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GM's Bankruptcy Dance

General Motors
CNBC.com
General Motors

After General Motors issued its 10K report yesterday casting doubt on whether it can survive, there have been plenty of questions about why GM doesn't just go into bankruptcy. After all, a chapter 11 restructuring would let GM kick out contracts, cut costs and (in theory) come back as a leaner and more effective company.

The fact is GM is open to bankruptcy "style" restructuring if it can be done quickly and, if possible, outside of bankruptcy court.

From GM's perspective, trying to fix its problems outside of chapter 11, with the help of the Treasury Department, is its best option. I know some of you will read this, and say, "what? Just go into bankruptcy and get it over with."

But at GM headquarters it's not that simple, and here's why.

First, bankruptcy court is rarely quick and almost never easy. It is often a messy process. There's been this idea floating around that GM can do a pre-packaged bankruptcy and fix what is wrong relatively quickly. That is highly unlikely with a company as big and as tied to suppliers, dealers and thousands of companies around the world.

Second, the only way to finance a bankruptcy the size of GM is through the federal government. The banks don't have the money or the will to fund a GM Chapter 11 unless their capital is backed by a guarantee from Uncle Sam. From GM's viewpoint, if Washington has already extended $13.4 Billion, why not keep the current set-up in place as the auto maker borrows billions more.

Third, if GM has to answer to a creditor's committee, it is much tougher to stay in control of key decisions about how the company will operate in the future. Right now, GM CEO Rick Wagoner and President Fritz Henderson have to answer to the Obama Auto Task Force and at some point they may not like what the auto team tells them. Still, that may be easier to swallow than going through a creditor's committee.

This is not just a game of semantics. Bankruptcy court is an effective tool that has helped in clearing out "the dead wood" in corporate America.

From GM's viewpoint, cleaning up its back yard can happen outside of bankruptcy court.

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