GM and the Chapter 11 debate
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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.
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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