{"id":1008,"date":"2008-11-17T19:26:43","date_gmt":"2008-11-18T00:26:43","guid":{"rendered":"http:\/\/www.jasetaro.com\/blog\/?p=1008"},"modified":"2008-11-17T19:26:43","modified_gmt":"2008-11-18T00:26:43","slug":"wall-street-journal-why-bankruptcy-is-the-best-option-for-gm","status":"publish","type":"post","link":"https:\/\/www.jasetaro.com\/blog\/2008\/11\/17\/wall-street-journal-why-bankruptcy-is-the-best-option-for-gm\/","title":{"rendered":"Wall Street Journal: Why Bankruptcy Is the Best Option for GM"},"content":{"rendered":"

Today’s Wall Street Journal has a must read Op Ed column<\/a> by Michael Levine. Levine examines the problems faced by GM and explains why seeking chapter 11 bankruptcy protection may GM’s best chance for survival.<\/p>\n

\n

Why Bankruptcy Is the Best Option for GM<\/h3>\n

Chapter 11 would better preserve the valuable parts of the company than an ad hoc bailout.<\/h4>\n

By Michael E. Levine, Wall Street Journal, November 17, 2008<\/p>\n

General Motors is a once-great company caught in a web of relationships designed for another era. It should not be fed while still caught, because that will leave it trapped until we get tired of feeding it. Then it will die. The only possibility of saving it is to take the risk of cutting it free. In other words, GM should be allowed to go bankrupt.<\/p>\n

Consider the costs of tackling GM’s problems with some kind of bailout plan. After 42 years of eroding U.S. market share (from 53% to 20%) and countless announcements of “change,” GM still has eight U.S. brands (Cadillac, Saab, Buick, Pontiac, GMC, Saturn, Chevrolet and Hummer). As for its more successful competitors, Toyota (19% market share) has three, and Honda (11%) has two.<\/p>\n

GM has about 7,000 dealers. Toyota has fewer than 1,500. Honda has about 1,000. These fewer and larger dealers are better able to advertise, stock and service the cars they sell. GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws. This makes eliminating them and the brands they sell very expensive. It would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota’s.<\/p>\n

Foreign-owned manufacturers who build cars with American workers pay wages similar to GM’s. But their expenses for benefits are a fraction of GM’s. GM is contractually required to support thousands of workers in the UAW’s “Jobs Bank” program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure. It supports more retirees than current workers. It owns or leases enormous amounts of property for facilities it’s not using and probably will never use again, and is obliged to support revenue bonds for municipalities that issued them to build these facilities. It has other contractual obligations such as health coverage for union retirees. All of these commitments drain its cash every month. Moreover, GM supports myriad suppliers and supports a huge infrastructure of firms and localities that depend on it. Many of them have contractual claims; they all have moral claims. They all want GM to be more or less what it is.<\/p>\n

And therein lies the problem: The cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time. Read the rest…<\/a><\/p><\/blockquote>\n

The sad truth is any government bailout of the auto industry is only going to delay the inevitable. If GM is going to survive they’re going to have to make a lot of tough choices that they so far have been unable or unwilling to make.<\/p>\n","protected":false},"excerpt":{"rendered":"

