GM Board might go Chapter 11 over Wagoner's Objection

Rick Wagoner thinks consumers will avoid cars made by a company in bankruptcy. That's an interesting and amusing thought. It seems he has ignored the fact that for GM to remain solvent it must sell cars to people who are bankrupt, or close to it.

The biggest impediment to cars sales is credit. Buyers have none. As car dealers have acknowledged, a year or two ago, people with low credit scores were big buyers of Big Three vehicles. Today, people with similar credit scores are denied car loans.

Therefore, the de facto bankruptcy of buyers is kicking in. That means giving money to Detroit changes nothing. Except giving money to Detroit means more unsold cars will pile up somewhere. When the number of unsold vehicles begins to overflow the lots on which they sit, the only possible method of moving them is through massive price cuts. Car prices will drop like the price of GM stock in 2008.

Anyway, which is worse? The downsizing of Detroit through a pre-packaged government-assisted Chapter 11 bankruptcy filing? Or the downsizing of Detroit through the de facto bankruptcy of car buyers?

Build them and they will come? Not exactly. Inventories have already climbed to troubling levels. If Detroit is given taxpayer money to build more cars, unsold inventories will punish the industry even more. If cars are moved off lots due to huge price cuts, then losses will soar higher than ever.

If taxpayer money is used to pay auto-workers to stay at home, well, then, why not declare a national work holiday for everyone. If auto-workers can enjoy full pay while the economy slumps and the auto industry faces a substantial contraction, why not extend the same generosity to everyone?


GM, Its Board Race to Craft a Convincing Viability Plan

General Motors Corp. management on Sunday was racing to finalize a viability plan to take to Congress, with a boardroom hellbent on securing a federal rescue loan.

At the same time, directors -- unlike chief executive Rick Wagoner -- are also insisting that all options stay on the table, including a Chapter 11 bankruptcy filing, if a bailout doesn't come through.

The auto maker, along with Ford Motor Co. and Chrysler LLC, is working to win $25 billion in loans needed to keep the Detroit Three afloat amid soft demand and a credit freeze. Last month, the companies were turned away by Congress, which told them to come back this week with proof that federal funds wouldn't be wasted on a failing business plan.

Dwindling liquidity is forcing GM to weigh several options for its business, including an offer to some bondholders asking them to exchange debt for equity.

Executives are also once again considering killing or selling brands, and cutting even more North American production capacity. GM's plan could become known as early as Tuesday in public filings.

"Everything is on the table," according to one person familiar with the board's thinking. Following Mr. Wagoner's poor performance in Washington last month, the board began meeting more and taking more seriously its obligation to investigate other options.

Mr. Wagoner has said that a filing for Chapter 11 bankruptcy protection isn't a viable option, insisting the auto maker would collapse because consumers won't buy from a car from a company in bankruptcy and obtaining financing would be nearly impossible.

Although members of the GM board agree with Mr. Wagoner's concerns about revenue while in bankruptcy, directors have said they will consider all options as they become necessary.

At this point, it is unclear if the 14-member board has time to execute a prepackaged bankruptcy before GM runs out of cash. Such a process would include getting unions, suppliers, creditors and other parties to agree to concessions first. Then, the company may be able to get through the process in matter of a few months, experts say.

On Tuesday, the day the plans are due, the entire U.S. auto industry will report November vehicle sales that are expected to represent the lowest sales pace in several decades.