The Case Against Bankruptcy

Edward Niedermeyer
by Edward Niedermeyer
the case against bankruptcy

If you happen to be looking for a quick fix to GM's and Chrysler's myriad woes, the closest you'll come to a silver bullet is good old Chapter 11. But Rick Newman of US News And World Report's Flow Chart blog seems to think a quiet little housecleaning bankruptcy isn't even an option any more. Newman argues that unlike, say, airlines, the automakers can't declare bankruptcy and still expect consumers to buy their expensive, warrantied products. He cites a CNW Marketing Research study which shows that 80 percent of respondents would suddenly lose interest in a brand if it declared bankruptcy. Then there's the chance that Washington D.C. could just decide that Detroit had the bad times coming and not make with the bailout. And unlike the recently-rescued financial giants, GM or Chrysler wouldn't bring the whole economic party crashing down around them if they did fail. Finally, Newman reckons Detroit's complex issues can't be solved with a simple reorg. After all, GM and Chrysler are slashing costs and squeezing suppliers in the status quo. The real issues, argues Newman, are revenue and products, neither of which will be fixed by bankruptcy. Taken together, the arguments seem convincing, but there are a few details being left out. Like the epic cash burn, the need to slash dealer franchises, and Washington's apparent openness to a hefty bailout. I, for one, am not completely convinced that (at least for GM) a Chapter 11 filing isn't the way to go. Chrysler, on the other hand, should just be taken out back and shot (Chapter 7). What say you?

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  • Ra_pro Ra_pro on Aug 25, 2008

    Can somebody explain to me what banks can actually lend money to Detroit? I guess most of you failed to notice that Wall Street titans are going around the globe hat in hand begging for bailouts themselves anybody who will listen. They already got something from the "friendly" Arab Sunni petro-regimes, Singapore, those enemies of freedom and democracy the Chinese; Lehmann is currently begging in South Korea. In fact the only untapped source are the Russians and I think it won't be long before the proud capitalists land in Moscow. In any case how is one failing industry supposed to bailout another even more failing line of business? They truly would have to be crazy to even try.

  • Landcrusher Landcrusher on Aug 25, 2008

    Well, I have been in the airplane business. Many airplane companies have gone bankrupt, and it's much worse for their owners than it is for car owners. Yet, they usually bounce back, their plane values bounce back, and the world does not end. The real losers are people who sold their plane at half value rather than wait to see if the company reemerges. Most GM and Ford parts are readily available and built by other companies anyway. What do you think the value of a modern car warranty actually is? Maybe $3,000? Okay. Why would you worry about 3k when you will likely be able to buy the car for half price if the maker is bankrupt?

  • Adub Adub on Aug 25, 2008

    The "safe" solution would be for GM to sell off Chevrolet and Cadillac to another company, thus preserving the two decent brands while GM disappears overnight. Wagoner could even sell it to himself, telling the GM board to take it or leave it (and get nothing via Chapter 11).

  • Blowfish Blowfish on Aug 26, 2008

    No one is going to buy from them? What’s the big deal? No one buys from them now. Thats very true. Sadly but truly they had cheated too many folks. Vega, Corvair, Oldsmobile/Cadillac Diesel, spark plug missiles Triton engnes, Pinto, Ford Exploders. s getting too long to list. Surprisingly someone telling me a fellow ran a rental shop in a Canadian air port, says the Pontiac has very little trouble, wheras Cry-slur were real Remons. If the products are good it will sell by itself. Just like Hondas, they almost need no salesman, all the customers knew how good they are. SO far only Ford has seen some light in the tunnel, hope is not another on coming freight train! Bailout is using good money chasing after bad money. Let them expire is not the case of throwng the baby out with the bath water.