GM is downshifting its hopes for staying out of bankruptcy and gearing up for a court-monitored reorganization if its current restructuring plans don't pan out, according to a Reuters report. The report quotes an anonymous source as saying that the bankruptcy preparation is "intense" and "earnest."
The company is trying to avoid bankruptcy through a massive restructuring, according to another source quoted in the report, but Moody's Investor Service places the likelihood of a GM bankruptcy at 70 percent based on the difficulties inherent in restructuring out of court. The current restructuring plan involves splitting the company into two parts: An "old" GM housing the company's less successful units, and a "new" GM with the company's most successful divisions.
The new GM would take on some of the old GM's debt in any bankruptcy proceeding, but the new structure could hurt GM's position in litigation, and bondholders would be certain to lose substantial value in the reorganization.
The article argues that, should bankruptcy be the only road available to GM, the government will step in to prevent an uncontrolled GM bankruptcy and the severe disruption it would cause to the economy as a whole.
But should the government get involved with a complicated and expensive GM bankruptcy? After all, GM is the company that gave the world the Hummer, and now Project PUMA. Should the automaker scrape off the rust and find some kind of workable identity? Or would the effects on the economy if GM collapsed be too great?