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Marketplace Scratch Pad

The Chop-O-Matic bankruptcy

Scott Jagow Jul 6, 2009

Barring something unforeseen, GM will be out of Chapter 11 by the end of this week. The new GM, that is. The old GM will stay in bankruptcy, existing as a separate company called (seriously) Motors Liquidation Co. It’s basically the rotting carcass part of GM. As for the new GM, do you believe in reincarnation?

Just to be clear, the old GM is this: closed factories, and brands like Hummer, Saturn and Saab that will be sold. Plus, GM’s common stock. That means people who own common stock will be wiped out completely, even though for some reason, people continue to trade GM shares.

The new GM will include Buick, Cadillac, Chevrolet and GMC. It’ll be 61% owned by the federal government, and partially owned by a UAW health care trust, GM bondholders and the Canadian government.

It’s really quite astounding. GM has been sliced and diced faster than vegetables in a Chop-O-Matic. The judge in the case said this (from AP):

“As nobody can seriously dispute, the only alternative to an immediate sale is liquidation — a disastrous result for GM’s creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates.”

But you can seriously argue that many, many people are still getting their fingers chopped off, including employees who are losing their jobs, creditors who are getting very little or nothing, suppliers who may have to close and communities that are losing their factories. I guess the judge is saying that liquidation would mean many more people would be affected, but the losses should still be noted. It may be a neat and clean bankruptcy, but it’s still a bankruptcy.
Plus, there’s this:

Consumer groups have cautioned that people injured by a defective GM product before June 1, when the automaker filed for bankruptcy, would have to seek compensation from the “old GM,” the collection of assets leftover from the sale, where they would be less likely to receive compensation.

Joanne Doroshow of the Center for Justice & Democracy said in a statement the issue “is far from over.”

“It is morally reprehensible that GM will pay for injuries and deaths that occur after the bankruptcy process, but not for the hundreds of victims who have already been hurt by defective GM cars,” Doroshow said.

The new GM, by design, is supposed to be a fresh bowl of fruit, free of mold and flies. But the question is — is it really? The same people are running the show, with the same brands and the same cars. And the car market is terrible. GM’s been given the gift of life (emphasis on gift). Now, let’s see what it can do.

Tonight on Marketplace, reporter Alisa Roth will look at what place the new GM might hold in American business.

What do you think?

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