In re: General Motors Corp.

Washington – (BP) This week, top executives from the “Big 3″ U.S. automakers are appearing before Congress once again, trying to make a case for a quick injection of billions of dollars in federal aid.

General Motors Corp. (GM) says that without an immediate bailout from  Washington of at least $4 billion, it may not survive to the end of the year, and may drag the entire industry down with it if it fails.

When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under Chapter 11 of the Bankruptcy Code. The court can grant complete or partial relief from most of the company’s debts and its contracts.

In enacting Chapter 11 of the Bankruptcy Code, Congress concluded that it is sometimes the case that the value of a business is greater if sold or reorganized as a going concern than the value of the sum of its parts if the business’s assets were to be sold off individually. One of the central pillars of Chapter 11 is the debtor’s plan for reorganization 11 U.S.C. §1123.

For its part, GM is pitching a plan to Congress that would involve over the next three years cutting some 20,000 jobs, reducing the number of dealer locations by 1,750, closing 9 plants and extracting major concessions from the United Auto Workers union. Further, GM proposes that its CEO Rick Wagoner would receive a salary of $1 in 2009 and that the four most senior executives would have their compensation cut in half.

Making no commitments herself, House Speaker Nancy Pelosi said Tuesday, “We want to see a commitment to the future. We want to see a restructuring of their approach, that they have a new business model, a new business plan.” She said, “it is my hope that we would” pass legislation to help the industry, echoing the thoughts of some (including GM’s CEO Rick Wagoner) who feel that having GM in bankruptcy would be a catastrophe.

It is true that a Chapter 11 proceeding involving GM would require it to formulate a restructuring of their approach, have a new business model and a new business plan. That plan would likely include massive job cuts, a significant reduction in dealer locations, the closing of about 17% of the company’s plants and major concessions from the United Auto Workers union.

The only downside to the Chapter 11 approach for GM and the other major automakers is that it would prevent each and every taxpayer in the United States from obtaining a stake in these companies (which could prove useful if they ever turn a profit again) for the trifling sum of $40 billion (this sum includes monies previously pledged to the automakers). 

We are all looking forward to the prospect of being vicarious virtual shareholders in three of the most poorly managed corporate entities in America of the last 50 years.

If the bailout is approved by Congress, all new vicarious virtual shareholders will be able to participate in an online management forum, similar to an online casino, where estimates can be placed as to how long it will take for the Big 3 to deliver the first funding call notice demanding a further shareholder loan advancement.