Advantages for GM in Chapter 11


The GM bankruptcy debate should not be framed as a choice between rescue and disaster. The real choice is between a federal bailout outside bankruptcy, without any of the protections afforded by the bankruptcy process, and a federal bailout inside Chapter 11.

Writers and commentators talk about how a GM bankruptcy would cause customers to stop buying GM cars, suppliers to file for bankruptcy, workers to lose their jobs, and local taxing authorities to lose tax revenues. But those things already are happening.

GM's record thus far suggests that it cannot accomplish what needs to be done outside bankruptcy. Its projections remain unrealistic. In December, GM's "worst-case" forecast for U.S. auto sales in 2009 was 10.5 million units. Two months later, its worst-case scenario got worse -- 9.5 million units. Current estimates by Autodata for 2009 vehicle sales are 9.1 million units.

What would that mean for taxpayers? More bailout money. GM estimates it will need $30 billion in bailout funds based on its worst-case scenario of 9.5 million units.

Chapter 11 is not liquidation. Filing for bankruptcy does not mean that GM goes out of business.

Reorganization in Chapter 11 forces the parties to the table and enables a bankruptcy judge to oversee the process. To survive, GM needs the tools provided by bankruptcy law -- the ability to reject unprofitable contracts, to reduce the amount paid on certain claims, and to modify the collective bargaining agreement and retiree benefits.

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Date published: Apr 08, 2009


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