Last Thursday in Detroit, General Motors presented its rescue case to the Society of Automotive Analysts, a group of Wall Street securities analysts. [pdf here] The story was chock full of “not good.” In fact, the company presented enough information to make the case that bankruptcy is inevitable. But I’m still waiting for a single report from Wall Street telling everyone what we’ve known at TTAC for at least three years. GM is bankrupt and putting another dime of government money into this car wreck is merely good money after bad. 

It’s too bad GM presented nothing more than damning evidence of why the company has to file bankruptcy. Not that management didn’t try the old positive spin manipulation of bad news – they did. But you won’t see any analyst reports coming out telling the truth that there is no where to go but to the Bankruptcy Court in Manhattan. So we’ll do it for you.

For starters, GM lowered its forecast for new car sales in the US auto market overall. As recently as December 2, when GM last presented to Congress its non-starter rescue plan, the company anticipated that 2009 car sales would come in at 12 million units.  (2008 saw 13.2 million units sold.) Now, the company sees the market at 10.5 million units, a haircut of 1.5 million units or another 300,000 units less for GM from its previous lowered forecast.

Assuming GM’s correct, and assigning a 20% market share to GM for 2009 (reduced fleet sales, negative consumer confidence, more incentives from the Toyondissan camp, etc.), GM will sell 2,100,000 units in 2009. That’s nearly 900,000 fewer units than last year or a reduction of 30%.

Add to that the desperate attempts by everyone else – and especially those manufacturers with stronger capital structures – to move units in a terrible market. The incentive money will be huge. Despite production cut backs, four day work weeks, and extended plant holidays, it’s simply too costly to just shut down for an extended period beyond a few weeks for any auto manufacturer.

The high fixed-cost nature of vehicle assembly, marketing, and white-collar staffing demands that the products keep moving out the door just to minimize losses. The Japanese will give away cars with thousands of dollars on the hood to keep the metal moving. The Europeans will provide money through the back door – so-called “trunk money” – to keep iron from stacking up at the ports. And yet GM’s management thinks it can improve the gross contribution during this period. Sure.

Revenues at GM will decline with fewer cars sold and shrinking gross contributions per unit due to incentives needed to match or exceed the competition. At an average revenue to GM of $25,000 per vehicle (my estimate before incentives which are paid after retail delivery), 900,000 fewer units sold in 2009 means a revenue loss of – ready now – $22.5 billion from the top line. And with the company already bleeding cash at the rate of $20 billion per year in 2008, is there any chance of cutting costs fast enough to become cash flow positive?

The killer chart proving my point came from Rick Henderson, the Chief Operating Officer. When the crap really started hitting the fan at GM back in 2005, management outlined its goal to reduce “structural costs” to 25% of revenue. (In 2005, GM’s structural costs were 36% of revenue.) Target date for 25% – something like 2009 if I remember correctly.

Liars may figure, but figures don’t lie. GM has never gotten close to achieving this target percent. In 2007, structural costs accounted for 29.5% of revenues, the best performance since 2005. But in 2008, they rose to 33.9% as revenues shrunk faster than costs could be cut. Anyone care to guess what will happen in 2009? GM’s simply chasing the rabbit down the hole.

But let’s heap on more bad news. GM Europe, like GMNA, will bleed cash badly in 2009. The sales projections for Western Europe are dismal. Maybe Andrea Merkel will lend GME some dough? Spain’s a write-off. And England looks like it will be a gloomy London gray for the year for car sales. GM’s key overseas unit will need cash too. 

And here’s the worse news. By next month, after the last round of government bail out loans, GM will have a staggering debt load of $76 billion (including the present value of its VEBA liability). But let’s suspend reality and assume that the unsecured public bond holders and the UAW agree to the mandated debt-to-equity conversion.

Guess what? GM will still have $43 billion in debt – practically the same amount it had in 2007 ($39 billion exclusive of the VEBA liability). On a smaller revenue base in 2009.  

And there you have it. GM itself has made the case for bankruptcy. There’s simply no point at giving this company more money to try and restructure. It just doesn’t make sense. Now let’s see when Wall Street tells the government that’s the case. Heck, we’ve done it for them.

GM can fix its own problems. Really. They don’t need a miracle cure or a piece of technology fabricated at MIT’s advanced labs. They don’t need a new financing scheme developed by the alchemists on Wall Street. Nor do they need Nancy Pelosi & Co. to fashion tnier future. What they need to survive can be summed-up in two words: truth and honesty. If GM would be honest about its products, finances, dealers, marketing, reliability, (lack of) executive talent, and on and on– it could begin to resurrect itself. Until and unless GM gets glasnost, the automaker will remain forever stuck in the quagmire of its own making, relegated to the support of the taxpayers, always looking for its next fix. To understand the possibilities, compare and contrast GM’s perfidy with “One Ford”….

Like GM, FoMoCo was a company headed for extinction. Sales, market share, profits, product competitiveness, branding– Ford was outclassed, out-maneuvered and out of gas. Unlike Rick Wagoner and his Board of Bystanders, Ford CEO and Chairman Bill Ford and the Ford family admitted the inevitable. In the summer of 2006, they looked outside the company– and the industry– for a well-seasoned executive to replace the family scion. Ford brought in ex-Boeing exec Alan Mulally to clean house.

Ford’s hopes for survival didn’t– and don’t rest upon CEO Alan Mulally’s engineering or union-wrangling expertise. It’s Mulally’s leadership, his impact on Ford’s culture that will leave the automaker the last man standing.

Under Mulally, Ford has publicly acknowledged and accepted the fact that the days of owning 25 to 30 percent of the U.S. new car market are gone. Profitability must come at just 15 percent. To achieve this new, more limited goal, Mulally has attacked Ford’s culture of complacency and infighting. By all accounts, Mulally demands a “truthful and honest” assessment about the company’s health. And he demands that his managers demand it.

We’re seeing the realization of this new paradigm. Ford cars more-or-less equal Toyota and Honda products’ reliability. Ford is also matching factory production to actual demand–rather than bogus sales forecasts from marketing and finance. And although Ford is talking-up an electric car that they don’t have, they understand that their survival doesn’t depend on a “leap of faith” technology. They’re looking for single, double and triples, not home runs.

GM remains stuck in its past. Whether it’s the Volt or a Volt-based Cadillac or HUMMER’s non-prospects, everything they do is shrouded in a fug of hype. Lies, half-truths and deceptions are perpetuated upon journalists and the public until they become the truth– within GM. Every statement they make– whether by marketing, dealers or top executives-– is inherently suspect. Even when the hype is demonstrably false, GM clings to the spin like grim death. Literally.

