GM, Ideally should have filed a chapter 11 at least a year ago, and certainly it should have in the autumn of 2008 instead of going to the government for handouts. 

Regardless of how you look at it, the General Motors Bankruptcy filing today was not a positive thing in the short run.  In the long run, it might become a positive, depending on what happens in that long run.  Meanwhile, Barack Obama's speech to the extent that the loss of the company would be devastating is not entirely true.  With less than 100,000 people employed at GM today, and with about 600,000 people employed at its peak, the company was already in dire straits.  It had already lost about 5/6 of its workforce and losing the remainder would have had less of an impact than we might expect.  The secondary effects would be much more severe; loss of jobs in dealerships and parts makers would have been much worse, however, many of these would have been able to move into other work including other auto makers taking over the market share that GM lost.  It would have been painful but not fatal.  Still, none of it would have been necessary if GM had paid attention to reality years ago. 

The problem really begins with GM agreeing to foolish labor contracts some years ago wherein it became responsible for lifetime health care payments and pensions for its workers.  For a company, which was already in trouble, this was taking on an impossible burden.  That the United Auto Workers Union pressured for it was wrong headed, and totally against their own best interest, but it should be noted that labor unions have not generally been looking long term for some years.  Thus, both made critical mistakes. 

As the market became more competitive Europe, Japan, and Korea took significant shares.  American automakers became seriously strapped for sales and for cash.  We should also not forget the Chinese entries into the market now appearing.  Any automobile manufacturer has to be seriously concerned about what the market will look like in 5 years. 

During my years in the law business I participated to various degrees in a fair number of large company bankruptcy cases.  There was a sequence of events common to all of these cases that began when the handwriting appeared on the wall and management refused to accept it.  While recognizing that the business was on life support, they hoped that somehow they could revive it without resorting to the bankruptcy process.  The second and third steps after failure to accept the inevitable were to bring in high priced consultants combined with finding high interest loans to attempt to keep the company running.  The loans generally helped to undermine the company's finances while the consultants took the company financial records for the last 5 or so years and reprinted them on their own impressive looking stationary.  These reprinted financial statements are almost always followed by a set of rosy projections from the consultants, suggesting that the company could remain in business.  In between the records and the projections should have been a single piece of blank paper bearing the words "at this point a miracle occurs."  Of course, no one knew how the miracle would emerge and in 99% of the cases it didn’t. 

GM should have learned from all of those companies that went before it.  Ideally it should have filed a chapter 11 at least a year ago, and certainly it should have in the autumn of 2008 instead of going to the government for handouts.  This would have directly benefited the company by keeping the government out of the restructuring, allowing them to control the proceedings to a much higher degree while providing a better negotiating position with creditors.  Finally, it would have avoided government favoritism toward the UAW.  Now, this is no longer possible.  
 
Interestingly, according to Barack Obama the government does not want to take a 60% stake in GM, but at the same time he says it had to, to save the company.  These contentions are patently false.  What is going on with the government sponsored bankruptcy is simply politicizing the process to favor the labor unions and government control oriented interests so that they can push their own political agendas.  There really is no reason for the government to hold on to an ownership stake, and if it truly didn't want to, it would be a simple matter to sell the stock off to the public at market prices as soon as the bankruptcy proceedings are completed.  Or, as Mitt Romney proposed, it could be simply distributed to the public.  This will not happen and the fact that it will not puts the lie to the stated position. 

According to the Wall Street Journal we are about to see the beginning of Obama Motors, which will prove to be a long, unhappy and expensive experience.  Non-political management of this new entity will be impossible.  The current CEO is politically popular, but not strongly in touch with the market.  This is a bad mix.  Politics never trumps market forces, which is why communism failed as a system.  Government control is likely to result in politics overriding proper management decisions.  The current proceedings will make Barack Obama the de facto CEO of General Motors and he will probably come to regret it.  Consider that he knows nothing about business management, and is surrounded by people who are more interested in currying his favor than confronting his errors.  It is another bad mix.  As Republican Legislator Chris Cox asserted, there needs to be an exit strategy, which has never been this administration's strong point. 

The Heritage Foundation has made some recommendations for the inevitable outcome, two of which are absolute essentials.  First, it must be made clear that there will be no further taxpayer money for GM in the future, period, end of story.  It was an error to provide government money in the first place, and the administration must confront the concept of sunk costs.  It is no good throwing good money after bad.  There must be an end to the handouts and the business must rely on sales to survive.   Second, the new management must adopt clear guidelines for the company that its only goal is to establish market value that the public will buy.  It must ignore all social, political and environmental ideals. Building "green cars" must take a back seat to profit.  If the public wants big cars, then GM must build big cars.   

One last question:  Will Ford have to compete against government managed GM and Chrysler with that same government changing the rules/laws to favor its own companies? It is likely that GM and possibly Chrysler will struggle under government influences because the bureaucrats and politicians will focus on political, social and environmental issues instead of the market.  The result will be cars that the average person will not want to buy.  Mechanical problems and reduced safety will likely be significant concerns.  We can look to British Leyland and Jaguar for past examples of this.   

In the end, GM's best hope for salvation is that the government takes its hands off of the company as quickly as possible; not a likely scenario, given the desire for control which permeates so much of Washington DC at present.  Still, we can hope for change.