Flavours of Insolvency

There were two announcements last week, one significant, the other purely cosmetic. This gave tax payers in both Canada and the US, an insight of what will be coming down the road for GM.

Crucial to potential car buyers, the US government will be guaranteeing the warranties of all GM vehicles purchased (in the US) until June 1st.

The other, is reminiscent of Trump’s Apprentice. You’re FIRED, Mr. Wagoner. “You did not do enough”

The successor, Fritz Henderson, a 25 year veteran and second in command was mentored and groomed for the top position, the past few years by none other than Rick Wagoner. Cosmetic…

The above coincided (intentionally)with the release of March 2009 car sales, down 45% from March 2008. As a consolation, it was an improvement over February’s decrease of 53% and January’s 49% over comparative periods the previous year. Unfortunately, in the eyes of all, except perhaps the UAW, the company has perhaps only one option left.

Certain numbers cannot be massaged, manipulated or spun to coresspond to something other than what they represent. Car sales at GM, for the first quarter, are down nearly 50%. A material representation of what is going on in the consumers psyche when they are sourcing new cars. The few that are actually purchasing are staying far away from GM. Sales are down at Ford, Toyota and Honda but not nearly as much.

When sales are nearly half of what they were in the past, the company has to act fast. A sense of urgency should prevail. Something, which is not happening. The luxury of time ceases to exist. Plan B has to be implemented immediately. The management of GM know which plants have to be closed and how many workers be either re-located or laid off. A difficult and painful process. The company cannot keep factories open, producing a product that is not being sold. Inventory costs.

The two month “get it right” period, the Obama administration established for GM is really a prep period for the government to organize an official form of insolvency, probably a pre-packaged Chapter 11.

Obama's administration will be responsiblef for the the "broke it" therefore "own it" scenerio. The laid off employees have to be treated as the number one priority of this administration. It is inconceivable that they might lose their health benefits. GM's restructuring should not come at the cost of the healthcare of their employees. It is difficult to comprehend why the US doesn't have healthcare for it's citizens. Thats another subject in itself.

On (or before) June 1st, the target date, General Motors will probably go into Chapter 11 and will emerge within a reasonable amount of time with agreements from the UAW, Bondholders, Vendors, Retirees, Secured Creditors. DIP financing to be supplied by the tax payer and 100% secured.

This weeks talking points by government officials and Henderson, had multiple references to bankruptcy and Chapter 11. This functions as a preparatory acclimation to the public’s ear. Word association: General Motors and Chapter 11, orderly bankruptcy, emerge stronger, healthier etc. Bankruptcy is not a negative.

Wagoner was always adamant in his view that General Motors will NEVER go into bankruptcy. Therefore, one of the most important telltale signs that a bankruptcy was imminent was the release of Wagoner He frequently alluded that if GM filed for bankruptcy, they would never emerge and the company would be broken up and cease to exist.

Of course GM would have not ceased to exist as the profitable divisions and or brands within the company would have been sold and continue to operate, trading not exclusively on the product but also their brand name.

It is important to the company and especially to the potential consumer that the inevitable happens as quickly as possible. Any bankruptcy lawyer, trustee or employee working within a bankrupt firm will tell you, the worst part is long wait, knowing what is coming. Once the filing has taken place, everyone can move foreward.

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