GM’s Next Last Chance

“We’ve got breaking news on GM. Tim Geithner, Larry Summers meeting with the cabinet level auto task force today, this is according to the Treasury, about GM and Chrysler. So, as we talk about it, GM stock plunging again, down another 13.5% to $1.60. Tim Geithner, Larry Summers and the auto task force which is headed up by former banker Steve Rattner. They will all be meeting today to discuss GM and Chrysler, accord to go a story, Dagen, you might have read in the Wall Street Journal apparently GM’s upper management is getting a little more comfortable with the idea after possible pre-packaged I mean, look at this.

They’ve already put in what, $18 billion taxpayer dollars into GM and hasn’t helped the equity at all. Now they need government money to do the pre-packaged bankruptcy, to fund the bankruptcy…One of the hallmarks of a bankruptcy is that the equity is wiped out. We’ve talked about this many times, right. Is that the equity becomes worthless because you’re at the very bottom of the creditor food chain so if you’re looking at a company whose equity, basically I think it’s fair to say with GM, has almost entirely been wiped out.”

Fox Business Network coverage of the General Motors (GM) debacle was spot on this morning. At what point does the government say, enough is enough. Unfortunately that point is probably long after the taxpayers would like. We wrote (GM, Ford…Who’s Next?) when the first round of bailouts were on the table, that bankruptcy is the way to go for GM because there was no way that they could cut costs enough to make it a viable business without filing bankruptcy. Bankruptcy, even a prepackaged bankruptcy would give GM a little bit of wiggle room in its current labor and retirement obligations. Sales have continued to worsen and at these levels there is no way the company can remain in business in its current form.

GM is backed into a corner; with slumping sales, a still massive debt burden, and taxpayers who do not want to see another multi-billion dollar handout go to waste. No wonder the article in the Wall Street Journal says GM management is more open to bankruptcy. After all they could get more money from the government to facilitate a prepackaged bankruptcy. At what point to we say enough is enough. Yesterday the auditors of GM’s books went on record as saying, there remains “substantial doubt” about the viability of the company, at least they are being honest. Is the government doing its fiduciary duty when it continues to sink money into a company that the auditors don’t believe in?

Of course, no one likes to see bankruptcy in an iconic America company, but that does not necessarily mean the company is finished. It gives them an opportunity to right the ship because right now, they need that so desperately. This would be unfortunate for shareholders and some bond holders but the bailouts are likely only delaying the inevitable.

GM’s Next Last Chance