Should GM and Chrysler File for Bankruptcy?

From time to time I like to look back and get some perspective. I was reminded of this interesting article by Edward Altman that I read back in November. He wrote these words:

With GM's financial profile--based on my "Z-Score" bankruptcy-prediction model--now clearly deep into the distressed-firm zone and with the global economy facing a severe and likely prolonged economic recession, the correct choice is to file for bankruptcy and seek an immediate significant liquidity boost from the post-bankruptcy debtor-in-possession (DIP) financing mechanism. This traditional option for failing companies will require a unique twist: assistance of the U.S. government as a meaningful player, but at little risk and attractive returns to the U.S. taxpayer.

It should be obvious by now that there is little chance that these companies will survive in their current form. We can only hope that more taxpayer money won't get thrown down this rat hole.

I continue to be amazed as taxpayer dollars get wasted by our elected officials. Why the people in Washington don't look at these situations from the eyes of a top notch investor--like Warren Buffett--and then take action mystifies me. If Buffett was putting his money on the line what would he demand in terms of investment terms, management, and board changes? If politicians are going to bailout public corporations with long histories of poor management they should first identify the problems and then select the solution. Not, BS on television for a while and then write the check because they have no clue.

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Should GM/Chrysler File for Bankruptcy?
- Edward I. Altman