The other day we argued against a government bailout of GM, suggesting that a Chapter 11 bankruptcy reorganization, albeit painful, would be better for GM in the long run.
Here's some additional points of view:
"Why Bankruptcy Is The Best Option For GM" (Wall Street Journal)
"A Bridge For The Carmakers" (Washington Post)
"How To Bail Out GM" (Washington Post)
After reading these and other commentary on the issue, we're still persuaded that bankruptcy is inevitable, so might as well start now. As they say, "no pain, no gain."
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One of the Washington Post articles cited ("How to Bail out GM") includes the following statement: "In a Chapter 11 bankruptcy, GM would "reorganize." It would suspend many existing debt payments and continue normal operations. Perhaps. The snag is that even in 'reorganization,' GM would require new loans that might be unavailable. "Historically, when companies go bankrupt, there's 'debtor in possession' financing -- investors lend you money, but they get repaid first. That market has evaporated because of the credit crunch," says auto analyst Rod Lache of Deutsche Bank."
So where does this financing come from?
The WSJ article says: "(D)ebtor-in-possession (DIP) financing -- loans that provide the near-term cash for reorganizing companies -- is very safe, because the DIP lender has priority over all other claimants. In normal markets, it would certainly be available to a GM that has assets to sell, including a viable overseas business. Such financing is probably available even now.
In any event, it would be lined up before a filing, not after, so any problems wouldn't be a surprise. As a last resort, we could at least consider a public DIP loan to support a reorganizing GM with a good chance to survive -- as opposed to subsidizing a GM slowly deflating."
Duh?!
We should do more than "at least consider" a public DIP loan. That should be the centerpiece of a bailout of the automakers. Provide the bailout money, but only as DIP financing to support continued operations during a Chapter 11 restructuring.
And only with strong curbs on executive compensation and bonuses.
And counting any additional funding required by the PBCG and unemployment trust funds as part of the bailout total.
And funding to partially replace the retiree health benefits that would be washed out in the reorg process (perhaps special legislation to designate these retirees as eligible for Medicare now, regardless of age??? or other special legislation that uses this as a stepping stone to the health care system of the future, whatever that might be???).
Federal government DIP financing is the answer.
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