Bankruptcy Bashing

I just caught a conversation on CNN that featured Ray Young, the CFO of GM, and Jack Welch, the retired CEO of General Electric. These individuals share opposing views concerning a GM bankruptcy. Mr. Welch favors a bankruptcy administration, while Mr. Young opposes.

No surprise.

In my recent article 'Common Cents', I wrote, in part, of a viewpoint held by those opposing a bankruptcy. To restate, the basic position of those opposed is this: "People won't buy cars from a bankrupt company." What caught my attention during the above discussion was this: Mr. Young stood on the ground that people may not buy cars from a bankrupt company. He seemed to indicate that the mere possibility of a bankruptcy has already negatively affected auto sales across the globe. Mr. Young did not offer any business explanation as to why a bankruptcy would fail, only that consumers would run scared from a bankrupt entity. It appears to me, in my opinion, that GM may be using this supposed consumer fear of purchasing from a bankrupt entity as a tool to leverage Congress. It's crunch time and anything goes. If bankruptcy is such a bad and unreasonable option for GM or other members of the Big 3, then why is it, after massive amounts of analysis, that all the CFO of GM can come up with is supposed consumer fear? I find that very interesting. After all, this is the CFO of GM speaking, not a talk show host.

Following, I want to discuss my views on consumer confidence and company responsibility. Keep in mind that I am an average lower middle class guy with no expertise in finance or the Big 3. Here's a common sense question: Would consumer confidence increase if bailout money were given to an industry that most Americans feel will soon fail? Answer: No. If 70% of Americans believe that the Big 3 should be left to dissolution, how is it that acquiring 34 billion dollars of taxpayer money is going to create a spike in consumer confidence? Another question: If Congress grants bailout money, would it create resentment from the 70% of Americans disfavoring bailout?And wouldn't such resentment decrease sales even further? It begs the logical question: Will GM, or the Big 3, suffer a backlash from American consumers if bailout money is granted? Consumer confidence in the Big 3 has been consistently falling. In my mind, a bailout will not increase consumer confidence. In fact, it may very well foster resentment. Resentment that may take a long time to convert to confidence.

COMPANY RESPONSIBILITY:

The Big 3 can take responsibility for its current situation. File a Chapter 11 reorganization plan and educate the consumer regarding such plan. Most consumers and, sadly, most business entities, misunderstand bankruptcy in its totality. In the confines of Chapter 11, bankruptcy offers a socialized restructuring of the troubled entity. Socialized in the sense that all creditors and parties with a legal connection to the debtor are brought to the table and dealt with in a methodical, well thought out process. An entity or individual in Chapter 11 is attempting a rebirth, if you will. In theory, everyone will be on the same page. Dissimilar to Chapter 11 is Chapter 7. Chapter 7 is usually sought by insolvent debtors with little or no assets. An entity filing Chapter 7 is usually looking to close its doors and dissolve.

I would guess that the Big 3 has hundreds of thousands of marketing and public relations representatives across the globe. Such employees should be reigned in and taught the basics of a Chapter 11 administration, specifically as it relates to the Big 3 scenario. This educational process could be quick, simple, and extremely effective. These marketers could then reenter the field armed with an optimistic and clear vision: "Hey consumer, our Chapter 11 constitutes a responsible 'new beginning'. We, in essence, have begun a brand new business with you in mind."

Realistically, auto sales may continue to decline, in the short term, regardless of bailout or bankruptcy. An idea for the Big 3: Use this time wisely. Launch a campaign titled 'A New Beginning For The Big 3'. I believe that people will gain respect and confidence in the Big 3 if the Big 3 display an ability to survive these times on their own three feet. People want new cars, new management, and new Big 3 discipline. That is my opinion as a prospective consumer.

dave