Todays debate about General Motors is no longer about whether the company should go into bankruptcy but rather who should take the biggest hit in the process, and in what form should GM re-emerge. The “good bank-bad bank” idea is now being recycled as the “Good GM-Bad GM” solution. The idea is to sell stock in Good GM and use the money to induce the creditors in Bad GM to take a large haircut, including some stock in Good GM. If youre a creditor that may be a tall order, so you want to look at how much value would be in Good GM to see how much you might get from taking a big write-off on your loans to Bad GM. You might even want someone to do an intelligent SWOT analysis of Good GM, to assess your risk/reward chances. According to Gene Siciliano, Founder and President of Western Management Associates, it might look like this:
* Strengths: A long track record of building cars and trucks for buyers worldwide. The capacity to build a lot of cars and trucks. A work force that is in place and ready to work.
* Weaknesses: They dont build very good cars and trucks, if reliability is what you want. They tend to build many more cars and trucks, mostly trucks, than people want to buy. They dont seem to realize it, because they do it year after year. They pay their workers well for building cars and trucks that seem to break a lot, compared to the competition.
* Opportunities: They have the opportunity to free themselves of costly labor contracts and replace them with contracts that will better enable them to build better cars and trucks at lower cost. They could even engineer their cars and trucks to hold up better than the old ones, if they wanted to do that.
* Threats: Their long standing inability to fix their weaknesses has resulted in a big competitor taking over their vaunted position as the top gun in cars and trucks, perhaps forever. They will need another claim to fame going forward, like great cars that last, for example.
“This back-of-the-envelope SWOT analysis says much about why GM is in trouble today, even if its a pretty simplistic picture of the more complex reality. And if this is as good as it gets”, Siciliano goes on to say, “Im not sure I wouldnt rather just have the government buy my debt and pay me off so I can reinvest elsewhere. After all, they did it for the banks, why not GM ”
Siciliano believes that bondholders and other creditors may be asking themselves the same questions these days. He says: “Maybe the answer is a real bankruptcy in which a court-appointed trustee takes over to improve the mediocre SWOT results above, in order to create a real competitor in todays worldwide marketplace for cars and trucks”
Gene Siciliano, CMC, CPA, is an author, speaker and financial consultant who works with CEOs and managers to achieve greater financial success in a dramatically changing economy.
As “Your CFO For Rent” and president of Western Management Associates, Siciliano has spent more than 20 years helping his clients build financial strength and shareholder value through applied knowledge and process improvement. His book, “Finance for Non-Financial Managers,” (McGraw-Hill, 2003) is available in bookstores and online. More information and free articles are available at www.GeneSiciliano.com.
Western Management Associates
Los Angeles, CA
First Url: Gene Siciliano
Second Url: CFO for Rent