GM Must Seek Chapter 11 to Survive

There is no question that most Americans want General Motors and Chrysler to survive the recession, and to emerge as “going concerns”.  These firms, along with Ford Motor Company, impact thousands of auto worker jobs, and indirectly effect thousands of other jobs in related industries.  As a result of this, the collapse of the auto industry would be disastrous for the economy.  Unfortunately, independent auditors have concluded that GM and Chrysler are no longer viable companies without massive injections of government support.  Even with an additional $21.6 billion in federal money, there in no reasonable expectation that these companies will ever be able to stand on their own.  This highly problematic situation presents the Obama Administration with one of its biggest challenges during its “first hundred days”.

On Sunday, House Republican Leader John Boehner stated he will oppose any further injection of federal dollars into General Motors until the auto maker can provide Congress with a long-term business plan that shows how GM can achieve profitability and pay back government loans.  Given the highly unsatisfactory results of the recent audit, it is not likely that GM will be able to produce a business plan that achieves the necessary results.  Mr. Boehner’s point is right on target.  Under the current circumstances, any further government money lent to GM would be “throwing good money after bad”.

According to Republican Senator John McCain, the ultimate answer to GM’s long term viability may be to declare Chapter 11 bankruptcy, and to totally reorganize the way they do business.  Chapter 11 will allow GM to renegotiate contracts with its unions and its suppliers, and to bring down the crushing burden of legacy costs.  Once GM has reorganized its businesses and realigned its labor costs it could then petition the government for federal money as part of the process of reorganization.  Senator McCain’s suggestion for GM in particular, and the U.S. auto industry in general, makes sense for both the taxpayers and for the industry.  Fellow Republican Senator Richard Shelby summed it up best when he said, “Short of reorganization, the UAW will operate those companies and will run them into the ground”.

Time has come for the Obama Administration to withdraw the unsuccessful “carrot” approach toward the U.S. auto industry, and to adopt the “stick” approach.  No more government loans until the auto industry has reorganized and restructured!