General Motors has submitted its 37-page “Restructuring Plan for Long-Term Viability” (a.k.a. request for an $18 billion bailout) to Congress. There’s still a lot of defensive hey-we’re-already-totally-competitive-so-just-lay-off stuff in it (16-17 pages worth, I’d say), and of course a lot fuel-efficiency-is-job-one stuff to appease the Democrats from the coasts (another 10 pages, maybe). But that still leaves 10-11 pages of actual talk about restructuring.
Much of this restructuring, it seems, will depend on the persuasive ability of a “Federal Oversight Board” that GM wants Congress to create to “support and facilitate an expedited, Administration-led, successful restructuring, ensuring that taxpayer investments are fully protected.” This oversight board will be expected not just to reassure Congress that taxpayer money isn’t being wasted, but to persuade GM stakeholders to accept concessions that GM management is incapable of securing on its own. For example, after describing how it hopes to convert a lot of its debt to equity, and work out some kind of deal to delay its payments into the new retiree health care trust run by the UAW, GM adds: “Oversight Board involvement may be necessary to be successful.” The oversight board will also be expected to make sure executive compensation doesn’t get out of hand. Basically, it will play the role of bankruptcy judge. Which is what a similar board did for Chrysler back in 1979.
But it’s not an actual bankruptcy judge, because bankruptcy is baaaad:
According to very recent market research (conducted by CNW Marketing Research), more than 30% of consumers who considered a GM vehicle and purchased a competitive product instead cited the possibility of GM bankruptcy as the top reason for not buying a GM product. This is more than double the percentage of the next highest reason.
The plain fact is bankruptcy of an auto company is markedly different and much riskier than that of a steel company or an airline, with the potential for: lengthy delays, given the number of stakeholders; significant administrative costs; the very real risk of the lack of funding while in bankruptcy; and the stigma attached to our products in the eyes of consumers. On this latter point, it cannot be emphasized strongly enough how much a bankruptcy will depress sales of an auto manufacturer’s products due to consumer fears of long-term warranty, resale value and service-related issues.
The plan was still a little light on exactly how GM plans to reduce its surfeit of brands. But it did say that’s a priority, sort of. As one commenter at motortrend.com put it (and nobody knows as much as commenters at motortrend.com):
Looks like Hummer is the most likely to die, with Saab being a possible sale item. I expected more severe than that. Thought Pontiac was doomed for a second there as well.
Anyway, I’m not sure any of this stuff is gonna work, but as a taxpayer, a former Saturn owner, and the satisfied renter of a gray Chevy Impala (dull-looking, but it drove great and the trunk was huuuuge) over the Thanksgiving weekend, I say let’s go for it. It’s a lot cheaper than AIG, and you can fit more stuff in the back.