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Running On Empty: GM's Fate Is Debated
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Earlier this year, a CNW Marketing Research survey of new car buyers found that 80 percent would avoid an bankrupt automaker. In a market full of alternatives, there is little allegiance to Detroit's automakers, said Art Spinella, president of CNW Marketing Research.
Others, however, argue that bankruptcy would not be nearly as traumatic as Detroit insists.
Under the protection of bankruptcy, GM could trim health and pension benefits, whose costs have been dragging down Motor City's cost competitiveness versus foreign automakers. The process would allow GM to shrink its network of dealerships, overriding state laws that would otherwise make such a reduction an expensive headache.
GM could then take steps to retool plants and slash unprofitable brands.
If all these terms could be arranged ahead of time, in a prepackaged bankruptcy, GM could soldier on without skipping a beat, analysts said.
Rod Lache of Deutsche Bank said in a note last month that many U.S. auto suppliers could survive bankruptcies of the Detroit Three but that their long-term earning power would significantly weaken.
Michael E. Levine, a former senior airline executive and a lecturer at New York University School of Law, said troubled airlines often move quickly when they file for bankruptcy to honor their frequent-flier commitments and find money to pay their credit card processing bills. Similarly, he said a bankrupt GM would probably seek to honor its vehicle warranties and make sure financing for car purchases was still available.
Levine, who has worked as a consultant for bankrupt airlines, said American consumers can handle bankruptcy of a large iconic U.S. company, just as they overcame the fear that an airline bankruptcy would lead to smaller budgets for maintenance or safety.
"It is quite possible the auto industry is not thinking in truly contemporary terms," he said. "Consumers have lived through a lot of bankruptcies over the last 10 or 20 years. A couple of generations ago, the word bankruptcy meant liquidation. Now it very often means reorganization. That can be quite transparent from a consumer perspective."
