Bankruptcy Could Actually Save GM
GM continues to argue that it couldn't survive a Chapter 11 proceeding, but the truth is that bankruptcy could boost its ability to survive. As the Obama administration considers its response to GM's request for more cash, it should be mindful of the advantages of bankruptcy that haven't been highlighted -- certainly not by GM's management.
GM executives have been saying that in Chapter 11 its network of suppliers would collapse, dragging down the rest of the auto industry with their company. But Chapter 11 has well-established procedures to deal with this concern.
Bankruptcy may be the only way for GM to fully confront its operational problems, deal with its legacy costs, reconfigure its dealer network, and achieve a viable labor agreement.
But one issue that has not been discussed much is that bankruptcy usually leads to a sharp change in management. There are turnaround teams expert at restructuring troubled companies, and they may well be more effective than GM's current management. It's no surprise GM's management isn't advertising this fact, but taxpayers and the government should know about it.
In the end, the administration needs to keep in mind that vital elements in GM's restructuring -- recapitalizing its large bond debt and keeping what cash it has flowing to key suppliers -- are often dealt with successfully by bankruptcy courts. A bankruptcy could save GM -- though maybe not its management.
Harvard Law Professor Mark Roe in today's WSJ