• [pic]As GM asks for $16 billion more in U.S. federal assistance, their most contentious point is bankruptcy's a bad idea. We disagree. However, here's their argument from their just-revealed viability plan.
Basically, the General's two arguments against bankruptcy are first, that they'll see a sales drop, depending on whether the bankruptcy is "pre-solicited," a "cram-down" or a "traditional" process of anywhere from 4% (U.S. volume loss) and 3% (long term U.S. volume loss) to 13% (U.S. volume loss) and 10% (long term U.S. volume loss). Second, they believe that some forms of their $170 billion in debt cannot be easily wiped clean in a bankruptcy.
We happen to think, for at least the first argument on a sales drop, it's plain bunk. GM is already in a state of de facto bankruptcy and is already losing sales due to potential customers making other choices in the market. Secondly, many consumers are on the sidelines right now, so why focus on market share when people just aren't buying?
But more importantly, because of the overall economic climate, right now would be the most favorable time to receive a bankruptcy deal backed by the federal government, a situation that could provide a more favorable customer reaction than a straight bankruptcy. As far as the debt obligations arguments, we're still wading through that side of the argument. Frankly, so is GM.
But our initial thought is GM really believes they'll be able to get bondholders to reduce claims. However, that's almost an impossibility given the requirements by the Federal Government to show long-term viability and a restructuring plan for debt by March 31st, 2009.
A secondary concern for GM may be over Section 360 — the "Stalking Horse" provision. That provision allows a debtor who, instead of owning common stock, but rather bonds and liens on assets to make a bid for the company. If the "Stalking Horse" wins the bid, he owns the company for the cost of the...