To wit: today’s NYT runs a piece by Bill Vlasic entitled “Wagoner Says G.M. Is Working on an Overhaul Tied to the Bailout.” In the story, CEO Rick Wagoner states that GM is focused on meeting the requirements of the bailout loans. He asserts that GM can become financially viable via labor cost reductions, debt swaps and reductions in brands/dealers. Wagoner provided no specifics, no proof, no concrete plan. This despite the fact that he has less than 40 days to submit the plan to Obama’s as yet unannounced car czar.

Wagoner leaves a decade of devastation in his wake. He has destroyed GM shareholder value, shed tens of thousands of high-paying jobs, sold-off once-valuable assets, lost billions on misguided foreign entanglements, failed to assure proper accounting practices and placed his company in the hands of politicians. And yet even now, he can’t tell the truth.

Rick Wagoner knows that GM can’t possibly meet the federal requirement for the $13.4b– and the rest– worth of taxpayer loans. With Uncle Sam’s wallet wide open, the mandated sacrifices will not occur. Period. Why not tell the truth to the company, its dealers and suppliers, and, above all, the American taxpayer?

If GM is to survive, Rick Wagoner should come clean. He should tell everyone that Saab, HUMMER and Saturn are toast. (How much “strategic review” do you need to figure that out?) That it’s impossible to negotiate a complicated debt-for-equity swap for $63b in two months– outside of a courtroom. That there are significant problems in amending an existing labor contract– outside of a Section 1113 motion in bankruptcy– that would overturn decades of hard-won labor gains. Wagoner should admit that GM will need additional government assistance in 2009.

The simple truth is that aGM  bankruptcy was, is and will be the only path to resurrection. As a smaller company, shorn of most of its debt and burdensome labor agreements, GM can be a smart and strong competitor in North America and around the world. But everyone at GM needs to be honest and speak the truth. The truth will set you free. Just ask Alan.

First to blink, first to lose. That’s what GM’s creditors know. As does Ron Gettelfinger, the United Auto Workers (UAW) boss. And that’s why there isn’t enough time between now and February 17th– the congressional deadline for the next federal loan installment for GM– for General Motors to craft a workable deal to save this company. No one is going to blink. So no one will cave, and nothing gets done. Then what?

The loan terms of the bailout specified a raft of requirements that GM has to meet or else Treasury might call its loan and force the General to face a bankruptcy Judge. There are two key terms of GM’s federal loan agreement that will definitely not be met.

First, the unions have to meet wage/benefit parity with the foreign transplant non-unionized work force. That’s a non-starter for the UAW. In fact, two hours after the bailout was announced, Ron Gettelfinger announced his itention to get the new Democratic President and Administration to amend that “unfair term.” Why would the union boss offer GM concessions that he seeks to overturn? He wouldn’t And won’t.

In any case, active UAW members’ direct wage and benefits are already close to parity with the transplant workers’. The important differences involve work rules, job classifications, and a telephone book’s worth of nonsense that makes union workers more unwieldy (read: costly) than transplant workers. The loan terms seek to sweep all of this away.

But UAW members believe they have the right to these job protections– even at the taxpayers’ expense. And if all those hundreds of pages of the union contract disappear, what’s the point in having a union? Legally, the UAW must put any changes to its existing GM contract to a member vote. Which it would lose. Unless, as always, there’s a quid pro quo.

The UAW (and its media supporters) likes to point to its “historic health care giveback”: the agreement placing GM retiree health care obligations into a union-run benefit association (a.k.a. VEBA). That little “concession” cost GM approximately $10b in cash. Of course, GM doesn’t have the cash, and never will– unless the American taxpayer antes up some more Benjamins. Meanwhile, The General already deferred its first payment (with interest accruing).

The Treasury Department inserted terms in the bail out loan agreements requiring the UAW to take stock in the new GM for half of the VEBA cash contribution owed. But it’s harder to skim stock than cash, and lots of stock won’t pay the medical bills coming due for retirees either. So the debt for equity swap is simply not going to happen.

The second key loan agreement term: a two-thirds debt-for-equity swap imposed on GM’s financial creditors. Nope.

If you add up the General’s debt liabilities (auto operating company related), the figure approaches $66b. Subrtact the Government’s bailout loan of $13.4b and the UAW VEBA liability of $10b (two creditors that want cash payment, not stock), and GM still carries $43b of debt.

Then there’s $7b in current debt (debt owed in less than a year), consisting of short term obligations and current portion of long term debt. The chance that short term creditors will take a long term position in General Motors is ludicrous. Especially when Uncle Sam is on the hook, and considering the Treasury Department’s cavalry rescue of GMAC.

That leaves long term debt of $36b comprised of various unsecured bonds of varying maturities, foreign currency denominated debt, bank debt, convertible debt (at strike prices that will never be seen again), and other debt-like items such as capitalized leases and muni bonds. Somehow, GM has to get approximately $25b of this grab bag of debt converted to equity.

Convincing these parties to agree to swap for debt for equity is impossible. There are various priority considerations, the fact that stock of a new GM might just be worthless, and that muni bond holders and lessors have zero interest in stock. Bank lenders with collateral, bond holders with near term due dates, and smart hedge fund owners of GM’s public debt will hold out until the very end.

There’s no chance to arrange any kind of equity exchange on reasonable grounds outside of bankruptcy court. It just ain’t gonna happen without that filing. We know it, the government knows it, and bankruptcy and reorganization experts know it. The only ones who don’t get it is GM itself.

“Inside sources at GM” have spent the last couple of days “suggesting” to the press that The General won’t need any more money beyond the $13.4b bailout from the Treasury (and another $6b for GMAC). GM CEO Rick Wagoner joined his union boss to make the announcement on TV this morning.

Sure, $20b in government money would be enough to buy the survival of GM (and GMAC)– provided U.S. auto sales hit the low end forecast (between 10.5 and 12.0m units) AND the other guys takes the hit. But no one will blink.

And even if GM doesn’t need more money, it’s still a basket case of a company run by the executives who dug the hole. There is only one solution: bankruptcy. Let’s get on with it already.

A recent TV ad extols the wonders of the Cadillac CTS. Suddenly, the image zooms backwards and flips around to become a sparkling GM logo. “The CTS is made by General Motors,” the narrator intones. “Surprised?” I sure was. I mean, I understand the intended subtext: See? We’re not a total basket case. But as my father would say, if you’re so smart how come you’re not rich? Students of this series know that GM has plenty of answers to that question. The only thing neophytes should clock: none of these answers involve the phrase “we fucked up.” That and the fact that GM wants you to believe that their turnaround depends on building more cars like the Cadillac CTS. Uh-oh.

