Separating The Good GM From The Bad
Inasmuch there are some people who would like to see General Motors survive as currently arranged, the likelihood that the company will be restructured through bankruptcy court has never been greater. Indeed, the Obama administration is telling GM to prepare for that scenario, given that it is probably the only way that the automaker will finally be able to resolve its festering problems.
Tens of Millions Lost Daily
As recently as January, GM was losing approximately one billion dollars about every three weeks, an amount that translated to more than 80 million dollars a day. Losing tens of millions for any company is a challenge, but when you lose that amount every day that you’re open for business, then there is something terribly wrong with the way that you work.
Last year, in January, I was the guest of GM at the Detroit Auto Show (NAIAS) an event where the automaker wined and dined media types from all over the world. In addition to being one of the sponsors for the show, GM hosted an annual gala leading up to the NAIAS, inviting Mary J. Blige, Maroon5 and other stars to headline the event. GM was supporting this event even as they were hemorrhaging cash — not exactly the best way to preserve fast dwindling funds.
Though I was grateful for the Detroit invite, in retrospect I can see how much this event cost the automaker, hastening its demise which became apparent as 2008 closed out. Even as recently in August I was invited to Ohio (but unable to attend) by GM to view the roll out of the Chevy Cruze, another costly publicity event within the same calendar year.
Good GM & Bad GM
The plan for GM if it does go through bankruptcy is to split the company into two parts, what the federal government calls the “Good GM” and the “Bad GM.” The first entity will comprise the automaker’s healthy assets which includes its Chevrolet brand, its Chinese assets and perhaps Cadillac. The “Bad GM” will be made up of its many bad assets including brands such as Saturn, Saab and Hummer. It’ll also include bondholder debt and at least a portion of the company’s health care and other union obligations.
The Obama administration is under the impression that it will be able to resolve GM’s bankruptcy quickly via its proposed arrangement dividing the company. The thinking with this is that the federal government would inject five to seven billion dollars into the automaker, helping GM emerge from bankruptcy in as a little as two weeks. The bad asset part or “Bad GM” would take longer to unwind, but the good assets might be able to thrive going forward in short order.
It was on March 30th when President Obama announced that GM had sixty days to restructure while telling Chrysler LLC officials that they had thirty days to form an alliance with Fiat S.p.A. or face liquidation. With the former company, the feds see a glimmer of hope, but with Chrysler all bets are off if an agreement with Fiat cannot be reached.
Related Reading: GM Makes A Case For Bankruptcy
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