 years. If it takes the President having to make those decisions then so be it. The decisions have to be made though. It will be interesting to see what’s to be done with the finance industry. 30% of our GDP coming from an industry that produces nothing – what’s wrong with that picture.

  3. kranky kritter Says:

    Oh, it’ll be bankruptcy, just like it should have been.

    The sturm and drang about Obama “forcing” Wagoner out are so much hot air. Where has the board of directors of GM been for the last decade?

    Just maybe if everyone in charge over there hadn’t been acting like dead men walking amid circumstances they believed beyond their control, GM could have been past this.

    Or maybe not. Happy to acknowledge that perhaps only current extraordinary circumstances could have created an environment where autoworkers would have agreed to the types of compensation adjustments needed for GM to become competitive.

  4. gerryf Says:

    Sigh–and those adjustments by the WORKERS would be….what? (and where are the adjustments from management? And while we’re on the topic, why is Wagoner’s “contract” and every other executives contract inviolable, but people are taking aim at the workers contracts?)

    There are already contacts in place for the workforce that would have gone a long way toward making GM viable–the onerous burdon of retiree healthcare was being shifted to the union beginning in 2010. Workers have already agreed to major concessions.

    The problem with GM and every other manufacturer is we have exported so many jobs overseas and chased short term profits at the expense of long term viability. Conservative policies have resulted in flat and receding wages.

    No one can afford to buy large ticket items.

    Corporations by their very nature are deadly to long term viability. Boards of directors are hand picked by the corporate executives, so rather than having a boards oversee the management, the management can do whatever they please. Shareholders demand next quarter profits before long term health. Executives don’t care because they slash budgets and wring every last cent from this quarter, pad their resumes (or Curiculum Vitaes) and move on.

    Meanwhile, we have idiots defending these masters of the universe as deserving $20 million golden parachutes because they are the risk takers…HA! They are not risking anything. They are employees. The only people taking risks are the taxpayers.

    The last 30 years has been an ugly, long road designed to privatize profits and publicize risk.

    Welcome to reverse welfare state, America, you got what you voted for.

  5. SD3 Says:

    …new GM CEO Fritz Henderson says bankruptcy is still a very real possibility

    Sweet Jesus, is that a glimmer of sanity I’m see? After a 50 billion dollars lesson in reality? Who’s next? AIG? Say it ain’t so, Mr. Keynes!

    Oh, it’ll be bankruptcy, just like it should have been.

    Hundreds of billions in debt heaped upon the children of our middle class and now my awesomely enlighted betters like Krunchy Kritter suddenly ‘get it’?

    Note to morons: We could have let these incompetent losers go bankrupt for free.

    But instead, you chose to bankrupt the American people in the name of ‘equality’. How nicely Orwellian for us to be equally worthless…

    Rush Limbaugh! Rush Limbaugh!

  6. Trescml Says:

    One thing to keep in mind is that if (when) GM goes into bankruptcy, it will be the taxpayer who is going to be providing the financing to keep GM going. So although there is some inefficiency with not doing it earlier, it is not like we would not have spent most of that money anyway.

    I don’t think that the Obama administration will let GM get sold off into tiny pieces, but I suspect that Chrysler may be headed for that fate so most of the money for them was tossed away.

  7. kranky kritter Says:

    Gerry, if you could read English, you would have understood what I meant when I said would have agreed in my post above. It’s called the past tense, OK?

    As should have been crystal clear, I was referring to the rounds of adjustments that have already been made, ones that workers would not have agreed to unless they had genuine fear for the sustainability of the company. That’s what we have seen over the last few years and which completed its drawdown just recently. So save your sighs.

    I don’t defend management, and I doubt how many folks would be troubled by more heads rolling from management. IMO, that makes much of your rant above little more than straw-manning.

    Now, I understand why dyed-in-wool liberals have rabbit ears for the occasional defense of executive compensation and upper management perks. But come on, man. Look around you. Take a poll, do a headcount of major editorial opinions. Go to a F$%&King coffee shop and ask a few folks what they think of CEOs.

    Upper management folks currently enjoy full-blown, death-threat pariah status. And you’re foaming at the mouth because a handful of wall street editorial bagmen are still spouting the party line? Trust me on this, the deleveraging cycle of Wall St political influence is FAR from over.

    Going forward, anyone capable of doing math knows for certain that GM’s pension burden will need to be addressed somehow. The stubborn unavoidable math makes it highly unlikely that GM can be competitive (or even viable) with way higher pension costs. I’m willing to bet that when this all comes to a stop at the bottom of the hill, taxpayers will end up on the hook for all that. In fact, I think we may be already, or close to it. And I bet that many progressive folks will think that’s justice.

    Many other folks will be royally pissed. Such an outcome may be just from the perspective of blue collar workers who were made promises, but its in no way just from the perspective of taxpayers who will foot the bill.

    I am untroubled by the notion of better regulation in many instances. Limits on the size of giant ventures that could destroy the economy by failing make some sense. So does limiting debt default insurance to folks with a legitimate risk-hedging interest, keeping speculators out of such things.

    What does trouble me is the speed with which many progressives are rushing for blithe over-reaching in government policies. I simply can’t stomach the level of utter innumeracy that it takes for progressives to continually advocate additional government programs because they are the right thing to do, even when its manifestly obvious that the government lacks the resources to fund them.

    Short-term triage is one thing. Permanent new entitlements another thing entirely.

