The Faceoff That Will Decide if GM Files Bankruptcy
General Motors is a disaster of a company, but an American Icon. The company is currently facing the possibility of bankruptcy and there is a face off going on to decide if it happens.
There is currently a large misconception about GM. The argument goes that GM is just a victim of the current economic mess we are all experiencing. Actually, this isn’t correct. GM has lost over $80 billion since 2004. 2004 and 2005 where the heights of the real estate market and what have you. GM still managed to lose billions in those years. The simple fact is GM is a company that needs to be put out of its misery.
So, why isn’t it? Why doesn’t the government just let GM file bankruptcy and be done with it? Well, there are a couple of reasons. The first is GM directly and indirectly provides for a ton of jobs. It is not only the people who work for GM, but the people who work for all the suppliers to GM. If you consider a house of cards, GM is the main pillar at the bottom of the pile.
The second reason is perception. If GM goes, many will figure the U.S. economy is going the depression route. The biggest issue we face now as a country is confidence. Money is not moving because nobody is confident. Banks aren’t lending. People are not buying. It all adds up to a frozen economy. We need a boost of confidence and letting GM fail with all the tens or hundreds of thousands of people who would eventually lose their jobs filling the nightly news would not provide it.
Still, there is no escaping the fact GM is in horrible shape. Logically, bankruptcy is the best move. Whether that happens is going to depend on a faceoff between two parties. One is President Obama. The other is the unsecured GM bond holders. President Obama doesn’t want to let the company fail for the previously mentioned reason. That being said, the company can’t continue unless the current bond holders agree to take around 15 cents on the dollar for their bonds. They obviously don’t want to do that.
This has resulted in a game of chicken. The bond holders think President Obama won’t let a bankruptcy happen, but they’ll lose everything if he does. What will happen? It is hard to say. March 31st is supposed to be the deadline when the decision is made, but an extension is pretty likely at this time.