General Motors Corp. has long struggled to shed its faulty parts in order to salvage the main frame.
Now, a messy bankruptcy may be the only way to separate the good GM from the bad GM - the poor-selling brands, debts, legacy costs, old plants and surplus dealerships.
GM is preparing a plan to hive off the most profitable parts of the company from the rest as part of a bankruptcy protection filing, according to various media reports.
It shouldn't have to come to this. GM executives, including ousted chief executive officer Rick Wagoner, have known for some time the kinds of changes needed to make the U.S. auto-making giant successful.
"The structural issues of eliminating brands and dealers needed to be started years ago," acknowledged Brad Coulter, an automotive turnaround expert at O'Keefe & Associates in Bloomfield Hills, Mich. "GM got to this point because the [U.S.]government wanted it done quickly."
Analysts say GM was thwarted from transforming itself by outside pressures and, as one former insider put it, hamstrung from within by a penchant for "incrementalism" over radical change.
"It's not unusual for a company faced with a crisis to take a while to get its head around what they have to do," Mr. Coulter pointed out.
Even with bankruptcy looming and Washington demanding major concessions from management, unions and debt holders, GM was still slow to acknowledge the depth of its problems. The White House has warned GM that its plan to eliminate 47,000 jobs and cut its debt nearly in half still won't make the company viable, and it has given the company until the end of May to come up with more radical restructuring.
Bankruptcy is probably the only way to get bondholders, unionized workers and dealers to budge, argues Michael Lewicki, head of accountant RSM Richter's automotive practice in Toronto.
"There are too many stakeholders and they need a court to force something on them," Mr. Lewicki said. "They need a judge to slam down the hammer."
Far from being the end of GM, a bankruptcy would produce a "lean and mean" car maker, better able to compete with Toyota Motor Corp. and the other foreign car makers, he said. There would be fewer brands and employees, but also substantially fewer obligations.
GM has made mistakes. But all Americans share blame for the company's decline, according to Kent Hughes, director of the global competitiveness program at the Woodrow Wilson Center in Washington.
"We should all have seen it coming," he said. "We have all contributed to Detroit's woes - demanding low gas prices and large cars, tolerating currency intervention by our competitors, and failing to develop policies to free American industry from the burden of health care costs."
Well-organized dealers fought GM at every step in its efforts to rationalize its bloated network with threats of costly lawsuits; they were aided by restrictive franchise laws in dozens of states that block auto makers from selling directly to customers. That has saddled the company with more than 6,700 dealers - nearly five times as many as Toyota - while selling about a third as many cars per dealership.
GM has also struggled mightily to get out from under the heavy burden of providing health care to its employees and retirees. Foreign manufacturers, such as Toyota, have much less onerous obligations because they have more offshore production and younger North American work forces.
"I'm not sure how much faster Wagoner could have moved, outside a crisis situation," Mr. Hughes said. "He was facing a sudden change in the market and an amazing array of constraints."
Some analysts have suggested a prearranged bankruptcy might enable GM to make the hard choices quickly and re-emerge financially stronger from Chapter 11 protection.
Mr. Coulter, the turnaround expert, isn't convinced. He said it would take at least a year, and perhaps longer, for GM to sort out its problems in bankruptcy.
"Nobody's ever heard of a quick bankruptcy for a company of this size," he said. "It's a roll of the dice to see how quickly this can be done."
Bondholders, dealers, the United Auto Workers union and suppliers all have a stake in what happens, and their interests may differ. To prevent a disorderly unwinding, Washington would have to move quickly to back new car warranties and to backstop payments to suppliers, Mr. Coulter said.
"If you don't pay suppliers, production craters," he warned.
Adding to the complexity of bankruptcy, GM would have to file under two sets of laws - Chapter 11 in the United States and the Companies' Creditors Arrangement Act in Canada. That could create two potentially conflicting legal proceedings.
Bankruptcy also raises thorny questions for parts makers. Most Canadian suppliers, for example, ship parts to the United States, so the question arises whether they would get payment for the parts they have already shipped to the companies, or would become unsecured creditors.
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How GM got here
MARCH 16, 2005
Slumping North American auto sales lead GM to warn that 2005 earnings will be as much as 80 per cent below its prior forecast.
FEB. 20, 2006
Fortune magazine cover story says GM headed for bankruptcy. The story cites grim assessments by Moody's and S&P.
JULY 15, 2008
GM announces a plan to cut costs by $10-billion (U.S.), suspend its dividend and sell up to $4-billion in assets, such as its Hummer brand, in a bid to shore up cash.
NOV. 21
GM decides to return two of its leased corporate jets after intense criticism by lawmakers.
DEC. 19
GM receives $13.4-billion in emergency government loans from the Bush administration to stave off bankruptcy and collapse.
FEB. 17, 2009
GM requests an additional $16.6-billion in U.S. government loans, for a total of up to $30-billion in loans, and says it will run out of cash by March without new federal financing. It also promises to cut its global work force by 47,000 jobs in 2009.
MARCH 29
CEO Rick Wagoner resigns under pressure from the Obama administration, two days before March 31 deadline to prove the company can become viable.
MARCH 30
President Obama orders GM and Chrysler to accelerate survival efforts and brace for possible bankruptcy, saying neither has done enough to justify taxpayer money they are seeking. GM given 60 days to rework its survival plan.
APRIL 8
Supplier-support programs launched, backed by up to $5-billion in government funds.
Reuters