The idea of protecting plain old vanilla debt holders has long ceased to be an issue in the debate over GM (GM) and the gang. Those bonds have already been crushed, so a bankruptcy would just be a finishing touch.
No, the big threat is that a bankruptcy would destroy the automakers’ relationship with its partners: parts suppliers, dealers, et. al. During today’s hearings, Chrysler CEO ominously warned that if the automakers went into bankruptcy, the parts makers might… demand cash upfront for their parts!
Here’s the problem. The Big Three already have one foot in the grave. Their partners already know the outlook is horrendous for these companies. Do parts suppliers like Dana (DAN) think everything is going swimmingly? Would bankruptcy be some big shock to them that come out of nowhere? Obviously not. Sure, you can give Detroit $25 billion more to get through the rough patch in the economy, but the parts makers and the dealers would be fools to keep on doing business as usual.
Furthermore, we have a hard time imagining the parts makers holding GM’s feet that close to the fire, even post-bankruptcy. It’s not like they have hundreds of customers out there that they could be selling to. There’s just a handful.
The other thing we hear is that there’s no way a customer would ever buy a car from a company in bankruptcy. Why not though? Form a third party company to guarantee the warranties, and voila.
Bottom line: The fundamental premise of the scaremongering is that a bankruptcy would be reveal some new information that would cause everyone in the GM ecosystem to recoil. But the information is out there (see: GM’s share price).
There’s really just one big uncertainty out there, which is, when will GM declare bankruptcy? Why not get that issue off the table?
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