It must be tough having people speculate on your death every few years or so. But it’s a spot where General Motors finds itself in with unsettling regularity. For the world’s biggest automaker, the present situation is as bad as it can get. Once again, the company is casting about for ways to survive, and it’s looking at two options: a merger with Chrysler or a government bailout. Perhaps it’s finally time to think seriously of a third: bankruptcy.

GM continues to protest, perhaps a bit too strenuously, that it is in no way contemplating such a move. Back in 2005, GM’s chairman and CEO Richard Wagoner Jr. declared in an internal memo to his 325,000 member staff that bankruptcy was “unnecessary.” Three years down the road, GM finds itself in a deeper funk and repeating the same message. In July, Wagoner told the Dallas Regional Chamber of Commerce, “We’re still kicking. We have no plans whatsoever to ride off into the sunset.” Three months later, the company’s spokeswoman reiterated: “bankruptcy is not an option GM is considering.” Now as concerns deepen over the industry’s fate, the refrain is starting to sound like déjà vu all over again..

In almost every measure, “the General” is hurting. Over the past two decades, GM has seen its U.S. market share shrink from 50 percent to about 20 percent as foreign automakers like Nissan, Toyota, and Honda surged. Since Wagoner took the wheel in 2000, the company’s share price has plummeted over 90 percent; dipping to $4 in October, its lowest point 1950. Sales are down 18 percent this year, and it posted a $15.5 billion net loss in the second quarter. It’s estimated to be burning through more than $1 billion in cash each month just to stay open for business. Its cash reserves of $21 billion at the end of the second quarter may be exhausted by early next year. It is slashing staff and shedding assets. And the road ahead doesn’t look any better. “While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse,” Jeff Schuster, executive director of automotive forecasting for industry forecaster J.D. Power wrote in an October report.

The options the company is pursuing appear to merely prolong the pain, or worse still, exacerbate its problems. Here’s how they stack up.

Merger with Chrysler
Few see how any merger could work. Chrysler is in equally dire straits, having lost at least $510 million in the first quarter and $1.6 billion last year. Its sales are down 25 percent so far this year, the worst drop of any major automaker. Cerberus, the private equity firm that bought an 80.1 percent stake in May, 2007, appears to be throwing up its hands on the ill-fated investment and is reportedly shopping the company to French automaker Renault and Japanese rival Nissan, as well as GM. Such a patently desperate bid to get rid of a bad investment diminishes the value of any deal GM may discuss with Chrysler. As Peter De Lorenzo, founder of Auto Extremist, an Internet magazine devoted to news and analysis of the car business, said on his site: “When you have one company that has too many models, too many divisions and too many dealers, how could you possibly think that combining that company with another company that has too many models, too many divisions, and too many dealers would be a good idea?”

Indeed, under these circumstances, the first thing a merger would likely do is consolidate a lot of overlapping functions, which means slashing jobs and creating labor problems that would almost certainly make a merged company even more costly to run. According to Deutsche Bank’s research analyst Rod Lache, the merger discussions appear to be “primarily rooted in their desire to achieve near-term cost savings, and liquidity improvement, as opposed to long term health.” Certainly, other analysts view GM’s calculations as a shortsighted attempt to latch onto Chrysler’s cash, which is estimated at around $11 billion. Adding to the opposition, Ron Gettelfinger, president of the United Auto Workers, said: “I personally would not want to see anything that would result in a consolidation and would mean the elimination of additional jobs.”

Nor does there seem to be any other merger partners out there who would be a better fit. After all, the history of auto mergers has been littered with car crashes. A merger between Volvo and Renault collapsed in 1994, and the BMW and Rover merger broke down in 2000, mainly because of cultural differences. Chrysler dissolved its “marriage made in heaven” with Daimler Benz last year after efforts at restructuring did not pan out. For two tottering rivals to stumble into bed now looks to be a disaster. “What you have is one big ship that is listing, has pulled up alongside one that’s sinking and proposed that they tie together,” Eric Noble, president of CarLab, an auto industry-consulting firm, told Business Week.

Government Bailout
If merger talks break down, the next stop is likely to be Washington. Letting any of the Big Three – Ford, GM, or Chrysler — collapse could be politically catastrophic, given that the auto industry employs 355,000 workers and supports 4.5 million other jobs. GM alone has 266,000 employees, a 7,000-strong army of dealerships, a string of car parts suppliers, and supports a wide array of industries that feed its manufacturing. Like the airline industry, GM’s failure may well drag down its American competitors, leaving the Big Three to become the Puny Three. Already, the government has approved a $25 billion loan to the industry, and the automakers will not be shy about sticking their hands out for more.

But with the financial industry already sucking up half a trillion in taxpayer money, lawmakers may have finally hit the wall in their generosity for Detroit. In July, Merrill Lynch analyst John Murphy said GM needs to raise about $15 billion in cash to shore up liquidity and stave off bankruptcy, a figure that will keep ballooning if auto sales drop 30 percent in October as experts are predicting and GM suffers an anticipated 40 percent plummet in sales. Indeed, a federal cash injection may merely be life support for the sick company, and busting the budget to prop it up only prolongs the pain for everyone involved.

Bankruptcy
Certainly, if banking CEOs were forced to eat their words over raising capital and staying alive, it wouldn’t be surprising if GM eventually came around to putting the Chapter 11 option on the table. A key argument from Detroit against bankruptcy is it could scare buyers away, further eroding GM’s revenue and delaying a turnaround. After all, few would buy a car from a company that may cease to exist at some point in future. But a firm under receivership can use the time, free from debtors, to restructure its cost base. It is up to GM to make the case that its future is intact, and it simply needs a time-out to work through its problems.

There are benefits to Chapter 11. GM may have the breathing space to hammer out more cost reductions with its union workers, speed up consolidation of its dealerships, and work out its obligations with suppliers. The company may also finally get around to dumping outdated brands like Buick and Pontiac. Indeed, many big American companies like Kmart have gone to court to relieve themselves of debt and slough off high-dollar union contracts. For the most part, consumers don’t seem to care — if they even notice. Just a decade ago, it would be hard to imagine anyone willing to fly on a bankrupt airline, but it has become the norm for customers of United Airlines and Northwest, both of which are reorganizing under Chapter 11.

There is little doubt that the U.S. auto industry will soon be reshaped dramatically. Time is running out for Wagoner, who is still trying to hammer out his deal with Chrysler. GM has managed through extremely difficult times to avoid bankruptcy, but it may be its best bet now. After all, how many times in the past few months have we seen taboo become tangible?

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