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Looking Ahead: GM

posted by Stephen Lubben

It seems increasingly likely that GM will follow Chrysler into bankruptcy: GM recently announced that it would pay its trade creditors five days earlier than usual, which looks like an attempt to settle up with trade creditors before the filing.

There has also been some discussion of using the Chrysler “quick sale” approach in connection with GM. Using a 363 sale makes sense and is probably the only way that GM could get its ongoing operations out of bankruptcy within a short period of time.

But note that there is no buyer – like Fiat – waiting in the wings to purchase GM. Instead, the sale will presumably involve selling the “good” assets to a newly formed corporation. In this way, the 363 sale process will be used to replicate the railroad reorganizations of a century ago.

One concern with this approach is that the lack of an industry buyer means that it is left to either GM’s management or the government to determine what comprises the “good” assets of GM.

In a recent New Yorker article the current head of GM spoke fondly of his first car, a 1960s Buick. My first car was also a Buick – a 1983 Skylark that I inherited from my grandmother – but my experience was not something I think of fondly. Rather, I think of the number of times the car stranded me in remote locations. The tendency of the power steering to lock mid-turn, requiring superhuman strength to avoid doing an endless doughnut in the middle of an intersection. And a V-6 engine that provided a lot of noise and just enough power to pass full-loaded dump trucks, if there was a good tailwind.  I traded it in for a Volkswagen and have never considered an American manufacuter since.

In short, lots of people on either side of my generation have a deep suspicion of GM’s management. GM managers have been talking about reforming the company since the days when I bought music on vinyl, and repeatedly failing to deliver. Do they finally “get it”? This is undoubtedly their last chance.

Otherwise it will be up to the government to once again engage in some tough negotiations with GM and ensure that the GM that comes out the other side is more than just another pipe dream.


5 days before due? Screams preference to me...

It does sound like a preference. Payments made "in the ordinary course of business" or something to that effect aren't avoidable, but if you have a usual time to do things, and suddenly deviate just before bankruptcy, I'm not sure you get the same leniency. (I'm not familiar with how this has been interpreted in bankruptcy courts, though.)

The whole point of Chapter 11 was to replace the ad hoc railroad reorganization scheme of equity receiverships and creditor purchases. There's a whole big infrastructure, with 110 or 30 years (depending on how you count) of law behind it providing regularity and guidance to reorganization. Is there such a stigma to operating out of bankruptcy now that it's better to throw that all away just to get the continuing operations clear of the proceedings faster? I don't get it.

In response to dWj, I get it. Chapter 11 is expensive. And it can be unpredictable. Just look at Delphi.

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