GM May Consider Bankruptcy

Victories for the system as we used to know it are few and far between but tonight we might be on the cusp of one of them.

The WSJ is reporting that GM appears to be “more open” to a bankruptcy reorganization.

Top General Motors Corp. executives are more open to a speedy bankruptcy reorganization financed by the government, pushing aside earlier concern that such a move would scare away so many customers the company wouldn’t survive, said a person familiar with the matter.

While the company still wants to avoid bankruptcy, the new view represents a reversal from GM’s position late last year, when it sought a federal bailout. The change in thinking, combined with the disclosure Thursday that GM’s auditor has raised “substantial doubt” about the car maker’s ability to keep going, appears to move GM closer to the possibility it will file for reorganization.

Both developments come as President Barack Obama’s auto task force is trying to decide how much more aid to provide GM. They also come as GM is locked in negotiations with its bondholders to trade debt for equity as a way to cut its cost of operations.

As the Journal points out, there may be some gamesmanship going on. Faced with a bankruptcy the debt holders might be more inclined to come to the negotiating table. Frankly, I don’t think so.

In my humble opinion, I suspect that the Obama team has looked at the prospect of propping up GM and probably Chrysler as well as nothing more than a black hole. Nothing short of bankruptcy is going to provide the forum to beat down the dealers, unions and creditors. The political hoops of trying to do that any other way are insurmountable.

Perhaps the best indication that this may be a done deal comes from Nancy Pelosi.

House Speaker Nancy Pelosi (D., Calif.) told reporters Thursday that the administration needed to help the auto companies survive. But she cautioned that any federal money had to be seen “as a lifeline, not life support.” Additional federal funding, she said, could come only after the companies had proved they were viable. “But this isn’t endless,” she said.

She’s giving Obama cover and for her to throw the unions under the bus like this speaks volumes.

Maybe we can hope that this represents a turning point of sorts. Washington might finally be realizing that there are limits to what it can accomplish. If that spills over to some other areas, how refreshing would that be.

We can hope.

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