Are we really debating whether or not General Motors will declare bankruptcy? Perhaps there is some hope that GM will avoid bankruptcy under the "too big to fail" clause, but all signs seem to indicate that bankruptcy is the only true option at the end of the day.
As executive recruiters and advisers, we've been witnessing and impacting the exodus from Detroit and the auto industry for some time. Increasingly over the last two years, diehard industry veterans have thrown in the towel on their careers and passion for an industry that has been in their veins. We've all heard the story and many of us know of people and families who comment that Detroit and the auto industry will never be the same. While the depressed real estate market prevented many executives from giving up on the local market, the pendulum has swung. I recently met with a former CFO in the industry, and he said, "I've provided references on no fewer than six very talented financial executives who all made moves and had to write checks to walk away from their homes".
In addition to the talent drain, does anyone actually believe that the Big 3 can change fast enough to save their business models? We all know about the retiree costs and the unsustainable labor contracts, but can GM actually downsize and innovate fast enough to build cars for the future? As Korea, China and India are all focused on the opportunity without the baggage of the Big 3's legacy costs, one could argue that it is next to impossible for GM and Chrysler to move fast enough. Ford is a little bit ahead, but few see much material difference between the three from a macro perspective.
So why would the government continue to throw money at the industry? Bankers will tell you that we have no choice as bankruptcy is not an option due the lack of DIP financing, but this is a short term constraint. At some point, the continued bailouts of AIG, based on the fear of the complete unraveling of the CDS market, and GM, based on the impact to the employment picture and the economy must give way to acceptance that each must eventually be allowed to fail. They've already failed and we're just postponing the inevitable. At the end of the day, the incremental approach may feel less painful, but it's time to let the bankruptcy process give GM and Chrysler the push they need to completely overhaul their businesses.
What do you think? If bankruptcy is inevitable, when will it be a good time to let the process play out? How will new energy sources like LNG and electric plug-ins change our buying behavior and when?
