Some lazy and determinist thoughts on the need to file bankruptcy:
I am reading Alfred Sloan's "My Years with General Motors" and I found something that he wrote about the Great Depression very striking. Sloan comments that from 1929 to 1930 GM sales fell by 1/3. He comments that due to some cyclical sales in the 1920's General Motors was equipped to handle this type of thing by layoffs, stop orders, and wage and salary reductions. It is remarkable (but maybe not surprising?) that 80 years later GM was unable to handle a slowing of sales that was far smaller in percentage terms.
I realize that things are vastly different in the American and global auto market than they were in the early 30's. That being said, GM was structurally similar to what it used to be heading into its latest collapse, just on a much larger scale (ok not that similar). Even still by the late 1920's GM was comprised of five major divisions producing a vast array of cars as well as many other divisions making light bulbs, refrigerators, etc. The business was complex then as well.
Sloan devotes almost an entire chapter of his book to Ford's inability to innovate to "close body" designs costing him and his company the position of market dominance that GM took over.
80 years later General Motors fails to innovate on the industrial side? Financial innovation at General Motors was doing just fine. Some of the most "interesting" derivative packages of the last 15 years have come out of GMAC (Ditec). Like many American companies GM became a player of the financial shell game rather than trying to maintain their role as a leader in industrial capital development. You would think someone in the company would have read Sloan's book?
Anyway returning to my point...It was not a collapse in sales that forced GM into bankruptcy, they should have been, (and from what I can tell were?) equipped to handle that in a similar fashion to how it was handled in the late 1920's. What hurt GM was the same thing that had been making it so much money in the last 30 years, involvement in the financial sector. The automobile production divisions of GM had been losing money for years before last year's bankruptcy filing. A slowing of sales at a loss shouldn't impact things strongly and the profitable auto divisions had been dieing long before 2008 (large SUV's). The problem that pushed GM over the edge must have been embedded in finance.
The credit problem was two fold.
1. Sales did fall in the last couple of years because of the recession. The fall in sales slowed cash flow through the enterprise. This slowing of cash made it harder to borrow at the same time that "liquidity was drying up" across the economy.
2. As a lender GM was making a lot of money off of loaning money out (to buy cars and other things). If people were no longer borrowing GM could no longer lend.
The need for General Motors to declare bankruptcy was based on the system that allowed GM to survive for so long and become what it did, that is, a lumbering dinosaur who didn't know what its own ass looked like (how is that for a good dinosaur analogy). This dinosaur was lumbering around lending and borrowing, slowly forgetting that it was supposed to be eating and shitting.
Bad dinosaur! If you don't shit you die. And finance capital profitability does not lend itself to a stable productive enterprise.