Person Who Will Lose a Lot of Money in GM Bankrupcy Says that GM Bankrupcy Would Be Bad
Fritz Henderson, president and chief operating officer of GM, said that choosing the bankruptcy route would further erode consumer confidence in the automaker and "we want them to be confident in their ability to buy our cars and trucks."
In order to save the value of their executive stock portfolios, which are a large part of their compensation, auto executives are promoting the line now that consumers will for some reason stop buying GM cars if the company is operating under Chapter 11 protection.
The auto-makers real strategy is to get some kind of money, almost any amount will do, from the government ASAP. It really doesn't matter how much, because with their cash burn rate almost any amount Congress gives them right now will not last much more than 6 months, and certainly will not be enough to reach recovery (their requests go up by a few billion each time they appear in front of Congress). Automakers are facing potentially several years of recession, and any real restructuring would take 5 years or more (and even that is doubtful since the industry has had 30 years of notice on these issues and have not done anything). But if they get some cash, then there will be a psychological pull for Congress to put in more. They will say -- well, you've already put in $5 billion. If you don't put in another X billion, that first 5 will have been wasted (few people understand that "sunk costs are sunk" and Congress is no exception). This is how expensive transit projects are funded.
The position that customers will stop buying the product due to some loss of confidence in chapter 11 doesn't hold up. Most every airline traveler has flown on an airline operating under chapter 11 in the last 10 years or so, and if I can have enough confidence that an aircraft is being adequately maintained in bankruptcy, I can probably muster the courage to buy a car. I presume the issue here is downstream warranty support. But this is about the last thing that would ever be slashed in a chapter 11. For God sakes, airlines have never even substantially disavowed frequent flier miles in a bankruptcy, surely a much more obvious target than warranty repairs.
I would argue that it is uncertainty that is driving any loss of confidence (in fact, sales have plummeted already, ahead of any chapter 11). A chapter 11 filing would actually increase certainty, as those running the receivership could quickly communicate principles to be followed in the bankruptcy, such as protection of warranties. Right now, people have a perception that in a bankruptcy, GM would go *poof*. Once it actually files a chapter 11, the media and executives would switch modes from fanning panic to actually explaining how receivership works.
In fact, if there is any fear on the issue of long-term warranty support, it is being created by executives like Henderson who are fanning the flames of fear in a brinkmanship game to try to avoid chapter 11. If he were really worried about this loss of confidence, he and other auto executives would be out there assuring people that their cars and servicing and dealers will also survive a chapter 11 filing. But he is not. This is totally disingenuous.
More on why GM should be allowed to fail here and here.
