Do GM’s arguments against bankruptcy hold water?

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I’ve been among those arguing that GM ought to shut up about a government bailout and use the well-established bailout/reinvention tool that is Chapter 11 bankruptcy to pave the way for a better future. Now here, courtesy of the WSJ’s John Stoll, are GM’s three arguments for why that’s not an option–followed by my analysis in italics.

1) Getting debtor-in-possession financing “would be practically impossible, given the state of the credit markets and the size of GM’s obligations.”

Debtor-in-possession, or DIP, financing is what keeps companies in Chapter 11 alive until they’ve restructured their way back to better health. If GM really can’t get it, maybe there’s a case to be made for direct federal DIP financing for GM.

2) GM has already dealt with two of the main things that companies use Chapter 11 to fix: legacy costs and capacity utilization.

That’s at least partly true, but the company has dealt with these issues (fully funding its pension plan in particular) largely by borrowing money, with GM’s debt going from about $9.6 billion in 2000 to more than $40 billion today. Which is why it’s headed for bankruptcy without government intervention.

3) Nobody would be willing to buy a car from a bankrupt company. Here’s GM CEO Rick Wagoner in a Friday interview on Fox Business News:

“In fact, there has been some independent research that was done as recently as June of this summer which asks for every manufacturer, ‘if this manufacturer were in bankruptcy would you buy a car from them?’ Eighty percent of the people said they would immediately take that manufacturer off their list.”

Wagoner said that, in light of people’s reluctance to shop a bankrupt car company, a Chapter 11 filing may actually be impossible for GM. “If your revenue line falls, you would not be talking about a reorganization, you would be talking about a liquidation.”

Wagoner could be right about that. But again, GM is headed for bankruptcy without government intervention. So any government intervention ought to be structured like a bankruptcy: Current shareholders wiped out (they’re almost there already), debt converted to equity, top management out. We could just, for the sake of not scaring car buyers, call it something else. “Government-arranged workout”? “Bailoutruptcy”? “GMerdämmerung”? “Economic stimulus”?

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