BANKRUPT BANKER
“GM already is bankrupt and should file for bankruptcy,” said David Littman, senior economist for the Mackinac Center for Public Policy, a policy research organization in Midland, Michigan. “They have too much overhead and too little time left to reduce size to be a survivor in this industry.” The company eschewed the Chapter 11 option for months, believing it would make consumers unwilling to buy their cars. Lead director George Fisher said last week that bankruptcy is “way down the list of options.” GM has been working with New York lawyer Martin Bienenstock of Dewey & LeBoeuf to devise an option for using the bankruptcy process to restructure, according to a person familiar with the contingency plan. A bankruptcy filing in the U.S. wouldn’t necessarily include overseas subsidiaries such as GM Europe, which builds Opel and Vauxhall automobiles. It would, said Alan Baum, manager of forecasting for Planning Edge, a consulting firm in Birmingham, Michigan, make a foreign supplier or partner “fear that a GM bankruptcy might eat up its cash.”
The Senate thwarted the government bailout in a procedural vote after talks failed in a dispute with Republicans over how quickly auto-union wages should be cut. Only 10 Republicans voted to move forward on the rescue plan. GM shares fell about 4 percent to $3.94 in New York Stock Exchange composite trading as of 5:30 p.m. To GM’s critics, worries about cash are three years too late. The financial crisis wasn’t the culprit that brought the company to the brink of insolvency, as Wagoner told Congress last month. It was just the final straw in a succession of unresolved or unaddressed issues. Since 2005, GM has lost a cumulative $72.4 billion, had its debt downgraded to junk, watched its share of U.S. auto sales shrink by almost 1 million vehicles and shed 90 percent of its market value. It introduced gas-guzzling vehicles as fuel prices rose, failed to slim down its product offerings and dealer networks quickly enough and wasn’t able to cap its labor costs in time to stem the bleeding. In September 2007, the company won the right to hire new workers at lower wages starting in 2010 -- too far down the road to avoid the consequences of a recession and a credit crunch that engulf it now.
“We made mistakes,” Wagoner conceded at a Senate hearing last week. Among the errors, he said, were “failing to build sufficient flexibility into our operations and not moving fast enough to invest in smaller, more fuel-efficient vehicles.”
GM ignored York’s advice to reduce its number of models, including getting rid of the Hummer and Saab brands, and to cut both management and labor costs in what he called an “equality of sacrifice.” He resigned nine months later, in October 2006, frustrated by the board’s unwillingness to take action. Only after York left did GM decide to sell Hummer. Now it’s talking about getting rid of Saab and Saturn, as well as Pontiac. “Three years ago I thought GM had the time and financial resources to save itself,” York, now CEO of Harwinton Capital LLC, said in an interview. “Now I’m not so sure. Who’s responsible? Top management and the board of directors.”
Although York’s prediction was prescient -- GM has told Congress it will run out of cash by the end of the year if it doesn’t get relief -- what no one could foresee then were two developments that sealed GM’s fate: a run-up in gasoline prices and a credit-market freeze that followed Lehman’s collapse.
