GM's European division is in even bigger trouble than the US operations. The US division at least has some clean options: liquidation, Chapter 13 reorganization, or government bailout. But the European operations sprawl across borders and regulatory regimes. The EU has so far proven unable to muster the kind of coordinated government action that the US is capable of, as its stillborn efforts to deal with Eastern Europe illustrate quite plainly.
For all our bitching about regulation, Americans rarely appreciate just how important it is to have a central mechanism for disposing of insolvent firms. Our bankruptcy code is the best in the world: transparent, quick, and focused on making people better off rather than punishing firms that have made mistakes. When you don't have that kind of authority or skill, you get what is apparently happening to GM as it struggles to sell off Opel before the cash crunch hits. This has big ramifications for us:
Much like the company's midnight-hour plea for U.S. aid in December, GM is now racing against a tight deadline in Europe. GM Europe needs a $4.2 billion injection by mid-April or it will run out of cash and potentially be forced to cease operations despite its massive presence in the European market, according to people familiar with the company's cash position.
The auto maker accelerated negotiations with the German government this week, saying that it needs that country to provide two-thirds of the Europe loans. GM's biggest operation in Europe, Opel, is based in Germany, and the company employs tens of thousands of factory workers, engineers and workers at dealers in the region.
Mr. Henderson said the company doesn't have a solid backup plan for its European operation. Unlike its unit in the U.S., which could be put into bankruptcy court protection, the European business weaves throughout Western and Eastern Europe, making a bankruptcy scenario almost impossible to pull off, he said.
"It's always a good idea to have a contingency plan, but bankruptcy is not a good plan," he said. Mr. Henderson plans to meet with German officials later this week. If GM Europe fails, it threatens to spoil the company's viability plan, which was recently filed to the Treasury Department in order to meet requirements related to the White House's $13.4 billion loan. In the plan, GM said that $6 billion in aid from governments outside the U.S. is needed in order to make the company viable.
The unwinding of global leverage in the absence of a global regulatory regime may produce a lot more of these kinds of problems.