D.F.

Krause

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July 17, 2009

GM Emerges Quickly from a Weird Bankruptcy

Since General Motors has now emerged from bankruptcy, you might be wondering what happened in bankruptcy that made it possible for the “new GM” to emerge while the “old GM” stayed behind to rot and rust into nothingness.

Bankruptcy is never pretty, but it’s particularly hideous when the government a) owns the bankrupt company; and b) is doing its best to dictate the terms of the bankruptcy. That can only result in outcomes most charitably described as relatively insane (as opposed to completely insane).

And to illustrate the point, we need only revisit one of the very favorite pals of this column – erstwhile GM Chairman Rick Wagoner.

You will of course remember Rick’s celebrated pronouncement at the end of 2007 that he was “pleased” with the company’s performance of that year – the year that saw GM lose $38.7 billion. Nice job, everyone! The boss is pleased. Who doesn’t love a boss who still pats you on the back when you break something, wear shoes that don’t match, bankrupt the company . . . that sort of thing?

But maybe there’s a reason Rick was so pleased. As he surely realized, losing that much money with no sign of profit in sight would eventually get him fired. He also surely knew that getting fired from GM just means you move on to the next stage of your executive life, which is to start collecting the company’s gold-plated executive retirement package.

Rick was entitled to $23 million upon his retirement, which isn’t too shabby, and might very well compel a clever CEO to start walking around in women’s clothes like Klinger on M*A*S*H, looking for that corporate Section 8 that would push him into full-time golf and gardening while the checks roll in.

Well. In bankruptcy, the first thing that happens is that the judge tears up existing obligations like that so the company can emerge in a position to actually make a profit again. That might help explain why Rick kept insisting bankruptcy was not an option, even though everyone else in the world (with the exception of most auto executives, union representatives and Detroit-area media personalities) understood it was the only option.

Today, we learned just how rough Rick is going to have it in retirement. First, he gets $74,000 a year under the “salaried retirement” program. But he also gets $1.64 million a year for the first five years of his retirement under the executive retirement plan. All told, Rick is entitled to a retirement package with $8.6 million.

Now, I don’t know what his living expenses are. Maybe Rick has a $1 million-a-month mortgage payment. And if that’s the case, granted, he would have a hard time selling a house in Michigan right now without losing his shirt on it.

But I’m not feeling it to fret too much over his short- or long-term financial viability. Even if Rick sells his house for pennies on the dollar, I’m sure he could pay cash for a nice three-bedroom ranch-style home in Ferndale and have money left over for groceries.

The headlines last week, declaring with great fanfare that GM had emerged from bankruptcy and would now be ready to rumble, suddenly make a lot more sense. If all you have to do in bankruptcy is agree to pay your failed CEO fewer millions than you were originally planning, you could emerge pretty quickly too. If all you have to do is give the union nearly 40 percent of the company so it can use the value (I know, stop laughing) of its stock to pay health insurance premiums for people who stopped working for you 20 years ago, hey, what’s to haggle over?

Have the judge sign the order and let’s get this thing done.

This has been a pretty weird bankruptcy, but then, this is a pretty weird company. It’s run by people who haven’t been exposed to the daylight some of us call reality in a very long time. And if it’s true that the government plans to sell its ownership stake as soon as possible, I suppose the best we can say about this bankruptcy is that the next one for GM will surely be far more brutal to everyone involved – which is to say, it will be better.

Given what GM appears to have learned – nothing – it is surely inevitable.

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