Don’t get me wrong. I like the CTS. It’s not a Bimmer beater or a Merc mauler or a Lexus liquidator. But it’s a fine car in its own right, especially at a discount. (Yes, there is that.) Just as the Chevrolet Silverado offers tremendous value-for-money, especially at a discount. (Yes, there is that). By the same token, the Chevrolet Malibu. And therein the problem: it is a token.

The vast majority of GM products– and there are over 120 of them– are, well… let’s not go there. There’s only so much J.D. Power Initial Quality Survey data a man can drink-in before it all starts to taste like Kool-Aid. So, back to my main point…

What’s with the blending of Cadillac and GM? Does anyone care that GM owns Cadillac? OK, given that taxayers will soon have a $13.4b financial interest in The General’s product portfolio, they might appreciate the heads-up. But GM’s paternal relationship with Caddy cuts both ways. On the upside, the CTS is GM’s automotive poster child. On the downside, the GM – Caddy hook-up rivals Jerry Lee Lewis’ first marriage to his cousin as “one those things with which marketing-minded folk shouldn’t bother the buying public.”

The CTS ad’s muddied message is symbolic and symptomatic of GM’s ongoing, endemic and abject inability to manage the core of its business. Cadillac is a far stronger brand than GM, which now stands for executive greed and incompetence, union intransigence, environmental foot-dragging, failed manufacturing, back-room politics and corporate socialism.

Cadillac is such a strong brand– still– that all it really needs is world-class products. Even if you put the CTS in that category, that leaves nothing much worth talking about, never mind buying.

GM is supposedly addressing this deficiency with the new SRX. The view from here: the SRX will be the CTS of luxury utes. It will offer plus-sized comfort priced higher than smaller, less expensive foreign competitors, for less than the cost of its larger, more expensive foreign competitors. How great is that?

Not as great as a no-compromise f-off sedan with presence, power and panache. That’s the popular conception of a Cadillac, as witnessed by the success of the blinged-out, gas-guzzling Escalade (to each their own in the panache department). In fact, all GM had to do with Caddy was build the world’s best automotive products and charge customers exorbitant amounts of money for the privilege of owning them.

Of course, GM can’t do that now. Now that the American automaker’s mortgaged its future to the suckle on the taxpayer teat, Cadillac is hemmed-in by GM’s need to satisfy its new owners: the democratic party. These days, Caddy’s alphanumeric model names might as well start with the letters PC.

This folks, is GM’s strongest brand. Saturn’s branding is in such a shambles that GM’s own TV commercial shows a customer who thinks he’s in the wrong showroom. Buick is dead. HUMMER and Saab are… never mind, GM’s selling/starving them. GMC? Pontiac? Chevrolet? When it comes to branding, GM ain’t got game.

Never mind a “viable business.” Can an American car company survive without viable brands? Not in this market.

I don’t mean a market suffering from seemingly terminal consumer constipation. I’m talking about an automotive arena filled to the rafters with a wide range of highly-focused automotive brands. From Toyota’s reliability rep to the MINI’s fun factor, from unattainable Ferraris to stack ‘em high and sell ‘em cheap Hyundais, there’s no niche left behind. Without a single compelling brand, GM is nothing more than taxpayer-funded chum in a shark-infested ocean.

So what’s Cadillac’s killer app? The CTS. And what’s CTS’ killer app? Cadillac. That’s the kind of self-referential logic with which it’s impossible to argue and, it seems, impossible to eliminate. But GM’s fortunes depend on better branding. Until and unless GM masters the art of creating and sustaining a tightly-focused automotive brand or eight, they are simpliy killing time. Even as they are slowly, gradually, inexorably killing the only truly valuable assets they’ve ever owned.

Last week. President Bush sacrificed his free market principles on the altar of expediency. Apparently, under “ordinary circumstances,” the Commander-in-Chief wouldn’t have expropriated $17.4b of taxpayers’ money to bailout General Motors and Chrysler. But someone somewhere screwed-up the U.S. economy; leaving him without the option that cannot be named (a.k.a. doing nothing). I guess Bush was channeling Flip Wilson: “The Devil made me do it!” Actually, that would have been a welcome excuse. The pretext Bush deployed is deeply worrying: “My economic advisors believe that bankruptcy could now lead to its disorderly collapse.” So we’re propping-up two dead dinosaurs walking because we fear “disorder?” When did the United States become Germany?

Seriously. I’ve seen Germans standing at an empty pedestrian crossing at 2am, waiting for the light to change. Don’t get me wrong. The German desire for order is both their weakness and their strength. Alois Ruf doesn’t build the world’s best supercars by allowing his mechanics to plop a schmutz-oozing bratwurst sandwich onto a toolbox. But a tightly confined system of rigidly enforced rules and regulations is not the American way.

As a nation, we’re supposed to have a system of government– and a corporate culture– that allows individuals and companies to engage in the art, science and business of innovation. To paraphrase Joseph Stalin, you can’t make an innovative omelet maker without putting a few omelet makers out of business.

I’m sure I don’t need to lecture anyone about the importance of creative destruction to the health and vitality of our entire economic system. Unless it’s President Bush. Does the Chief Executive honestly believe that the American economy will be stronger if our tax money props-up two, perhaps three failed not-to-say doomed carmakers?

Even if GM could be “saved” by a temporary reprieve from Adam Smith’s “invisible hand,” the overall effect on the automotive market will be stultifying. GM and Chrysler will suck-up sales/money that could have rewarded and strengthened more efficient and market-sensitive automakers, during a time when every sale counts.

Those of you schooled in realpolitik will counter that the Motown bailout buffet is like everything else that emanates from the political sphere: it’s about pragmatism, not principle. The President believed that protecting his political legacy (such as it will be) depends on making GM’s implosion Barack Obama’s problem.

Fair enough. Or, in this case, completely unfair to the car companies who deserve to survive. But the real irony here is that President Bush’s failure to embrace his inner cowboy, his failure to stand back and let the chips fall where they may, will make things far more “disorderly” than if he’d left not well enough alone.

During this pre-C11 interregnum– for that is what it is– The President and his cronies expect GM’s stakeholders to not drive that stake into the automaker’s black heart. For some reason, Bush expects the company’s executives, unions, bondholders, dealers and suppliers to fashion an agreement whereby everyone takes a hit for the team so that the team may survive.

For GM’s longtime observers, the idea triggers a simple, inescapable thought: why the Hell would they do that?

