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GM and the Chapter 11 debate

General Motors workers assemble new Cadillacs on the assembly line at the GM Lansing Grand River Plant.

TEXT OF STORY

Kai Ryssdal:
Congress is back at work today.
Well, the Senate anyway. There probably won't be much happening.
An expansion of unemployment benefits, maybe. Almost certainly nothing for car makers.
They're been trying to make their case for a bailout for weeks now, without much success. That's prompted serious discussion of what a bankruptcy might look like.
We asked Ashley Milne-Tyte to explore the ins and outs of Chapter 11.


Ashley Milne-Tyte:
If bankruptcy is about slimming down, many say GM can afford to lose a lot of weight. Peter Brown is editorial director of Automotive News.

Peter Brown: If it was a perfect world you, could make all kinds of long-term liabilities disappear. Right now, they have, of course, contracts with all these thousands of car dealers -- in GM's case 7,000 -- and they can't get rid of them.

Because, he says, state laws lock them into those relationships. He says the company also has too many brands and benefits for hundreds and thousands of retirees and employees. In theory, Brown says, that could all disappear in Chapter 11. Rebecca Lindland is an auto analyst with IHS Global Insight. She says going into bankruptcy would destroy the company's turnaround plans, which she says had been working until the credit crunch hit.

Rebecca Lindland: So, now they have to deal with a whole new problem of gong through bankruptcy court, of renegotiating all those dealership agreements, of laying off tens of thousands of employees. Their suppliers then go into bankruptcy.

Then there's the consumer's reaction. Peter DeLorenzo publishes AutoExtremist.com. He says a car company in Chapter 11 isn't the same as an airline in Chapter 11 that people are still happy to fly. That's a service he says, whereas a GM car is an expensive product.

Peter DeLorenzo: I think it's a gut reaction on consumers' part that they're not gonna spend this kind of money and they're not quite sure if that car company is going to be around down the road, and they're concerned about parts and service.

Plus, he says, a car can confer a certain cachet. He doubts many consumers will want to associate themselves with a brand in bankruptcy.

In New York, I'm Ashley Milne-Tyte for Marketplace.

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A 10 yr warrantee works only if you think the company will be around that long--and flush enough to not be forced by a court to honor it. Consider the gift card scenario.

Chrysler, this summer, tried a similar warrantee before Daimler cast it loose. Yesterday, I listened to "expert" Csaba Csere (sic) claim no one knows what the buying public will want.

OF COURSE we know! They don't want big cars they can't park or make lane changes in--they told us this years ago. They don't want gas hogs. That's why few people bought the Suburban--started in 1953--unless they really needed something of that size.

Its the advertising, that got people to buy these big machines to show they were as successful as the Jones. SUV's weren't popular until just recently, after Dodge advertised its new Ram trucks as big boy toys and testosterone.

'The 15% Solution"

One possible approach to dealing with the auto crisis -- The federal government could give any one who buys a fuel efficient car from the Big 3 a 15% instant rebate back on the selling price. This program could have an 18 month time limit.

The total of the rebate dollars might then constitute a loan the auto makers would have to pay back.

If effective, this solution would immediately jump start US auto makers by giving them a huge advantage over the competition while they work on the remaining legacy issues. Auto makers would stay employed and no money would go directly to the car makers.

The feds might also think about underwriting an extended car warranty program for this period. Again, the total dollars to do so, could constitute a loan to the auto makers.

If the dollars don't proof out, the concept still might we worth exploring.

Joseph Hare
Hingham, MA.

More.....
A quick direct "15%" instant government rebate (say averaging around $3,000) from the Dept of Treasury paid to consumer with purchase of a US auto maker lower mileage car might make these cars especially attractive,

The problem with the fed using IRS tax return deductions is you only get indirect value (a lower tax payment) and but once a year (April 15).... and higher wage earners get more real dollar benefit.

I thinkt this rebate program would get consumer attention/visibility. Hey, If you could buy a Camry priced today at $20,000 for $20,000 versus a Malibu priced today for $20,000 for $17,000 (plus get a10 year warranty), which would you buy?

Such a program, if it worked, would give auto makers an instant dramatic jump start while they work on getting
more cars that would sell (without rebate program) developed and while they deal with worker legacy issues.

Giving a bailout just keeps them from going bankrupt while they try to get a higher % of americans to buy their cars. They have not suceeded in doing that over the last 20 years. Assuming Americans were motivated to buy fuel efficient Gm-Ford-Chrysler cars, the biggest stumbling blocks might be that the auto makers could not retool fast enough to produce enough low mpg cars to get profitable, that they could not get rid of their gas guzzlers, and that the union entitlement are still choking them..

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