Prevent a GM Bankruptcy? It May Already Be Here

General Motors President Fritz Henderson said Wednesday bankruptcy isn't a viable option for struggling U.S. automakers, maintaining that a new retooling plan can save the industry.   He added that General Motors is ready to undertake a host of steps needed to re-size, but said that "to win, you've got to win with product and technology and we do not want to give consumers a reason not to buy our cars and trucks."   Nancy Pelosi has echoed the "not an option" commentary around the automakers, not surprising given the support of big labor and the UAW in the recent election.   The problem is that the "not an option" may already be here.

GM has two primary arguments about why a bankruptcy should not be permitted to occur: 1) too many jobs will be lost in its core company as well as supporting industries, and 2) Americans will not buy a car or truck from a bankrupt company.

No one doubts the massive economic impact to the U.S. of any bankruptcy filing by one or all of the three Detroit-based automakers (I simply can't call them the "Big 3" anymore).    Millions of people depend on these companies for their livelihoods, from the executives at the companies themselves to dealers, salespeople and parts companies.   It would be a trickle-down waterfall of financial pain and could be the straw that breaks Michigan's back.  But even as the "not an option" rhetoric heats up, the grim reality is all too apparent; General Motors is  acting as if they are already operating under a de facto reorganization.

As executives of the three companies are heading back to Washington (driving in hybrids this time, not flying) with actual plans and a more detailed argument about why they deserve taxpayer money to stay out of bankruptcy, consider what's already going on with GM:

• It is asking for $12 billion in loans to meet its cash obligations through the end of 2009 including $4 billion dollars right now just to make it through the rest of this year
• It has considering asking bondholders to take principal writedowns and perhaps swap some debt for equity
• November sales fell 41% from last year's levels
• What was a $50 stock (NYSE: GM) five years ago is now below $5
• Its current 8 brands will likely be sliced in half, with Hummer, Saab, Saturn and possibly Buick being sold or shuttered
• It announced an additional round of layoffs yesterday

Hallmarks of most bankruptcies include worthless equity, a restructuring of debt and massive layoffs.   We already have that with General Motors.

The stock has sunk.   The bonds trade weakly and the company may ask some bondholders to change terms, and job losses and plant closings have been a constant for the past few years from the company.

The company argues that people won't buy a car from a bankrupt company.   Yet they aren't buying many now.   Sales have fallen by nearly half in the past year and GM's American market share has dropped from nearly 60% at one point to just over 20% today.

Aside from an official filing and the debtor-in-possession financing that goes with it, many of the hallmarks of a bankruptcy are already here.   Simply put, when a company says it needs billions "now" to make its cash-flow needs, it's saying a lot.

No one wants to see GM, Ford or Chrysler go out of business.   Too many Americans rely on these companies for jobs and retirement benefits.    But while we argue over the ins and outs of bankruptcy, the market and company are acting as if that's already what's happening.