Would it be better to liquidate GM?
Filed under: Company News, Media
The CNBC Power Lunch shouters love to moan about how horrible it is that the government is putting money into General Motors (GM). They shout: "Why not just let it fail? After all, what good are free markets if they only work when times are good? We have a perfectly good process for handling failed businesses and it's called bankruptcy."
Of course this thinking works well when a business other than General Electric (GE) or CNBC advertisers are involved. But as far as I know, none of the Power Lunchers complained when the FDIC gave GE Capital a $139 billion helping hand last November so it could issue commercial paper. To be fair and balanced, I'd like to hear CNBC complain as loudly about government intervention on GE's behalf as it does when GM gets U.S. cash -- $19.4 billion so far.
Speaking of GM, it is days away from bankruptcy, and for the last several months, the choice has been between terrible (government-assisted Chapter 11) and catastrophic (Chapter 7 liquidation). The latest death rattle was a failed effort to get 90 percent of GM bondholders -- who hold $27 billion worth of the paper -- to accept stock in return for that debt.
The post-bankruptcy GM would give the U.S. 70 percent of the stock of a new GM -- which just sells Chevrolet and Cadillac products -- and another 20 percent to the UAW. To get from here to there, the U.S. will chip in $50 billion in debtor-in-possession financing and 1,300 more GM dealers will lose their franchises.
It's a terrible outcome that wipes out common shareholders and ends the livelihoods of thousands of workers. Unless the new GM can make money selling cars that people want to buy, all that new equity won't be worth a bucket of warm spit.
But liquidating GM would be even worse -- throwing hundreds of thousands of workers at GM and its suppliers out of work. So if CNBC's Power Lunchers point that out -- along with loud complaints about the FDIC's help for GE Capital -- I will gladly drink that bucket on air.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns GE shares has no financial interest in the other securities mentioned.
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Reader Comments (Page 1 of 2)
5-27-2009 @ 1:34PM
Lee Gibson said...
Other than The Kudlow report, which continues to be the most ridiculous hour on TV, Power Lunch is virtually worthless as a news source and epitomizes everything wrong about CNBC. Unvarnished wingnuttery, posturing, self-promotion disguised as analysis, and, of course, the double standard you mention. Indeed , the other dayparts really aren't too bad, though they could stand some improvement. But Power Lunch, excepting Kudlow, is the worst.
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5-27-2009 @ 5:09PM
g a mann said...
The federal government can't run itself much less a business. Remember they could not run a Nevada whore house selling sex and whiskey. We should face facts the boys in Washington excell in getting re-elected and giving away money and nothing else. Let GM go bankrupt they managed to reach their current position without taxpayer help.
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5-27-2009 @ 10:09AM
Bill Bechtel said...
Thank-you for your rational insight into this very unfortunate situation. The people pounding their fists over "free markets" remind me a lot of the people pounding their fists over the war on terror - as long as it's someone else's kid that does the fighting. Bravo to you, sir!
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5-27-2009 @ 10:15AM
duncan said...
on topic, gm should have been liqudated many moons ago. this patient has been in a coma for years and will not recover. it will emerge as some type of government supported entity but it will be gm, not GM.
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5-27-2009 @ 11:11AM
Peter said...
Airlines, retail chains and countless other business have gone under with thousands of people losing their jobs. The government did not intervene. This is simply about the Obama administration paying back the UAW for their support at the expense of the taxpayer. If GM goes under, the demand for their products will shift to other manufacturers saving and creating new jobs for their suppliers. Let's be clear: the death of GM is not the end of auto manufacturing in the United States -- it is the end of the UAW.
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5-27-2009 @ 3:07PM
howard said...
I wholehearted ly agree. This president i nothing but a cheap prostitute for the unions that put him in office. Let GM go bankrupt, like they will. Break the union contract which has been the main problem all along.
impeach this no good president we have who thinks he's the 2nd comig. Now he's backing away from supporting Israel, He says Iran can be dealt with diplomatically and let thenn develop their nuclear weapons. Same for N Korea . he will not intervene and look at todays news. N Korea sets off another nuclear device and have backed out otf the treaty signed in 1953. Way to go Obama.
5-27-2009 @ 4:22PM
Gary said...
Yes you are right. If Gm goes under it may not be the end of the auto, but when the other companys do bring new jobs it will be at 14.00 dollars an hour. How will that help the middle class. O and they will have no health ins. or no retirement. I can see how that will help the Middle class as well. And they will be working 12 hours a day. If you like the 8 hour day thank a UNION. because the company would not give it to you on there own. And the same for over time. When will we learn in this fine USA, we did the samething with the steel companys and the story goes on and on. Have a good and smile .
5-27-2009 @ 11:21AM
Ronnie said...
This guy does not know Karl Marx from Groucho
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5-27-2009 @ 12:43PM
marcia said...
Is that idiot obama and the "genius" Geithner going to hand it over to the unions that were a huge part in their problems?
The money for bailout, went mostly to the unions, its payback, I will NEVER buy a GM or Chrysler product as long as it goes to the corrupt unions.
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5-27-2009 @ 4:49PM
BRANDON said...
All of you people can kiss my butt, if it was your friggin job, YOU WOULD BE UPSET AS WELL! I'm soooooooo friggin sick of you DUMB ASS SITTIN IN FRONT OF, SHOVIN PRINGLES AND WHATEVER ELSE YOU CAN BUY WITH YOUR GUBMENT CHECK, COMPUTERS! GO GET A JOB!!!!! Oh wait thats right YOU work at TOYOTA! NUFF SED! LONG LIVE THE UAW!
