The argument for bankruptcy

Michael E. Levine argues in the Wall Street Journal today why bankruptcy is the best option for GM. Giving them tens of billions in dollars in some sort of bailout package will just keep GM on the same path it's been on and only postpone the inevitable failure to come. If our concern is the employees who would lose their jobs, better to take that money and use it to cushion the shock that would result. Then let GM to use our bankruptcy laws to restructure itself and get out of the commitments it has that are preventing it from competing with it's slimmer, more nimble competitors.

The cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time.

GM's solution is to ask the federal government for the cash that will allow it to do all of this piece by piece. But much of the cash will be thrown at unproductive commitments. And the sense of urgency that would enable GM to make choices painful to its management, its workers, its retirees, its suppliers and its localities will simply not be there if federal money is available. Like AIG, it will be back for more, and at the same time it will be telling us that it's doing a great job under difficult circumstances.

Federal law provides a way out of the web: reorganization under Chapter 11 of the bankruptcy code. If GM were told that no assistance would be available without a bankruptcy filing, all options would be put on the table. The web could be cut wherever it needed to be. State protection for dealers would disappear. Labor contracts could be renegotiated. Pension plans could be terminated, with existing pensions turned over to the Pension Benefit Guaranty Corp. (PBGC). Health benefits could be renegotiated. Mortgaged assets could be abandoned, so plants could be closed without being supported as idle hindrances on GM's viability. GM could be rebuilt as a company that had a chance to make vehicles people want and support itself on revenue. It wouldn't be easy but, unlike trying to bail out GM as it is, it wouldn't be impossible.

If our concern is the employees, we could use those billions to store up the the federal guarantees for pensions as well as retraining programs and extended unemployment benefits. That would be a better use for federal aid than just using federal money to maintain the dying dinosaur that GM is today.