    I am not a republican or a conservative, but I am certain that doing something just because you think its the right thing, even though you can’t remotely afford to pay for it is an unsustainable practice, and will bring many unhappy endings.

  8. John Milligan Says:

    As the say in AAMCO Transmission commercial – “You can pay us now….or you can pay us later.” The American taxpayer will be paying so we mind as well do it now (with a controlled bankruptcy like now) so the costs and reverb are somewhat contained. Plus for National security reasons having GM in there is a factor that is underappreciated. Let Chrysler twist in the wind! So keep GM and Ford andv let’s suck it up and move on to better things!

  9. gerryf Says:

    relax KK, your last graph in your first post goe me rolling, but I didn’t mean to imply you’re a blind Glenn Beck goombah of the sort who drools when they hear “CEO”

    As should have been crystal clear by my excessive spleen venting (and it was no doubt not clear for which I take complete blame as the message maker) the problems far pre-dates this current financial crises.

    Rant if you want to at the progressives–who I agree are reaching over-reaching with their pent up liberal programs–but it was the 30 years of conservative, free-trade, deregulatory goose-steppers who put quarterly profits over long term health, the end result being the disaster we now find ourselves in.

    What really sets me off is the outrage over the loans needed to get the manufacturers through a tough spat are a pittance compared to the largess dumbed on financial institutions.

    Yes, there has been an uproar over this too, but the outrage is subtly, yet perniciously, different.

    People are made at Wall Street because taxpayers are footing the bill–the retchedly excessive “performance” bonuses for the worst performance in history isn’t what is getting people riled–it’s that we as taxpayers are paying it.

    The outrage over the automobile makers is many sided; first, there has been a very deliberate attempt to make the masses jealous over the presumed excessive pay of the WORKERS, but even worse, the automotive companies are treated differently because they support (not willingly, but through pay) the unions–and we all know the GOP hates unions.

    The deficity-loving GOP (yes, they love deficits ever since Reagan) learned only one thing in the last 30 years. If there is something you hate, cut off the source of funding and you kill it. When a Democrat has deficit spending, the GOP is outraged, but when the Republicans do it, they use it as an excuse to shut down social programs and safety nets–and they use deficits as a weapon against the Democrats when they take office, tying the progressive’s hands.

    The Republican party that cared about fiscal responsibility died with Eisenhower.

  10. kranky kritter Says:

    I think the sentiment against the GM bailout is many-sided because there are enough different aspects to it for so many different interest groups to hate, like a perfect storm. Liberals hate GM for being a giant corporation blithely producing gas-guzzlers. They see its collapse as teaching a lesson they are eager to see taught. Conservatives hate how, as they see it, GM was rent asunder by virtually mandatory high labor costs and foolish gov’t regs, and think its collapse will teach a lesson they are eager to see taught. See the pattern.

    I continue to believe that Republicans are in general somewhat more cognizant of budgetary issues and the problems of increasing the tax burden to establish entitlements. Which doesn’t make them anywhere near close to perfect.

    When I meet someone with passionate political views that tend to ignore issues of working within available resources, such folk are almost invariably more liberal than average. I look diligently for exceptions, and while I find them from time to time, I know what the exception and the rule are. Not as scientific an approach as Id prefer, but I’ll stand by it in the absence of hard data.

    BTW, I was a still a liberal when Clinton got elected, and my crystal clear recollection is that balancing the budget then was driven almost exclusively by congressional Republicans. Clinton ran to the front of that parade with his baton and took the credit. And democrats ever since have crowed about how Clinton balanced the budget and no one has done it ever since. It’s total horsecrap, even though as you point out it is demonstrably true that the GOP lost its taste for balanced budgets pretty quickly.

    When it comes to balancing the budget, I’m not really all that interested in your contentions about hoe the GOP uses this as a weapon. There is likely something to it, but I think it misses the most crucial bipartisan point. And that point is that its social security and medicare which are going to choke the budget to death due to demographic graying. BOTH parties have utterly abdicated on this issue, kicking the can a couple years down the road at a time and hoping someone else would get stuck fixing. That’s an equal opportunity, plenty of blame to go round, almost no one looks good… disgrace, if you ask me.

    Everything is going to be forced onto the table over the next decade, and we’ll get what we get, not what we want. Increased or eliminating ceilings on income subject to SS tax; lower benefits; more onerous work requirements; a greater burden on the next generation. We won’t have the luxury of a solution which favors either ideology. We’ll get what we can now afford to pay for, like it or not. And soaking higher income folks to make it a better deal for lower income folks won’t go anywhere near as far as liberals would like to believe. If they did the math, they’d know this. Instead, they deny it.

    I really don’t get your sense of a “subtle difference” between outrage at GM vs Wall Street. Or if I do, I don”t see what you think that suggests. There is so much of both that I don’t see any point in trying to distinguish partisan bias in the outrage. GM will have to be drastically reformed, and it may not survive. That’s not optional, and most folks are pissed at whatever portion of the bill taxpayers get stuck with. Wall street will undergo drastic reform and renewed regulation of financial services and products. Not optional, taxpayers pissed.

    It is probably true though that as time passes, conservatives will use GM as its main case study proving that the economic collapse was all the fault of the government and unions, ands liberals will use the collapse of the financial system as proof that our economic collapse was all the fault of deregulation and corporate greed.

    That’s a debate I am certain is unlikely to bear anything but bitter fruit. IMO, the collapse was the result of interest rates that were too low for too long and which we all loved and went along with because it allowed so many of us to live beyond our means. I see no heroes in this saga.

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