Wednesday, March 4, 2009

GM bankruptcy debate

Portfolio.com blogger Felix Salmon takes issue with some of GM's arguments against bankruptcy. As Salmon correctly states, chapter 11 is really just a court arranged change of ownership.

Of course it should be no surprise that the management of GM is fighting Ch11. Chapter 11 would result in shareholder's being wiped out and probably a fair amount of the management being replaced. In most cases a firm's management would try to avoid Ch 11 until it becomes impossible because of pressure from debt holders. But GM is in a unique position in that it can keep trying to hit up the Federal Government for more cash.

A reorganized GM would emerge leaner and better able to compete in the future. In the long run, Ch 11 is the best option, regardless of what GM says.