GM is facing a "Humpty Dumpty" Moment

As complicated as the whole mess with General Motors has become, its fate is really as simple as a child's nursery rhyme:

"Humpty Dumpty sat on a wall
Humpty Dumpty had a great fall
All the King's horses and all the King's men
Couldn't put Humpty together again."

GM is going to collapse. Chapter 11 (Bankruptcy reorganization) will be announced first, and as President Obama, Governor Jennifer Granholm, Senator Carl Levin, and others try to help save the company, all of their combined efforts won't save it from Chapter 7 (Bankruptcy liquidation).

I wish I could convince the President and the other politicians that their efforts are a waste, but I understand that they are doing what they think is best for the people of their state, their constituents, their families, etc. Unfortunately, here's the scenario that seems more likely to take place:

1. GM Announces Chapter 11--If it hasn't been announced yet, it surely is the worst kept secret in business today. People who think otherwise remind me of the Groucho Marx quote "who are you going to believe? Me or your lyin' eyes?" Anyone looking objectively at GM's balance sheet, its prospects for solvency, it's ability to turn a profit, can't seriously think this company can survive. But the powers that be won't throw in the towel until they have showed the world they "tried". So we'll have to live through the pain of a Bankruptcy "Reorganization" first.

2. Bankruptcy takes longer than anticipated--which could still have a shot in the dark, if the company can emerge quickly, with new management, truly free of pension legacy costs, and a roll out of new models, the Chevy Volt, tax incentives to buy, and other such things. Alas, that's just not the way things work in the real world, and as GM languishes in Reorganization, the rest of the automotive world will move ahead, taking market share, the best talent, and innovation along with it. GM will be quickly left in the dust.

3. Plants shut, Dealerships can't move inventory--All of this means that the company won't have any real inventory to sell, as long as dealers can't guarantee the warranties, maintenance, spare parts, etc. Dealers may discount their cars, looking to move inventory, but it won't help their bottom line, and it will certainly depress GM's overall profit margins. Fewer cars rolling off the lines will continue to shutter plants, and will force further cuts in the number of dealerships.

4. Suppliers get squeezed, have to raise prices--Smaller orders and rising commodity costs will force parts suppliers to either raise their rates, or erode the quality of their service and delivery to GM's plants. This will further erode GM's margins.

5. Chevy Volt is delayed, destroying morale--With a continuing operating "death spiral", GM will have to scuttle plans for its next generation projects. The Volt will be delayed, which will put GM behind Nissan and others in the race for supremacy in the hybrid/electric space. Shareholders (if there are any left) will be devastated.

6. Vicious cycle of poor sales and higher materials costs--Each step will lead GM management to ask the government for more support, more latitude, and result in more cuts, and poorer quality and worsening margins.

7. Layoff costs start to overwhelm the company--As more people are laid off, the unemployment costs start to overwhelm the company. Loyalty packages get worse, and eventually cease altogether.

8. Pension Benefit Guarantee Corp must take on pension costs--Bond holders will start to demand interest payments on their debt. PBGC will have to take on the pension costs, as the company can no longer afford to keep even promises made to retirees. The Pension has been running at a deficit for years, and the recent market meltdown, and operating losses have only served to exacerbate the shortfall. The retiree population will be stunned when they realize their pensions just got slashed by 71%. Lawsuits will ensue.

9. Liquidation becomes inevitable--The company won't be able to afford to continue as a going concern, and Chapter 7 will become the only option. Brands may be sold off, or shuttered, but the morale, and job loss resulting from such a development will absolutely destroy the upper Midwest for a generation.

10. The upper mid-west is devastated. Ford is given incentive to pick up some of the slack --Some of the jobs may drift to other car makers. But the governments will look to Ford primarily, to pick up some of the burden. Tax incentives, government payments, and other tricks will be tried to move workers to Detroit, and other hard hit areas. Some of it may work, but in the end, this area won't survive in the manner it is today. Population loss in the upper Midwest will be striking over the next 10 years.

Too stark a scenario for you? Perhaps so. But I am having a hard time envisioning the scenario that would prevent any or all of these things from happening. It may be time to admit the truth. GM is going to follow Chrysler down the chutes. And it's going to suck for all of us. So let's take the pain now, and figure out quickly how to get out of the mess we are in. Our options may be more limited a year from now...