Today’s Wall Street Journal has a must read Op Ed column by Michael Levine. Levine examines the problems faced by GM and explains why seeking chapter 11 bankruptcy protection may GM’s best chance for survival. Why Bankruptcy Is the Best Option for GM Chapter 11 would better preserve the valuable parts of the company than […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","advanced_seo_description":"","jetpack_seo_html_title":"","jetpack_seo_noindex":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[26,7],"tags":[313,325,166,323,324],"class_list":{"0":"post-1008","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-economy","7":"category-politics","8":"tag-auto-industry","9":"tag-backruptcy","10":"tag-bailout","11":"tag-gm","12":"tag-michael-levine","13":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/pfpI7-gg","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":1517,"url":"https:\/\/www.jasetaro.com\/blog\/2009\/02\/14\/gm-billions-more-in-bailouts-or-bankruptcy\/","url_meta":{"origin":1008,"position":0},"title":"GM: Billions More In Bailouts or Bankruptcy","author":"Jeff","date":"February 14, 2009","format":false,"excerpt":"Today's Wall Street Journal has a front page story about GM's restructuring plans... The article is worth reading unfortunately, the on-line version is subscriber content so if you're not a Journal online subscriber you'll have to register to read it. Here's the free excerpt: General Motors Corp., nearing a federally\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1026,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/11\/19\/mitt-romney-let-detroit-go-bankrupt\/","url_meta":{"origin":1008,"position":1},"title":"Mitt Romney: Let Detroit Go Bankrupt","author":"Jeff","date":"November 19, 2008","format":false,"excerpt":"Former Massachusetts Governor Mitt Romney has a must read Op Ed on troubles facing Chrysler, Ford and GM in today's New York Times. Let Detroit Go Bankrupt By Mitt Romney, New York Times Op-Ed, Wednesday, November 18, 2008 Boston IF General Motors, Ford and Chrysler get the bailout that their\u2026","rel":"","context":"In "Education"","block_context":{"text":"Education","link":"https:\/\/www.jasetaro.com\/blog\/category\/education\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1059,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/11\/26\/the-25-billion-question\/","url_meta":{"origin":1008,"position":2},"title":"The $25 Billion Question","author":"Jeff","date":"November 26, 2008","format":false,"excerpt":"Holman W. Jenkins Jr. has an excellent Op Ed piece in today's Wall Street Journal. Mr. Jenkins ask the one question that no one Congress dares ask... Why is it Ford and GM can build viable auto businesses all over the world but not in North America? A Car Wreck\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":997,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/11\/15\/wall-street-journal-just-say-no-to-detroit\/","url_meta":{"origin":1008,"position":3},"title":"Wall Street Journal: Just Say No to Detroit","author":"Jeff","date":"November 15, 2008","format":false,"excerpt":"There's an interesting essay by New York University finance professor David Yermack in today's Wall Street Journal. Just Say No to Detroit Given the abysmal performance by Detroit's Big Three, it would be better to send each employee a check than to waste it on a bailout, says David Yermack.\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1104,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/12\/12\/treasury-throws-auto-industry-a-life-line\/","url_meta":{"origin":1008,"position":4},"title":"Treasury Throws Auto Industry a Life Line???","author":"Jeff","date":"December 12, 2008","format":false,"excerpt":"Damn! What is it with the Bush administration? Senate Republicans rightly stopped the auto industry bail last night and today the Bush Administration decides to use TARP funds to throw a life line to GM and Chrysler. From FoxBusiness: Despite the abrupt death last night of bailout legislation in Congress,\u2026","rel":"","context":"In "Money & Investing"","block_context":{"text":"Money & Investing","link":"https:\/\/www.jasetaro.com\/blog\/category\/money-and-investing\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1088,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/12\/11\/will-the-auto-industry-bailout-work\/","url_meta":{"origin":1008,"position":5},"title":"Will The Auto Industry Bailout Work?","author":"Jeff","date":"December 11, 2008","format":false,"excerpt":"I've been so focused on finishing up the projects I'm working before the holidays I've only been half attention to the news recently. I completely missed Holman W. Jenkins Jr. latest Wall Street Journal column: The Bailout That Won't Would you buy a car from Congress? By Holman W. Jenkins\u2026","rel":"","context":"In "Money & Investing"","block_context":{"text":"Money & Investing","link":"https:\/\/www.jasetaro.com\/blog\/category\/money-and-investing\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"jetpack_likes_enabled":true,"_links":{"self":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/posts\/1008","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/comments?post=1008"}],"version-history":[{"count":0,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/posts\/1008\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/media?parent=1008"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/categories?post=1008"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/tags?post=1008"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}