The spiral of General Motors into Chapter 11 has been amazing to watch. When GM first announced last fall that it would seek Government assistance to tide it over until car sales picked up again, GM’s attitude was that their cash shortage was no big thing, it just needed a few billions and life could go on. When asked whether it had considered Chapter 11, Rick Wagoner, then GM’s CEO, emphatically said no, and added that Chapter 11 would terribly damage GM’s reputation and severely hurt future car sales. If there was any better snap shot of what type of corporate leadership had gotten GM into the hole it was in, Wagoner’s statements topped them all.
GM has combined arrogance and an unhealthy cozy relationship with Banks and the UAW. This combination has prevented GM from seriously considering what a structured Chapter 11 might look like. It is not that there was insufficient evidence of what needed to be changed or what appropriate work rules and union contracts might look like. It was not unknown that retiree pensions and benefits were far more generous than those of retirees from like industries. And with respect to debt GM had incurred, quite willingly, it was well know what the quarterly dividend and periodic maturity demands were and how much cash they would require. Why didn’t GM go directly to Chapter 11?
Instead GM has allowed its name and situation to be dragged through the mud for 8 months or so, and by the absence of any plan showed the world that its control of its future shown clearly to be in the hands of others.
Now, ugly as it has been, all the GM stakeholders appear to be in position to take a significant haircut, either under the threat of Chapter 11 or if necessary, Chapter 11 itself. And GM is set to become a smaller company. The big question is whether GM will be a smarter company, not in terms of designing and manufacturing automobiles, but in making sound business decisions.