Commentary

Don’t Worry, You’ll Still Get Your Car Company

On Sunday night, Southern District of New York U.S. Bankruptcy Court Judge Robert E. Gerber ruled that the proposed sale of GM’s good assets to a government owned firm should move forward. In his 87-page ruling, Judge Gerber rejected pleas from objecting bondholders and product-liability claimants who don’t believe the White House negotiated plan fairly considers their stake.

This ruling is good news for the Obama administration, GM, the UAW, and anyone else that prefers short-term gain to long-term market stability. Interestingly, Judge Gerber wrote that the only alternative to GM’s plans would be liquidation, “a disastrous result for GM’s creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates. In the event of a liquidation, creditors now trying to increase their incremental recoveries would get nothing.”

It might be true that some of the creditors asking for a different profit share in the new GM would get less in a liquidation, but the executive branch interference in the bankruptcy process certainly is skewing the outcome. Investors in GM—whether senior creditors, bondholders, or stockholders—believed that bankruptcy law would be followed if GM ever went down (or they at least assumed it, since the bankruptcy of the American giant was thought unthinkable until recently). Liquidation through Chapter 7 bankruptcy would pay down the debts of senior creditors first, and then move down a pre-established chain. That chain of seniority should be respected under “reorganization” through Chapter 11 bankruptcy.

Nevertheless, the ruling is passed and we are all one step closer to being 60% owners of a car company. I can’t wait for my timeshare Chevy Volt.