It’s not a question of if GM will file for C11. GM blew past “if” a long time ago. By the turn of the century, the artist formerly known as the world’s largest automaker was doomed. Still, if they had greeted Y2K by mortgaging everything (à la Ford) and used the cash to buy out dealers and kill brands and ditch models and pay off the UAW and . . . nah. By the time The General re-launched their refreshed GMT900 SUVs in May 2005, the gig was up. By that point, GM should have been in C11. In this alternate universe, GM might have had enough cash—their cash not our cash—to make it out of bankruptcy. Now, I’m not optimistic. But one thing’s for sure: this Death Watch series is, like GM, on its last legs.
The filing’s timing has nothing to do with finances: profit and loss, cash flow, capital investment, depreciation, amortization, tax schedules, that sort of thing. The moment GM cashed its first government check, its fate ceased to be a matter of commercial reality. The corporation that was once the world’s largest company, the world’s most profitable company, had instantly and irrevocably reduced itself to nothing more (or less) than a political football.
The fact that Uncle Sam’s $13.4 billion federal loan didn’t even stretch to March 31st, never mind through the end of 2009 as promised by GM CEO Rick Wagoner, is neither here nor there. GM is now, for all intents and purposes, an off-shoot of the US government. And that means GM’s on government time.
Hence the reason why GM isn’t in receivership, despite failing to satisfy the loan’s conditions (UAW concessions, a massive debt-for-equity swap amongst existing bondholders and a credible viability plan). Never mind. We’ve got a presidential task force. Meanwhile, how about a bridge loan to take GM from their current bridge loan to . . . another bridge loan.
No surprise there. You can’t very well create a new layer of federal bureaucracy without giving it a chance to do something. Witnesses must be called, lawyers consulted, inter-departmental advisors indulged, papers perused, confabs held, policy statements written, copies circulated for approval, etc. And that’s after the appointees are appointed, assistants hired, stationary commissioned, website created, budgets drafted, alliances formed, careers fortified, etc.
If the Presidential Task Force on Automobiles simply cried “basta!” and called the loan, they’d have nothing to do. A federal bankruptcy judge or judges would take over. What would be the point of that?
In fact, doing the right thing would be the exact wrong thing, politically. First, it would make the Obama adminstration seem impulsive. They just got started! Second, it would make the Obama administration seem weak. It would be a throw-in-the-towel tacit admission that the economy is in even worse shape than they won’t admit it is, and there’s not a damn thing they can do about it. Third, a C11 filing would require even MORE money from Uncle Sam than GM is currently requesting.
I’m not talking about a GM C11’s impact on the economy. Nor am I referring to the Bloomberg report pegging the legal costs of GM’s bankruptcy at a cool billion dollars. Truth be told, if the federal government is going to bankroll The General’s bankruptcy—and how could it NOT provide debtor-in-possession (DIP) financing given that there’s this presidential task force occupying precious DC real estate—the real cost of ressurrecting GM will finally emerge.
Remember: no matter how well Uncle Sam puts Humpty Dumpty back together again, the feds will have to keep GM going until the economic recovery. A year? Two years? I’m thinking $100 billion. Easy.
A USA Today poll released today reveals that 75 percent of Americans are now against loaning Detroit automakers more tax money. Just two months ago, 61 percent of the public were pro-bailout. Consider the magnitude of that swing and imagine how John Q. Public will feel if the true cost of keeping GM in the game were suddenly revealed.
How and when will that number swing back towards federal intervention for Detroit? It can’t and never. Uh-oh. Rock, GM. Obama, hard place.
Politically, there is but one answer: continue the bailout buffet diet of little (in some bizarre sense of that word) and often. In other words, “loan” GM just enough operating cash to remain in their current, zombie state. At least for now. At least until March 31st.
By then, the American public may move beyond not wanting to support GM to not giving a damn. The feds can then slip and drip: let General Motors slip into C11 without much public outcry, and then continue the drip feed under DIP.
Here’s the real bottom line: with or without DIP, GM will continue to be tied to the feds with an umbilical cord made of piano wire. The worst is yet to come.