For one thing, they haven’t done it so far, even though GM has been technically bankrupt, heading for its day in bankruptcy court, for years. In fact, you could make an excellent case that the bailout is a reward for NOT having negotiated a viable business plan. And anyone with dogs knows what happens when you reward a behavior. See you on March 31 for more of the same? Count on it.

For another, there is no power within the bailout “agreement” to force anyone to do anything– other than file for Chapter 11 (which they’re going to do anyway). The idea of a bailout “Car Czar”– once the linchpin of the whole deal– has quietly disappeared. And no wonder. He or she would have been a de facto bankruptcy judge. And you can’t have that while you’re busy jockeying for position in the real bankruptcy.

If Bush and the federal teat-suckers he’s supplying think a GM/Chrysler bankruptcy now would be disorderly, just wait. GM’s various “stakeholders” will spend the next 90 days or so fighting over the meat thrown to the wolves by Uncle Sam, and then begin the real business of internecine warfare. Without a bankruptcy judge’s staying hand, all Hell is about to break loose. I fully expect the whole house of cards to collapse before the time comes to re-up. And if not then, later.

But no matter how long it takes, every day that GM (and Chrysler) stay in business will sap precious strength and vitality from the American automobile industry. Energy is never lost; it merely changes form. America’s Founding Fathers knew that some forms are better than others. But when it came to commericial ventures, as long as they stayed within broad boundaries, it was not for them to decide which.

When I was growing up in Rhode Island, the state was run by the mafia. Politicians, police, priests, judges, juries, firemen, trash collectors, teachers, unions– anyone who had power owed that power to Raymond L.S. Patriarca. Period. In the last forty years, the mob’s stranglehold on the Ocean State has dissipated– even if the stench of corruption remains. But it’s too late. The mob-controlled unions and their corrupt enablers destroyed Little Rhody’s industrial base. The state will never be a locus of, well, anything. And yet people call talk radio and wax lyrical about “the good old days.” Justice was for sale. Racism endemic. Violence systemic. Priests buggered little boys with impunity. “But at least you could walk the streets without fear.” This, Detroit, is your future. And you can thank your godfather, GM.

You can almost feel the anger coming from Detroit these days. The sense of betrayal radiates from hometown journalists like heat off a desert parking lot. How could Washington turn its back on us? How could they treat us like goombas? Don’t they know who we are? Yes, they do. And they don’t care. Why kow-tow to yesterday’s boss? But that’s not really the point. Detroit’s anger is fully justified. Something bad has happened. Something that could have been avoided. Should have been avoided. But this animus, this furious indignation, is entirely misplaced.

It is GM that betrayed Detroit, not Washington. Instead of sorting out their business, GM’s capos spent the last four decades dining at fancy restaurants, smoking fine cigars, flying around in Gulfstream jets and doing… nothing. And then, when they finally grasped the fact that their goose was cooked, they ran to Uncle Sam and said, “Let’s do a deal.” GM CEO Rick Wagoner faced the Senate and told Dodd et al that he’d agree to anything to secure the bailout bucks. Oversight? Car Czar? Deadlines? “I think we would could live with that.”

As a friend of ours likes to say, there is no honor in this. GM’s CEO should not have come crawling back to D.C. in a Malibu hybrid to beg for a taxpayer handout. At the very least, Wagoner should have resigned after his first, disastrous Congressional appearance. Either that or he should have poured bankruptcy expert Jay Alix a stiff whiskey and told him to file for Chapter 11. Wagoner would have spared his employer the final indignity of watching Congress and the executive branch remove GM’s ability to determine its own fate.

“But no one will buy a car from a bankrupt automaker.” Excuse the profanity, but who the fuck cares? GM is bankrupt. Its liabilities currently outweigh its assets by a factor of ten. A government loan will simply add another creditor to a long list. Head of the line, back of the line, big whoop. The fed’s $13b will keep GM on life support for what? A month? Three? And then what?

As there’s nothing GM can do to generate the profits it needs to cover its overheads, as any real turnaround would take over $100b and at least five years, sooner or later, GM is headed for more public humiliation. How much more of that can GM take?

It’s one thing to get steamed at a politician for pissing away $700b of your hard-earned money for his or her best buds on Wall Street. All you can do is not take out a loan from TARP-blessed banks (that won’t give you a loan anyway) and/or vote the offending politicians out. You know; later. But if a carmaker is blowing your taxes, retaliation is easy. You don’t buy their products. You want my business? Sorry, but I gave at the office.

Mark my words: if GM uses taxpayer money to stave off bankruptcy, and then comes back for more, executive haircuts and public equity stakes won’t do squat to mollify an enraged public. There will be a consumer backlash that will make bankruptcy seem like a J.D. Power Award.

Meanwhile, GM and its camp followers are dazed and confused. Just like the little old ladies who used to promenade up and down Atwell’s Avenue without a care in the world, they don’t understand why things have changed. They will never understand that they sat atop of a pyramid of abusive exploitation. In the same sense, GM’s customers subsidized Detroit’s sense of wealth, safety and entitlement by buying shoddy vehicles. But only because they had to.

As soon as they didn’t have to, they didn’t. And then it was only a matter of time before the old corrupt system collapsed. Reform? The man who could have created life-sustaining change for GM through C11 (albeit three years ago) is in federal custody. Powerless. Someone somewhere else is large and in charge. Depending on your perspective, you might even call it progress.

If you need proof that GM’s management hasn’t changed, consider the fact that the company is preparing not one but two rescue plans for Congress, The automaker claims it needs both a public plan and a top secret “for their eyes only” brief because sharing “proprietary information” in a public forum could be “problematic.” Total hogwash. There is only one reason GM won’t let the public view detailed information about its future– it doesn’t have one. With or without a look at the fine print, the truth remains: GM’s restructuring plan as presented to Congress will never work.

GM’s 10 to 12 page public document will cover, in broad strokes, the changes the otherwise and in any case C11-bound carmaker promises to make in return for some $12b worth of government loan guarantees. We already know most of what the document will include: a long-range vision of fewer brands and dealers, UAW concessions on the JOBS bank, and a “plan” to do a partial debt for equity exchange with its bondholders. We might even get to see a pro forma balance sheet and income statement that “proves” the plan works. We will definitely see GM’s PR maestro Steve Harris’ hand, ensuring that the headlines offer journalists a vision of Zion from the top of the RenCen.

