David Kirkpatrick

March 6, 2009

GM, pull your begging hands back …

Filed under: Business — Tags: , , , — David Kirkpatrick @ 12:29 pm

… and accept the inevitable bankruptcy. Embracing Chapter 11 right now is much better than Chapter 7 down the road. No amount of taxpayer’s money will save your ass right now.

From the link:

Well, since the first government loan was written, car sales have dropped faster than just about anybody predicted. GM sales plunged 53% in February from a year ago. And the share price has continued to fall — down 41% since New Year’s and 93% over the past 12 months.

Shrinking sales and market cap put massive pressure on GM, whose survival now hinges quite literally on checks from Uncle Sam.

Wagoner has repeatedly raised the specter of bankruptcy, arguing potential customers would shun the company for fear it might no longer back warrantees or provide replacement parts.

But some of that fear is mitigated by the fact that people are buying fewer cars from all auto manufacturers, even those seen as financially healthy.

This means that no matter how much effort GM puts into restructuring, demand for new cars is now too weak to sustain a recovery. So, if Chapter 11 is inevitable, this might be the most opportune time to undertake the kind of top-to-bottom overhaul it needs. At least the company won’t be sitting out a booming market. And it could fend off Chapter 7 liquidation.

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