Bankruptcy for GM becomes politically palatable

An interesting thing has happened over the last few weeks as the situation with GM and the federal government has evolved. While the automaker and its political benefactors in the state were initially insistent that bankruptcy had to be absolutely off the table, not even a remote possibility, now that it appears to be quite possible they are changing their tune.

They still don’t want it to happen, of course, but what was seen as so devastating that it could not even be contemplated just a few weeks ago is now increasingly seen as likely, perhaps even inevitable, and the reaction has changed from one of impending doom to one of resigned acceptance of an unfortunate reality.

The change began when the White House rejected the initial restructuring plan submitted by the automaker as inadequate to ensure future viability. At the same time Rick Wagoner, who refused to contemplate bankruptcy at all, was replaced by Fritz Henderson, who seems to have a much more realistic view of the possibility.

The new chairman of the GM board of directors, Kent Kresa, almost immediately floated the idea of using bankruptcy proceedings to split the company into a “good gm” and a “bad gm,” an idea that seems to be gaining in popularity as the possibility of having to file Chapter 11 becomes more likely.

A few days after that, the Messenger asked the question of whether Michigan’s senators would change their tune and get on board with the Obama administration on this issue after initially reacting very negatively to the rejection of GM’s restructuring plan. Sen. Carl Levin criticized the White House for even discussing the possibility, saying, “It undermines the companies’ economic position to talk about bankruptcy.” Sen. Debbie Stabenow was fiercely opposed to any talk of bankruptcy too, as was Gov. Jennifer Granholm.

But now the Michigan pols seem to be changing their tune. Stabenow praised Obama on MSNBC for not forcing the company into bankruptcy on March 31, when they could have done so. And while she still says that bankruptcy is a bad idea, she seemed resigned to the real possibility and said that it was possible for the company to declare Chapter 11 without any cuts in pensions, the way Northwest Airlines did it years ago.

And Granholm on Monday told a townhall meeting that a bankruptcy may be inevitable and that “If it makes the company strong than I suppose that’s something that we can live with.”

There’s a clear change in tone here, one that may simply reflect political reality. If bankruptcy is seen as increasingly inevitable, the pols are clearly trying to put the best face on that reality.