GM Restructuring Plan Submitted to Senate on Dec 2, 2008

General Motors' Restructuring Plan for Long-Term Viability submitted to Senate Banking Committee & House of Representatives Financial Services Committee on Dec 2, 2008: click here to download (PDF file; source: WSJ)

Our take:

- In the long-term, GM is better to be allowed to go under. However, in the short-term, US government may need to bail this auto maker with stringent requirements in order to prevent rapid increase in unemployment rate. However, the bailout of GM means other auto makers will ask for the same treatments as well (once the pandora box is open, it is hard to close it). This will complicate future US government's decision making on future bailouts and may expand to other distressed industries as well.

- Auto is just one of many industries that need life support from US government. How about furniture, shoes, retail, etc? They all may want bailouts later especially when there are no other alternatives.

- GM in fact has been operating in a 'la la land' (read: unrealistic and unsustainable situations) with very negative condition in almost everything you can imagine (negative shareholder equity, increasing losses, negative cash flow, declining revenue and market share, super large debt level, and so on...). In the event of bailouts, it is possible that the equity and preferred securities holders will be almost or completely wiped out. This might be good for GM employees and GM internally as a going-concern but bad for shareholders and bondholders. In addition, any bailouts most likely will keep GM alive no more than few months, and hence any near-term outcome (bailout or no bailout), all equity, preferred and bond holders (read: yes even bond holders are at risk! The fact is GM debt level is outstandingly large and its ability to pay interests is very questionable, not counting GM's daily short-term debt in the form of commercial papers) are sooner or later at significant risks of permanent loss of capital. With GM, it is all pain and no gain.