Bullshit. Without specifics GM’s public plan is a sham. It’s a PR exercise designed to convince Congress that GM has “gone back to the drawing board” while hiding the truth of the company’s prospects (such as they are) from those of us who earn a living dissecting these “promised land” statements. There will be nothing in the public report that will prove that GM has the capacity to restructure in such a way to become profitable.

As always, the devil is in the details. Yes, brands will be dropped. But the termination will occur as already planned: over time, not immediately. And those brands chopped will be part of an existing sales channel; dealers will lose a franchise, not their dealership. More specifically, Pontiac will die–- leaving most dealers with Buick and GMC. Saab and Hummer go away, leaving Cadillac to stand on its own. Saturn will be “re-energized” somehow, not killed. Add that up and it’s a whole lot of nothing. Literally.

Yes, the JOBS bank will disappear. United Auto Workers boss Ron Gettelfinger finally got the message that most Americans find it beyond ridiculous that union workers get 95 percent of their salary for doing nothing. The part we won’t see: JOBS bank members will get paid to not get paid not to work. Think of it as forced buyouts instead of voluntary; which also conforms existing attrition plans. As for the Mother of All Health Care Funds (a.k.a. VEBA), the UAW will agree to delay the $7b payment due– in lieu of immediate shortfall health-care compensation. Congress will miss the nuance of shifting a balance sheet liability to an operating expense.

Yes, there will be debt exchange. In theory. GM will say it needs federal money now to buy time to arrange the exchange. But there’s not a chance in the world that GM has gotten agreement from those bondholders in the two-week period since the disaster on the Hill– especially as GM’s plan for a restructuring won’t work. In any case, we’ve already written (and Porsche’s CEO agrees) that GM would have to surrender the company to the hedge funds if any such exchange takes place. GM’s dead if they do, dead if they don’t.

The secret plan we won’t see will prove to those knowledgeable about such things that GM’s new new new new new new turnaround plan can never work outside of bankruptcy. But those in-the-know will keep their mouths shut. All we’ll get are headlines about the “New GM.” Proof that GM is and will be making the “hard decisions” necessary to achieve profitability. Executives taking pay cuts. Dealers calving-off worthless brands (while still trying to flog “badge engineered” copycats from Chevrolet and Cadillac). A new, more compliant UAW.  And bondholders “indicating” willingness to do an exchange-– without it actually being done.

Congress is about to risk $25b of OUR money on GM and their cross-town frenemies. We need to contact our representatives and demand that they give us the whole GM recovery plan, nothing less. Let the public see the fine print and render OUR opinion. Maybe the plan will contain some details we didn’t think about. Maybe it offers a remote chance of working. But given GM’s history of unrealized promises of turnarounds and great new products, the secrecy indicates that the truth is both unprofitable and unpalatable.

[If you have access, please email the "secret plan" to [email protected]]

Speculation is rife that GM plans on shutting down or selling Saab, Pontiac and/or another brand as a prelude to a federal bailout. Common sense and recent history suggest that any such move will create a raft of breach of contract claims by jilted dealers and suppliers. As Oldsmobile’s demise proves, there’s only one possible resolution to the resulting feeding frenzy: cash termination payments. If, however, GM filed for Chapter 11 bankruptcy, these breach of contract claims would become nothing more than unsecured claims– which are resolved within the debtor’s C11 reorganization. The claimants would be legally barred from costly state court litigation. In a stroke, GM would be transformed. How great is that? But wait, there’s more!

Suppose Saab’s potential new owners want to make the moribund brand profitable by using different suppliers. Outside of C11, fuhgeddaboutit. The resulting lawsuits would daunt even the most dauntless would-be rescuer. Inside Chapter 11, GM can terminate Saab’s supplier agreements without legal blowback. Creditors asserting liens and security interests on GM’s assets are prevented from delaying their sale; litigation over the validity of disputed claims is prohibited. Since the suppliers’ termination claims become unsecured claims, the affected manufacturers would receive no cash payments. None. In fact, GM can use the money “saved” to aid the profitable operations it intends to keep. And the savior gets to do it their way.

As regular readers know, GM’s renaissance is hamstrung by its bloated dealer network– which is protected by 50 state franchise laws. If GM is to match tri-branded Toyota’s slim-line 1200 dealer network, The General’s existing dealer agreements need to be terminated or modified. Outside C11, Oldsmobile. Under the terms of federal loans (or loan guarantees) for GM, the resulting legislation could amend the Federal Bankruptcy Code to create a “GM exemption.” A U.S. District Court could receive exclusive jurisdiction over any and all auto dealer termination claim. No fuss, no muss, no “ongoing situation” a la Oldsmobile.

A disadvantage (apparently) to GM in Chapter 11: the rules of reorganization require full and complete disclosure of the automaker’s financial status and future profit (you remember profit?) projections. Truth be told, “limited disclosure” to taxpayers is nothing more than contrived non-disclosure– which is insulting, misleading and dangerous. By “encouraging” GM to file, the feds would be forcing GM to open its books to full public scrutiny.

This would help end GM’s stifling corporate culture. It would encourage a new broom, and the introduction of a key concept long missing from Renaissance Center: accountability. In fact, prior to December 8, 2008, GM should be required to make a written SEC filing disclosing the identity of:

a. its 100 largest bondholders;
b. its 50 largest trade creditors/suppliers; and
c. its 20 largest common shareholders.

Knowing how much debt is concentrated with which bondholders helps us gauge the prospects for conversion of debt into equity. Knowing the amounts owed to the largest trade creditors helps us understand how quickly creditors/suppliers can be organized and the terms of a Chapter 11 prepack negotiated. [Much of this information is readily available from paid providers of financial data-- but not to the public.] This information will also disclose who benefits most from a taxpayer-funded automaker bailout/rescue.

Sorry for the digression. But in corporate restructurings, whether in or out of bankruptcy, there are obvious concerns about management’s competency. It’s rare for creditors or potential lenders to blindly swallow/follow management’s restructuring recommendations. Captains of sinking ships should not get the chance to prove that they were right and the iceberg was wrong. Congress needs its own independent restructuring experts to decide if sinking automakers can be salvaged. Again, Chapter 11 helps bring the automaker out of the shadows and into the light, where it belongs, for its own good.

By the same token, a Chapter 11 filing would eliminate the uncertainty now surrounding GM and its brands. While there’s no doubt that GM’s sales would crater, an “everything must go” sale would create a new buzz for the company’s vehciles. With a compelling public spokesperson at the helm (shades of Lee Iaccoca), GM could ask for– and receive– public sympathy and support for a fresh start. With the right brands, PR guidance and corporate policies (e.g. U.S.-built products or a new committment to green machines ), GM would have a genuinely compelling– and credible– story to tell.

