General Motors and Surgical Bankruptcy
The end is drawing near for General Motors. The story now is GM is going to try to file a surgical bankruptcy. What is this exactly and what will it mean?
GM is a company that has been on the brink of bankruptcy for…four years! The company has always stayed afloat because it was thought it was to politically risky to let it fail. The recent bailout backlash has finally seemed to change that conclusion. Finally, this dog of a company is going to be pushed towards bankruptcy and it even has a plan.
Surgical Bankruptcy
How do you deal with a company that has a lot of assets that are next to worthless? You take a mergers and acquisition approach. What does this mean? It means you file bankruptcy and try to split the company up. The goal is to separate the bad parts of the company from the good parts. The bad assets are then closed down or sold off while the company is relaunched with the good assets.
President Obama’s team is apparently touting a surgical bankruptcy for General Motors. The company would be slammed into Chapter 11 for a “quick bankruptcy.” The idea would be to dump bad assets like brands that are not profitable, factories that cost too much, bond debts and health care benefits for unions. It sounds aggressive and that is exactly what should happen with the company.
There is, however, one problem with the surgical filing. Simply put, GM has few good assets. Moreover, the current economic climate is such that no car company is doing well. Mercedes is losing over a billion a month. Toyota is losing staggering sums. How is GM possibly going to survive? It is not. There is no exit plan for this company that makes any sense. Between the incompetent management company and the current economic climate, the “body” is dead and no surgery is going to save it!
The time has come and gone for General Motors. A surgical bankruptcy filing sounds nice, but it will not work in this environment. The end of an American industrial giant nears.