I’m pretty confused about what Washington is doing/has done with the $700 billion and how that relates to the automakers.  Let call them the OEMs (original equipment manufacturers).  The OEMs claim they need help from the government or they might file fail.  Officially, they don’t like the idea of bankruptcy, but they clearly have the ability to get legal advice from the biggest lawfirms in the world.  A Chapter 11 filing by any of them would be huge and attract the biggest bankruptcy firms around.  So, what if one (e.g. G.M.) filed Chapter 11? It would certainly be painful and scare people.  In a Chapter 11, they would have to adjust their operations and their model so that they could convince their creditors (or at least a Judge listening to their creditors) that their plan was “viable” and they would most likely survive under the Plan.  They could cancel contracts including, with some higher levels of proof, their union contracts.  They would have to negotiate to try to get an agreement with the Unions, but in the end, the Judge could terminate the contract or modify it.  The Unions could refuse to accept it and strike, which could kill the company, but that may be like putting a gun to their own heads.  UNions have been known to do that.

The suppliers would get hurt, too.  Amounts owed to them might be delayed or not paid (or paid only cents on the dollar).  There is a  lot that GM could do to keep the suppliers it needs in business if it makes sense for its new business model.  It could close plants, adjust workforce, eliminate waste and do other things to make it more profitable.

In the end, the government could provide financial help for the company’s exit from bankruptcy.  Or it could provide guarantees of exit financing bank loans. 

A GM (or other OEM) Chapter 11 would facilitate the reorganizations that are needed.  It would be expensive (probably a couple billion in professional fees), but that is better than tens of billions being poured down the black hole of theur current business models.  Many are crying that an OEM “bankruptcy” will be an economic disaster and would cost millions of jobs.  That is a scare tactic.  Maybe it would costs many jobs.  Maybe it would hurt suppliers.  But what is the realistic alternative?  They must change and so far nothing the customers, the regulators, Congress has done has been able to make them change.  Now they are over the barrell and they, like so many others, say “this time we’ll really change.”  Yeah, right.

The New York CLLA meeting is always busy.  This year, there was a buzz of excitement relating to a few areas.

First, everyone was taking about how the economy affects them.  For a group of collection and bankruptcy professionals, it was interesting to hear the dichotomy.  Pure collection folks (especially consumer collection folks) were bemoaning the reduction in collections.  Although they have more accounts, people are less able (willing?) to pay.  The commercial folks said the same things, but seemed a little more pessimistic.  Why?  In most places (with wage garnishment), the debtor will eventually get back to work.  A failed business is generally “failed” forever.  Those with creditor bankruptcy or workout practices were much more upbeat. They are busy (and making money).

Another area of “buzz” was the League’s Stategic Plan.  There was focused discussion and energy behind the movement of the Key Strategy Teams toward their first year objectives.  Click here to view the Plan.

Finally, there was an excitement around CLLA’s new Executive Vice President, Oliver Yandle.  Oliver is proving himself to be an asset in his very early weeks.  Now having been through one Fall meeting, I am sure he is even better position to help the CLLA reach its strategic goals and more.

I loved all the discussion this week about whether we were in a recession.  Any of us in the credit, collections and bankruptcy world know we’ve been in a recession for months.  Whether the economists can agree on what the definition of what ”is” is or not, things have been tight, tough and shrinking for a year or more.  Ask any banker.  Whether the government officially uses the “R word” or not is only relevant to those that think they have been in denial (or, perhaps, expecting most of the citizens to just believe what they say).  Either way, things are tough, going to get tougher and going to be tough for several months (or years).  So, fasten your seat belt, hunker down, make good solid decisions, but always be prepared to take advantage of opportntties.

“What opportuntities,” you ask?  Well, if things are slow in your credit department, use this time to review existing accounts to make sure they comply with your policies on documentation, limits, payments, etc.  If that’s all done, have your credit workers do some customer service calls.  Nothing pressured, just a “How are you doing?”  You may learn some things.  If that’s all up to date, find some productive work for the best people.  When things are slow, do what you can to hang on to the best people, they are the ones you’ll miss most when things pick up again.