In short, GM’s fear of chapter 11 is entirely misplaced. After the hearings next week, I will propose a 100-day plan for a GM restructuring in a prepackaged Chapter 11. Meanwhile, there are question that need asking. And ask them I will.

Rick Wagoner lost control of General Motors this week. Forget about his title; game over for the embattled former Duke basketball wannabe. There’s a new sheriff at GM – and it’s a bunch of Wall Street guys that few on Main Street can name. It’s the hedge funds that have been acquiring GM’s bonds. So here’s how these guys will play The General to make a killing on the pending government bailout:

First, they’ve been reading TTAC. The money men know GM can’t possibly turn the business around without a major restructuring. That means fewer brands, dealers, a busted UAW and a balance sheet that looks healthy, rather than one destined for the emergency room. They know that one of two things has to happen. Option one: bankruptcy. It’s the most obvious choice, but one to be avoided at all costs (as per GM management).

Option two: a non-C11 cram-down on all the creditors, the unions and anyone else to whom the GM monster owes money. Either way, every one of these creditors will end-up with a bunch of paper (new equity or new debt), but no cash for the credit already extended.

The bond market sees this coming. GM’s non-bank debt– mostly unsecured obligations– trades between 10 and 20 cents on the dollar. Translation: anyone holding GM paper has very little prospect of getting paid in full when the debts come due. Right now, GM’s attempting the cram-down on those bondholders (and the United Auto Workers). GM CEO Rick Wagoner hopes to trade debt for equity– or perhaps arrange a debt exchange– with GM’s bondholders. That’ll show Congress that he’s “making progress.”

But Red Ink Rick seems to have forgotten that Wall Street “hedgies” control GM’s debt. And they want to make money soon rather than never later. And the plain truth is that the hedge fund playas are going to win this game with or without a GM bankruptcy. Either GM gives them the terms they want, now, or GM will have to file. The hedge fund boys don’t care which way GM goes. In either scenario, they’ll end up controlling the company.

Their terms are simple: give the hedge funds enough new shares now so they can control the General’s Board of Directors. All indications are that GM’s bending to their demands. At the same time, the bondholders are demanding that Wagoner show them the rest of the plan he’s going to present to Congress that proves GM can avoid C11. That means better terms from the UAW labor agreements and the VEBA health care program, killing some brands and dealers, and making even more cost cuts.

And if GM files? No big deal. The government won’t let GM be liquidated. Nor will it nationalize the automaker. The reorganization will happen fast. Again, the bondholders will get to call the shots– right behind the $5b or so of secured bank debt. It’s a pittance in the scope of GM’s total liabilities; the automaker’s bond debt totals nearly $36b or so.

Assuming the hedge funds have been acquiring GM’s bond debt for pennies on the dollar, their total outlay might be around $4 to $8b. That’s not a lot of money, considering that the Feds are likely to put in another $12b or so of your hard-earned taxes. And that’s AFTER the group haircut.

The hedge funds will end-up calling the shots at a company that does $150b in sales with a global franchise and a new balance sheet financed by the taxpayers. Better yet, it’s a company that must be structured in a way to make money. The government wants to get paid back; the Feds will be sure that everyone gives enough so the company can be profitable. And that works for the hedge funds too– they got in on the cheap for a company guaranteed not to fail. (Ish.)

But don’t expect the hedge fund guys to show-up at the Capitol this week. In fact, they’ll stay well out of the limelight while Congress worries about Rick’s mode of transport to D.C. All the hedge funds want is a plan that works, and money from Congress. And then they can steer the wheels at a new GM, one that’s got a new balance sheet, a new management and a slimmed down North American business that makes money. It’s a good bet to take.

How much would a newly profitable GM be worth?

In recent congressional testimony, GM admitted that its experts are “exploring” Chapter 11 reorganization. At the same time, GM continues to argue that a bankruptcy filing is the nuclear option– it would vaporize jobs and inflict cataclysmic damage on the overall U.S. economy. While acknowledging the danger, many argue that reorganization is both necessary and unavoidable. They suggest that GM’s recreation should somehow take place outside of the time-tested legal process known as Chapter 11. Sentiment is growing that a taxpayer-finnaced “prepackaged” Chapter 11 is the best way to solve both GM’s business and financial problems, and perhaps of other automakers. Maybe so. Let’s have a look…

Why is a non-bankruptcy loan to GM a poor use of taxpayer money?

A lender to an insolvent company on the verge of bankruptcy wants its loan to be repaid. It would not allow loan proceeds be used to pay off existing liabilities. GM owes unsecured bondholders about $40b. There is no indication that bondholders have agreed to standstill, waive interest payments, or restructure the debt. GM’s Series D debt of $800m comes due in June 2009, when GM must pay the debt, default or get bondholders to extend the maturity date. GM owes trade creditors about $28b and owes another $34b in accrued expenses.

GM’s legal obligations to bondholders and trade creditors cannot be changed or modified without a bankruptcy case, or the written consent of each individual creditor, That’s a near impossible task. Attempting to reorganize GM outside of a legal proceeding would encourage creditors to holdouts for special treatment, delaying any chance at restructuring

A commercial lender supporting GM– which is insolvent on the basis of its balance sheet– would ask how paying the existing claims of bondholders and suppliers will help GM with its current cash flow problems. They would not allow loan proceeds to be diverted to unsecured creditors. Without a Chapter 11 case, taxpayer loans to GM could be used to pay interest on $40b of GM unsecured debt, and to pay the $800m Series D debt coming due in June 2009.

GM must also pay $7.5b to the retiree trust in January 2010,– another liability for which it does not have funds. Taxpayer money should not be used to bailout existing debt or to pay non-essential existing liabilities. The restructuring of GM’s payment obligations can be most quickly and effectively accomplished in a pre-packaged chapter 11 case.

What is a prepackaged chapter 11?

In a true “pre-packaged” reorganization, the debtor proposes its reorganization plan and solicits votes before they file for Chapter 11 protections. For companies with publicly traded debt and other securities, Chapter 11 gives them the chance to restructure its debts without the “normal” delay and expense of extended negotiations.

A partial “prepack” involves a pre-petition solicitation of certain classes of creditors (e.g. bondholders) and a post-filing solicitation of other classes of creditors (e.g. unsecured suppliers). If the parties have agreed in writing on how their claims will be treated under the plan, sometimes called a “pre-negotiated” prepack, pre-filing voting on the reorganization plan is not essential. [Under a GM reorganization plan, the common shareholders receive nothing and therefore do not get to vote.]

