Corporate hara-kiri

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Guest-blogging at the University of Chicago Law School's Faculty Blog, NYU's Barry Adler offers an intelligent rationale for something I've been thinking about ever since my 1978 Chevrolet Chevette ran up hundreds of dollars in repairs and still left me stranded successively in downstate Bloomington, on west Armitage's factory row, and miles from home on U.S. 20 with ice cream in the back seat, two decades ago.

"Perhaps GM should not attempt to survive," writes Adler. "The company's financial losses have not been visited upon it randomly. Rather the losses have been earned the old fashioned way, through the manufacture of expensive, unpopular products. Of the $10.6 billion in 2005 red ink, $3.4 billion was operating loss, which reflects not debt burden but real resources consumed in excess of revenues received. This is not a problem that can be fixed with new loans . . . . GM's market share--though roughly a quarter of U.S. new vehicles--has fallen and continues to fall. Perhaps the best course for General Motors, then, is to give up any attempt to continue in its current form.

"The company might instead voluntarily file a Chapter 11 bankruptcy petition, which would free it from debt payments and premit a rational disposition of its assets. GM's profitable brands could be retained or sold to competitors, who could also stand behind warranty commitments and assure the availability of parts for current models . . . . Workers would suffer, but fewer might lose their jobs than will be the case if GM holds out until the last penny is spent, when there may be nothing left for anyone to salvage."

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