$77 billion more to bail out bankrupt GM?

Thanks to decades of mismanagement, General Motors Corp. (GM) is on the brink of bankruptcy. For instance, under its recently fired CEO Rick Wagoner, GM's North American market share fell from 33 percent to 19 percent and between 2004 and 2008, GM lost $74 billion . It now has about six weeks to accept the outlines of a Treasury plan and fill in its blanks.

And GM will not simply be liquidated. Instead, $77 billion more in taxpayer money -- on top of the $13.4 billion it has already received -- will be needed for GM to die a good death and be reborn as a smaller company.

How will this work? Using a section 363 bankruptcy (about which I posted here), the good part of GM -- such as Chevrolet, GM's Chinese operations, and Cadillac -- will go into a new company in the next two weeks with the help of $7 billion in U.S. debt. And the bad part -- everything else -- will require $70 billion more in U.S. debt to cover GM's health care obligations and the liquidation of the factories making all of GM's other products.

Still unresolved in this plan is the fate of a $13.5 billion gap between GM's pension assets and its liabilities, as well as how much of a haircut the holders of $29 billion in GM bonds will be forced to take. Finally, there's the matter of whether this restructured GM will be able to attract any customers, who might be nervous about whether a bankrupt company can stand behind its warranties.

Meanwhile, there is wonderful news for Boston Consulting Group, which will get $5 million in fees to develop a business plan for GM. And S&P is earning its fees by announcing that GM and Chrysler are likely to default on their debt obligations. Too bad they didn't make that call a few years ago when it could have helped saved people from losing money.

No word on how the U.S. will get back the $90 billion will have lent GM to cover all its mistakes. And all the GM stockholders -- who have already lost 98 percent of their investment since Rick Wagoner took over -- will see that remaining two percent wiped out.

Update: GM CEO Fritz Henderson now states that the new GM will include Chevrolet, Cadillac, Buick and GMC. He says there are multiple bidders for Hummer and that plans for Saturn should be resolved quickly.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in GM securities.

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