5-27-2009 @ 1:18PM
forrest freedman said...
How come GMC can go bankrupt and come out smelling like a rose, and keep its profitable assets while screwing all of its creditors, while homeowners who are behind in their mortgages 6 -8 months can't get any relief under the OBama Loan modification plan, and can't get bankrutpcy relief with court ordered loan modifications, for cases where consumer's mortgage debt surpasses their current home's value?
Something is really wrong with this picture and the President just does not get it!
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5-27-2009 @ 5:57PM
anthony said...
when i hear obama saying that the uaw. workers are the most productive workers on earth i want to through up these are the same dead beats that for years laughed about how little work they do when they are at the job ,and braged about how much stuff they stold from the plant even the gaurds are in on the stealing. dont blame management, or the CEO,S there are a lot more of you dead beats with the auto workers you guys deserve your fate. I am a self employed building contractor i get no unemployment, no healthcare insurance, no handout from obama .STARVE now you know what wastes you are dont try to bull shit the american public you guys get what you deserve
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5-27-2009 @ 6:14PM
Bob D said...
Must be a pattern to union run business and business that fail. Look to the Northeast and Midwest--unions and failing business and the union leadership is to blame and not the worker who unfortunately is the follower. If you invested your union dues for 30 years you would have a substantial retirement fund.
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5-27-2009 @ 10:04PM
DMGE said...
To hear some of these comments RIDICULOUS some of these morons can't even spell tell a line worker who fastens,tightens, or applies up to 6 parts in a 24 sec span and does it hundreds of times a day day in and day out that he's not working most of you MORONS wouldn't last 5 minutes
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5-28-2009 @ 1:42AM
Malzy said...
First of all, all this bail out mess, not to mention the recession, started under BUSH, not Obama.
Second, If there wasn't a recession, GM would still find themselves in the mess that they're in now, only it would be three to five years down the road, and that's being generous since GM has shuttered a make long before this and has been selling off assets to try to sustain itself all though the good economic times.
This is the result of a management problem that has been festering for the past forty years. It was an arrogant ignorance that said that GM could do anything and put any crap product out for the American car buying public and that public would buy whatever was foisted on them no matter what.
Meanwhile, The UAW was able to run roughshod and unchecked over management - who weren't there because of business acumen, but because of social promotion - and was able to get some totally INSANE things set up for them.
What GM is facing now is a result of both management stupidity and union selfishness.
To me, the real winner in all this so far Is Ford. They realized that they were too bloated to compete and they actually had the brains to do something about it, and now they're running, and minding, their own business without government money.
This might be for naught, however, if GM fails and takes the auto parts supply chain with them. If that happens, any car company who has factories in this country will be in a world of hurt.
I am disgusted that we, the taxpayer, are bailing out banks and automakers, but I suspect that it's better than the alternative.
The catalyst for the screwed up auto industry wasn't Bush's doing. It's not Obama's doing. And I doubt either really wanted to fork out billions and billions to the industry. But one thought it was a necessity, and the other felt he needed to continue the policy if for nothing else than to try to ensure that we get our money back and try to keep the country from going into a deeper economic melt down.
Whether or not the right decisions were made, only time will tell.
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5-28-2009 @ 7:41AM
mark said...
Malzy. Why ,didnt you run for President? Your comments,are true,unbiased,and correct in my mind. We cant blame the GM.mess on anyone,except ourselves. Now we are asking the( sane) Pros to fix it. GM,UAW, And all of the Govt.
I live in Flint, MI.,The guy on the barstool,to my left,bragging,havent been in the plant in five years.(65K) guy on the right , Im on the clock now,$33.50,an hour,me and my buddy,we take turns,punch-in ,punch-out. I dont have a job,they both buy me a drink. I drink it THEN I START TO CRY
5-28-2009 @ 8:14AM
mark said...
malzy, mark here, markmousse@aol.com i like your words
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5-28-2009 @ 8:01AM
Ken said...
Liquidate GM period.
Screw the union let them find work for their people. The union heads will wlak away with millions.
Screw the government evrytime is sticks it nose in something it screws it up.
Screw the over payed works at GM. They and their union has cost this company much.
Lets get down to one car maker. I have always been a GM man, but look like I am switching to Ford. I bought two vehicle made in Japland and the both gave me problem. Never bought one since.
But if all you can buy from GM would be Chevy ro Caddy the screw them too. I have had Pontiac for 40 years. Sent most to the junk yard after 175000 miles. New england weather rusts the hell out of them. I 'll switch to Ford, the Mustang looks better then the Camaro anyways.
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5-28-2009 @ 10:07AM
Bob said...
Only a pure-bred Obama Sheep could even be arguing this issue. Had we only injected one billion so far....for the sake of apple pie and the american dream............it would have been one billion too much.
....Mark my words.....if the democrats pull off this political charade......by election time in three years they will all be busted and anyone with a pulse will be able to beat them.
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5-28-2009 @ 9:28AM
Mike said...
The economic mess has everyone worked up and rightly so. It began with financial institutions taking huge risk without enough equity to survive if it all went bust. The result is the recession and the auto market shrank by 40%. Not many companies can survivie if there market drops 40%. It is true that GM and the UAW should have been making better decissions It is true that all large cooporations and government are litered with waste. It is also true that there were and are many good people working and retired from the auto industry. They did there job just like most other people. What I do not understand is why we can loan crooked bankers 1 Trillion Dollars and can not support american workers.
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