Bottom line: a prepack doesn’t have to address every issue of every creditor group. Smaller claims are usually resolved after a Chapter 11 plan is approved.

A prepackaged reorganization is not ideal for companies that want to terminate large numbers of unprofitable or burdensome contracts. However, GM qualifies. They’ve been restructuring/downsizing for a few years, implementing plant closings, laying-off employee and making other changes to address market realities.

A big advantage of Chapter 11 pre-pack: the debtor can quickly and easily sell assets and operating divisions (e.g. Hummer, AC Delco) to create cash for ongoing operations. The claims of persons affected by the sales are funneled into the bankruptcy court for expedited resolution. Disputes with creditors need not delay the sales.

What is involved in preparing a business plan and application for a chapter 11 “debtor-in-possession” loan?

In a prepackaged chapter 11 reorganization, the financing for the chapter 11 debtor is in place before the Chapter 11 case is filed. The financing often includes a commitment to provide the “exit” financing used to fund the debtor’s obligations– after creditors and the bankruptcy court approves its Chapter 11 reorganization plan.

Given the current state of commercial credit markets, the U.S. Treasury will have to commit to the reorganization plan exit financing. The reorganization plan will set forth the repayment terms for the existing secured debt, the new U.S. Treasury loan and the Department of Energy (DOE) loan.

As with any loan application, the starting point for GM will be its current assets and liabilities, its cash flow and its realistic projections. All of which go into a measured calculation as to the borrower’s credit worthiness and ability to repay the loan, with interest.

In Chapter 11 cases, the debtor prepares detailed projections and budgets, taking into account the reduction in its current liabilities that result when the case is filed. For example, after GM files for Chapter 11, it will no longer pay interest or principal on its unsecured debt. Chapter 11 lets GM stop paying liabilities incurred before bankruptcy. This will increase the cash available for operations. The debtor’s cash flow projections reflect all these deferrals and changes to current liabilities.

How will retiree claims be treated in a pre-packaged chapter 11 case?

GM retiree claims are– primarily– unsecured claims, As such, they have the same priority as bondholders and other unsecured creditors.

In January 2010, the UAW and its related retiree trust will assume most of GM’s retiree liabilities for current retirees. In January 2010, GM has to pay the retiree trust $7.5bin cash and other transfers of assets. The trust also receives a $4.4b GM convertible debt issue– which is an unsecured claim against GM.

Over ensuing years GM must pay the trust additional amounts estimated to be between $10b to $17b. A basic rule of bankruptcy: claims having the same priority in payment get the same treatment under a Chapter 11 reorganization plan. Thus, all unsecured claims, including claims of the retiree trust, should get the same treatment.

In a pre-packaged Chapter 11 case, creditors can agree on different treatment of claims having the same priority. But this invariably leads to more delay and expense. In a GM chapter 11 case, these future payments to retirees are frozen. They’re treated as unsecured claims; they’ll get a distribution under the GM reorganization plan.

What happens at the beginning of a pre-packaged chapter 11 case?

Despite assertions that reorganization in Chapter 11 is not a realistic option, a company with pre-arranged financing is quite able to operate in Chapter 11. In nearly every mega case where a restructuring of an operating business is contemplated, the bankruptcy court enters “first day orders.” Basically, these are all the court approvals that the business needs to continue to operate its business in the ordinary course. First day orders deal with everything from financing, to advance payments, approval of bank accounts, authority to honor customer warranty claims, and reimburse dealers— all the details needed to prevent disruption of the operating business.

While it is definitely a lot of paperwork, legal and turnaround professionals do this type of work every day. The courts routinely approve first day orders designed to save operating businesses.

GM’s assertion that millions of jobs will be “lost” ignores the simple fact that companies continue to operate their businesses while in chapter 11, albeit under a great deal of scrutiny. GM already finances its largest suppliers (Delphi and American Axle) and has a receivable financing program for other suppliers so that the suppliers have access to cash.

These programs can continue in Chapter 11, or even be improved. For example, GM could ask the reorganization court to approve cash pre-payments to essential suppliers. The past due claims of suppliers are unsecured claims. In bankruptcy, these claims have the same priority in payment as GM’s unsecured debt. In planning a prepack, it’s not unusual for the debtor, with the consent of its major creditors, to prepay critical suppliers before the prepack is filed.

What will creditors get in a pre-packaged GM reorganization plan?

A GM reorganization plan must be based on a realistic projection of future profitability. Future cash flows will determine the enterprise value of the reorganized company, and hence the value of new common shares which will be distributed under the plan. Fortunately for taxpayers, in a Chapter 11 case the debtors’ financial projects are open to public scrutiny and to the comments and objections of creditors affected by the Chapter 11 plan.

GM will not have resources to make a cash distribution to creditors. So the reorganization plan will involve a distribution of newly-issued debt and new common stock, with the old debt and old common shares being extinguished. The new common stock will be listed on a national exchange, It wil,l have an immediately ascertainable value based on the financial projections that GM will have to produce to get creditor approval of its Chapter 11 plan.

Under the reorganization plan, the trust for retirees should not receive payment on the $4b short term note, the $4.4b long term note, or its other claims against GM. But will the trust will get its pro rata share of the newly issued debt and common stock of reorganized GM.

Since the new common stock will be publicly traded, it can be sold to fund retiree obligations assumed by the retiree trust. In a Chapter 11 case, creditors can also agree that retirees will get better treatment than is customary. But this requires a vote of creditors and special treatment that’s likely to be contentious, and delay the Chapter 11 case.

Government financing for a GM pre-packaged reorganization

A U.S. Treasury non-bankruptcy equity investment in GM (i.e., purchase of GM preferred stock) is a bad investment for a company already balance sheet insolvent by more than $60b. A primary beneficiary of an equity type investment: the existing unsecured bondholders and unsecured creditors, who would have a claim on the proceeds.

Some suggest that taxpayers should make an unsecured loan. Any such a loan would have the same priority as the other $105b of existing GM liabilities, making loan repayment unlikely. Taxpayers should demand that any loan made to GM be made only in connection with GM’s Chapter 11 filing, that it be fully secured, and only disbursed pursuant to detailed written budgets.

Naturally, lenders to Chapter 11 debtors should insist on competent management. They should also hire their own accountants and reorganization professionals so that the lender has an independent analysis and opinion of the debtor’s viability, business plans and the “viability” of the debtor’s goals and financial projections.

In a pre-arranged Chapter 11 case, the U.S. Treasury could extend to GM a secured debtor-in-possession line of credit for say $40b, a line of credit secured by a first security interest on all GM assets, being junior only to GM’s existing secured line of credit of $4.4b.

