Bankruptcy's a quicker end to GM woes
Some analysts say the ouster of Rick Wagoner as GM's CEO may be the first step toward pushing the automaker to bankruptcy. As Bob Moon reports, it may also be the quickest route toward ending a long and bumpy journey.
A GM sign on a steel beam above a highway (Chip Somodevilla/Getty Images)
More on Auto Industry, America's Financial Crisis
TEXT OF STORY
Tess Vigeland: Analysts say the administration seems to be paving the way -- the final miles, if you would -- toward bankruptcy for the struggling carmakers. There's been lots of debate about what bankruptcy would mean for an industry that craves and lives on customer loyalty. Even with government-backed warranties, can you be sure your '08 Chevy will have a mechanic around in 10 years? Our senior business correspondent Bob Moon says it might just be the quickest route toward ending the companies' long and painful journey.
BOB MOON: Bankruptcy experts say Chapter 11 protection would actually help the carmakers. Lynn LoPucki is a bankruptcy law professor at UCLA. He says they could purge themselves quickly of some of their most pressing financial burdens.
LYNN LOPUCKI: As a practical matter, it's just much faster, much more certain, to go into bankruptcy, do what you've got to do, and get out.
LoPucki says it could take forever to bargain with bondholders and other creditors, but bankruptcy judges have the power to force resolutions.
LOPUCKI: If you're outside of bankruptcy, everybody thinks of it as a compromise situation: We're going to get what we're entitled to and something more to get us to go along. If you go into bankruptcy, they don't get the something more.
Harvard law professor Mark Roe says bankruptcy protection could also help the automakers trim down their product lines.
MARK ROE: That means they've got to renegotiate or terminate their relationship with a lot of dealers. That's going to be easier to do in Chapter 11 than it is outside of Chapter 11.
Roe says bankruptcy wouldn't necessarily make the ripple effect for parts suppliers any worse than it is now, since sales are already way down. And UCLA's Lynn LoPucki doubts warnings that bankruptcy could scare customers away. He questions what's worse.
LOPUCKI: To buy a car from a bankrupt company, than to buy a car from a company that should be in bankruptcy but doesn't know enough yet to know that it needs to be there.
He points out the government will now guarantee GM and Chrysler warranties for new car buyers. Harvard's Mark Roe says combine that with stronger companies emerging from bankruptcy protection, and their situation certainly looks better than the alternative.
ROE: Bankruptcy's a last resort, but we've reached that.
I'm Bob Moon for Marketplace.
Comments
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03/31/2009
Nicoles Storm & Ken Konfounded, you two need to post in the correct section. You're looking for the story that came later in the broadcast.
Attention to details is key when you try to make your point.
And I agree with this section of the broadcast, bankrupcy should be considered. We can keep these company's on life support for only so long
From CA, 03/31/2009
Please don't let me catch you guys peddling GOP talking points again; the way that Neocon Kevin Hassett blamed Labor for GM's problems was shameless.
From Richmond, VA, 03/30/2009
The big three car company should be going to the oil companies for loans. Most Americans over the age of 55 know the big three and the oil companies worked together for many years to produce autos with low miles-per-gallon ratings. It is time for the oil companies to invest in the big three.
From Sacramento, CA, 03/30/2009
Perhaps Obama owes a debt to the automakers, but lets not gloss of the reasons that US automakers are paying so much more. Those "sweetheart deals" mostly involve payments for health insurance on retired employees -- payments the Toyotas and Hondas of the world don't have to worry about due to their short history here in the US. Individual employee compensation is actually fairly equal. The real problem isn't the union but the automakers business structure, which failed to provide a rainy day fund for these known payments.
From Great Island, ME, 03/30/2009
I'm sorry, I was referring not to Mr. Moon, but that smug right-wing think-tank geek you put on after him on today's show. Forgot his name, not even very sure of his affiliation (heritage foundation?), but full of the usual anti-labor talking points.
I understand that you post a wide range of opinion on your show, and I appreciate that. But blaming the workers for the failure of the auto industry was just too shameless.
And once again, my apologies to Mr. Moon for the case of mistaken identity.
From Great Island, ME, 03/30/2009
How much is Bob Moon making as he pontificates on the "uncompetitive" nature of labor compensation? Does he get health insurance with his compensation package? Does he have a retirement plan which allows for something other than abject poverty?
In Mr. Moo we have somebody who produces nothing but opinion for a living, saying that those whose labor has produced the wealth of the nation are overpaid. Well that's an opinion, but it would be easier to take seriously from somebody living at or below that same wage rate. And I notice that executive compensation didn't figure into his prescription.
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