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Chrysler Bankruptcy Greases Path For GM

Friday, 22 May 2009 | 10:34 AM ET
GM Headquarters
GM Headquarters

Within two weeks expect to see GM in bankruptcy. And when the company files, whether it's late next week or Monday June 1st, the road map for a quick creation of a newer, leaner GM will be laid out for the Federal Government to follow. It's the Chrysler bankruptcy which has gone about as smoothly as the auto task forcewas hoping.

That is not to say there haven't been some hiccups for the feds, or massive pain for Chrysler workers, investors, and dealers. There are plenty of people who will be "casualties" of the Chrysler trip through chapter 11. I talked with one dealer yesterday who is watching his business implode because Chrysler is cutting him out. It's not pretty.

While those stories are real and unfortunate, the legal process of stripping Chrysler of its debts and excess capacity has largely gone according to the government plan. The court has rejected pleas from bond holders to slow down the proceedings. Efforts by dealers to stop Chrysler from kicking out their contracts have failed so far. And, as we sit here today, the sale of good Chrysler assets into a new company run by Fiatcould be approved by the end of next week and finalized by mid-June.

That success convinces the Treasury Department that GM can follow the same path. Yes, we all get that the White House will say it would prefer to restructure GM outside of bankruptcy, but let's call it like it is. The dye is cast, and GM is headed for Chapter 11. The fact Chrysler's 363 sale into a new company has not been a mess tells the folks in Washington this formula accomplishes what they want.

Keep in mind GM is a far larger and more complex company than Chrysler, so it's "quick rinse" transformation into a new auto company could take a bit longer. And with far more dealers than Chrysler, it remains to be seen what the impact on sales will be having the country's largest auto maker in bankruptcy. Still, watching Chrysler's journey shows us what we can expect with GM over the next two months.

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  • Phil LeBeau is a CNBC auto and airline industry reporter based in the Chicago bureau and editor of the Behind the Wheel section on CNBC.com.

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