A portion of the U.S. Treasury line of credit should be available to support essential suppliers through loans, letters of credit and pre-payments. On the first day of a pre-packaged Chapter 11case, the bankruptcy court is likely to give interim approval to a portion of the total credit line. Ten day’s later, they’ll have a hearing to approve the balance of the loan facility.

Since the government lacks experience in administering secured loans to insolvent companies in Chapter 11 reorganization, it might be preferable to have the loan guaranteed by the US Treasury. Funds would be advanced periodically by a consortium of financial institutions experienced in lending to Chapter 11 debtors. They’d be better able to monitor day-to-day compliance within the terms and covenants of the loan.

This would not eliminate oversight by the US Treasury and Congress. But it would delegate the devilish details of loan administration to experts.

GM’s Chapter 11 reorganization plan can be expedited

Given the importance of US automakers to the economy, and the need for a successful reorganization to preserve jobs, a GM Chapter 11 reorganization case will be expedited. The chief judge can assign multiple judges to handle different aspects of the case, recognizing that speed is essential to a successful reorganization. Bondholders and other creditors should support expedited handling of their claims– a successful reorganization is the best way for creditors to realize value.

A pre-packaged plan can be approved quickly; the plan has been negotiated and accepted by creditors entitled to vote before the Chapter 11 case is begun. In a partial “pre-pack,” the largest creditor groups informally approve the general principles of the plan before the case is filed. Formal solicitation and voting take place under the supervision of the bankruptcy court.

By using accelerated schedules, a prepack can be accomplished in months, not years. Pre-filing negotiations over the terms of the reorganization plan often result in agreement on difficult issues: payments to suppliers, support for the dealer network, honoring customer warranty claims, and even changes to employee work rules and benefits. All of these agreements can be rapidly documented.

Treatment of claims and shareholders under a GM reorganization plan

Given GM’s own statements about its shortage of cash for the foreseeable future, it’s unlikely that GM would make any cash distributions to existing creditors. Cash will be needed to retool plants and complete ongoing restructuring efforts. It will also be needed to eassure trade creditors that enough cash is available– so that trade creditors will extend new trade credit to GM.

Under a reorganization plan, creditors and shareholders are put in classes. Creditors having the same priority in payment often grouped in the same class. A simple GM reorganization plan would have the following elements:

-Taxpayers have a $40b first lien on all GM assets for monies lent by the US Treasury and the DOE. If GM’s debtor in possession financing cannot be refinanced by commercial banks, then taxpayers will finance GM’s exit from Chapter 11. Taxpayers should get warrants for 10 percent  of GM’s new common shares, to reward them for the risk of financing GM in Chapter 11.

-GM’s existing $4.4b secured line of credit will retain its lien on GM’s assets and be extended.

-Consumer warranty claims are expressly assumed under the Chapter 11 plan.

-$40b of unsecured bondholder debt will receive its pro rata share of any new unsecured debt issued by GM and a pro rata share of GM’s new common shares. The common shares will trade on the public market and will have an immediately realizable value. No interest will be paid on any new debt until all taxpayer loans to GM are paid in full, with interest

-Trade payables of about $39b (the $17 to $27b owed to the retiree trust,) and any other unsecured claims get their pro rata share of any new debt and new common shares.

-The retiree trust may merit special treatment, although potential future liabilities to the trust of $27b not only would weigh heavily on GM’s post reorganization success, but also would depress the market value of any new common shares issued by GM. With creditor consent, the retiree trust could receive subordinated debt, with future maturity dates timed to GM’s future profitability. Without access to GM’s cash flow projections, it is hard to suggest what treatment would be fair to retirees while still protecting GM’s other creditors.

-Old common shares do not vote on the plan, get no distribution, and are canceled. Existing stock options are eliminated

-A new Board of Directors selected by creditors is in charge of reorganized GM, with board representation for the major creditor constituencies.

GM’s Hypothetical Post-Reorganization Balance sheet

Projected Assets: $90b

Estimated Liabilities
$4.4b: existing secured line of credit
$10b: secured term note to US Treasury
$12b:  secured term note to the Department of Energy (GM’s share of the DOE funds for alternative vehicles)
$1b: trust or secured letter of credit established to guarantee payment of consumer warranty claims
$2b: current tax liabilities

Subtotal: $29.4b of secured and priority claims

$9b: accrual for consumer product warranty liability
$10b: for current claims arising in during the Chapter 11 case which will be paid by GM in the ordinary course of business
$5b: new unsecured debt (payment in kind) set aside for miscellaneous claims, with maturities deferred and no cash interest payment
$5b: subordinated debt, issued with laddered maturity dates timed to fund the retiree trust only if it runs out of money in the future
$15b: accrual for pension and retirement obligations for current employees
$5b: leases and other obligations, including liabilities to foreign subsidiaries

Subtotal: $39bof unsecured debt and unsecured liabilities

Total estimated liabilities: $78.4b

Equity distribution
90 percent of newly issued GM common shares distributed to bondholders, the retiree trust, and other unsecured creditors
10 percent of new equity reserved for the US Treasury

Final thoughts on labor, management and Detroit

The UAW represents labor in negotiations with GM management. GM’s management, not labor, has been behind the GM steering wheel as GM went over the cliff of Insolvency. UAW negotiators are tough, well-informed professionals. The UAW is not inflexible; witness its recent agreement to defer $1.7b of payments to the retiree trust, a deferral which has helped GM stay alive. The UAW has its own staff of accountants and restructuring professionals who are prepared to sit down and negotiate and help GM propose a viable reorganization plan

GM’s Board of Directors, its management and the UAW have made mistakes. But their serious efforts to restructure GM should not be doubted. Rick Wagoner has spent 30 years at GM, but his efforts have been overtaken by circumstances. In reorganization the board will be replaced, as will some of the operations managers and senior executives.

Undue criticism of GM’s management and the UAW distracts from the need to urgently develop and implement a viable pre-packaged reorganization plan. GM’s management needs to get down to business and develop a reorganization plan that will protect taxpayers and earn the support of Congress.

Anyway, GM’s chapter 11 case should be filed in Detroit. The birthplace of the American auto industry should be the place of GM’s rebirth.

(Mr. Tilton is a corporate bankruptcy attorney. He represented creditor banks in the Chrysler restructuring and has represented creditors and debtors in prepackaged Chapter 11 cases. He is the editor of the book Bankruptcy Business Acquisitions, Second Ed., published by the American Bankruptcy Institute in 2006)