This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

GM Proves Bankruptcy Is No Cure for Sick Culture

NEW YORK (TheStreet) -- Contrary to conventional wisdom, bankruptcy can do a struggling business tremendous good. Debts can be minimized, uncompetitive employee contracts can be renegotiated, and burdensome business units can be sold off. American Airlines (AAL), LyondellBasell (LYB) and even, yes, Eastman Kodak (KODK) are examples of the tough but necessary change that happens in bankruptcy courts.

One thing bankruptcy doesn't necessarily change, however, is culture. If General Motors (GM - Get Report) is to be believed, it is that subtle lack of change that may mar what has otherwise been one of the most remarkable turnarounds in the history of American bankruptcy.

GM currently argues it failed to recall 2.6 million cars over an 11-year period, causing at least 13 deaths and 54 accidents, because the automaker had deep-seated cultural issues that meant employees would rather sweep a possibly fatal design flaw under the rug than alert upper management.

Former federal prosecutor Anton Valukas of law firm Jenner & Block, in an investigation into GM's recall crisis, called that indifference and complacency the "GM Salute" and the "GM Nod."

Most of the GM car models at the center of the company's crisis such as the Chevrolet Cobalt were manufactured and sold prior to the automaker's 2009 bankruptcy filing. However, in the wake of GM's government-assisted bankruptcy, the company didn't become more forthright with its design issues and it didn't recall any of the cars at the heart of its current crisis.

Those issues only came to light on Feb. 13, when GM decided to recall 619,000 cars just as incoming CEO Mary Barra took the reins of the automaker. That recall, as we now know, has become far larger and raised the biggest possible questions one can have of a company: Was GM simply negligent in failing to take flawed cars off the road, or did the company and its top brass act in a criminal manner?

We don't yet know all of the answers, even if GM continues to look inward at its culture as the root cause of the company's failures and the 13 deaths that were the consequence.

On Tuesday, CEO Barra vowed to the media and investors she would fix GM's cultural issues. According to company statements and the Jenner & Block report, top executives like Barra may not have known the extent of GM's design flaws or their impact on the road.

Perhaps, the civil and criminal investigations into GM and what its management knew are just beginning. However, if anything, GM's culture-based defense is believable.

Nowhere in GM's bankruptcy process was there a mandate to cure shortcomings such as an inclination to sweep issues under the rug, cut management layers, or incentivize employee accountability. Bankruptcy did dramatically reduce GM's debt, its pension and benefit obligations, and the company's portfolio of brands and drive-trains.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
GM $37.31 0.00%
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs