It is quite apparent that industrial titan General Motors, currently on a cash burn of roughly two billion a month, will be bankrupt in a year or less without government assistance. From the Detroit Free Press:

A key Wall Street analyst slashed his target price for General Motors Corp. shares to zero today, saying the company could run short of cash by December and that even with government aid, shareholders are likely to lose their investment. “Even if GM is able to secure immediate U.S. government support, we believe that GM’s predicament has the potential to set in motion a sequence of events that would be bankruptcy-like,” said Deutsche Bank analyst Rod Lache, who lowered his rating on GM shares to “sell” from “hold.”

Lache said GM’s U.S. cash could fall to $5 billion by December, which would not be enough to pay the supplier bills for U.S. operations that come due in January. He said that government aid would likely crowd out unsecured investors such as shareholders.

G.M. is calling for immediate government assistance, and the effects of a G.M. failure would have a serious negative impact on the economy of the United States. That effect would ripple through much more than the direct industry of auto manufacturing.And a G.M. failure would saddle the Pension Guaranty arm of the federal government with untold billions in new liabilities that taxpayers would have to pick up. President-elect Obama is reported to have urged President Bush to consider such government aid immediately. But is this the right prescription for the country? And if it is how can anyone seriously argue that such aid should be given in an unrestricted manner that does not mandate immediate changes in the business model, including the total forfeiture of all equity by current stockholders, an immediate vacating of the board of directors, and the termination of senior management, including C.E.O. Rick Wagoner. And while the easy blame for much of the trouble at G.M. always goes back to the U.A.W. it certainly is true that beyond labor agreements that are unaffordable G.M. has a deeply flawed business plan that is just not in touch with the reality of the market as it exists today. But without question those union agreements, along with supplier contracts, will also need to go as part of any taxpayer bailout. And that is a tough political argument to make, but without a total revamping it would be good money after bad.

Yesterday’s Wall Street Journal made this argument in an editorial yesterday, and I agree with the general thrust. From the Journal:

In return for any direct government aid, the board and the management should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp GM with a viable business plan and return it to a private operation as soon as possible.

That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others, and downsizing the company. After all that, the company can float new shares, with taxpayers getting some of the benefits. The same basic rules should apply to Ford and Chrysler.

These are radical steps, and they wouldn’t avoid significant job losses. But there isn’t much alternative besides simply letting GM collapse, which isn’t politically viable. At least a government-appointed receiver would help assure car buyers that GM will be around, in some form, to honor warranties on its vehicles. It would help minimize losses to the government’s Pension Benefit Guaranty Corp.

The Journal spent the requisite time bashing the U.A.W. in that editorial, but regardless of their political bent the reality is that in this case the numbers do not lie. Jerome York, the front man for billionaire investor Kirk Kerkorian in his auto investments, quit the G.M. Board several years ago warning of impending disaster. All of the stakeholders simply ignored the warnings, or tried to shift the pain exlusively to other stakeholders. Sounds like the U.S. Congress. But the taxpayers of this country should not be forced to subsidize a failed business model that will simply require ever more cash on a continuing basis. Either a hard call gets made to tear everything up and start again, or let G.M. file for bankruptcy.