President Obama: Painless bankruptcy isn’t a GM option
It appears that President Barack Obama is getting closer by the day to striking a painful blow against the Mahoning Valley economy by forcing General Motors into bankruptcy.
Some of Obama’s Ohio supporters suggest that the president still sees bankruptcy as the absolute last resort, and that he is now playing hardball with GM’s bondholders, attempting to force them to take concessions that rise at least to those already taken by the company and its employees. We can only hope that’s the grand plan.
But in recent days, an increasing number of Wall Street analysts are talking almost casually about the looming prospects of a GM bankruptcy. Even Fritz Henderson, who replaced Rick Wagoner as GM CEO, has given the appearance of being more open to bankruptcy than was Wagoner.
There is talk of a structured, pre-planned bankruptcy that would presumably be less painful and more palatable. Our question would be, more palatable to whom?
UTo politicians who read the polls and see that a majority of Americans don’t favor a GM bailout? That lack of support for Detroit isn’t surprising. A majority of Americans have been buying cars with foreign nameplates for a couple of years now.
UTo conservative Southern senators who blocked passage of a bailout bill last fall out of a combination of disdain for the United Auto Workers Union and love for Japanese, Korean and German transplants that have settled in their states?
UTo some working men and women who can’t abide making less than local autoworkers?
Yes, we’re sure that any bankruptcy by General Motors — structured or not — would be fine with those folks.
But any bankruptcy of General Motors, no matter how much time is spent trying to make it less painful, is going to create ripples that will spread far outside the company, especially in that dwindling number of places like the Mahoning Valley where General Motors has been a huge presence.
Latest trial balloon
The most recent trial balloon calls for creation of a new company that would buy GM’s “good” assets, most notably Chevrolet and Cadillac. Other assets, including less desirable brands, and the company’s legacy costs (such as those troublesome health-care obligations) would remain with the old company, to be liquidated over a period of time.
Bondholders (see the second paragraph) would presumably be out in the cold.
But those bondholders aren’t stupid, and they are not without resources. They would challenge a bankruptcy engineered in Washington that was seen as unfairly favoring other stakeholders over them. That would assure a long and much less surgical bankruptcy than today’s optimists envision.
And the closer GM would be pushed toward traditional reorganization, the less likely it would be that a viable entity could survive.
And in a “normal” bankruptcy, massive amounts of health care costs for GM employees past and present would be shifted in one way or another on the government or health care providers. The Pension Benefit Guarantee Corp. would be hard-pressed to absorb the influx of GM pension costs. And even if it could, tens of thousands of pensioners would go from living comfortable lives with discretionary income to living hand-to-mouth. Areas without GM retirees would not feel it a bit. This is not one of those areas.
Auto dealers would see the debt they routinely carry for General Motors due to rebates, warranties and sales incentives become uncollectable. Only the dealers know how many of them could absorb those losses and how many couldn’t. Suppliers and various other contractors with GM would face similar losses, with similar results.
In short, even the “best” GM bankruptcy would hurt some areas — ironically, most would be areas such as this one, which supported Obama. And a well-intentioned bankruptcy plan that didn’t go according to Washington’s script would have a far-reaching, perhaps disastrous, effect on an already weak economy.
At some point, President Obama may have to address the nation and tell them why he can’t let General Motors go bankrupt — even though most of them think that’s what he should do. That would be a gamble, and it would test his persuasive abilities. But the greater gamble would be to listen to those who are saying — whether they believe it or not — that letting General Motors fail would be just another blip in U.S. industrial and economic history. It could be a blip heard round the world.