GM Feared Bankruptcy "Stigma," but It Seems Like a Quaint Notion Today

It's the first anniversary of the world not ending when General Motors declared bankruptcy, contrary to the pronouncements of company officials at the time.

Former GM CEO Rick Wagoner fought bankruptcy right up until the point in March 2009 when the Obama Administration decided Wagoner was standing in the way of progress and needed to retire. Wagoner retired more or less on the spot.

Wagoner said the stigma of bankruptcy would cause people to stop buying GM products, and drive a lot of GM suppliers into bankruptcy, too. That didn't happen -- at least not to the extent Wagoner said he feared.

Part of the reason is that with the present recession, consumers are getting the message that bankruptcy and foreclosure are almost fashionable. That NYT article provided another example of somebody who stopped making their house payments and started enjoying their life more, consequences or no consequences.

Since 2005, close to 6 million U.S. consumers have declared bankruptcy, according to the American Bankruptcy Institute. That includes a spike in 2005, as filers rushed to beat a lot of regulatory changes that supposedly made it harder to file bankruptcy as a financial maneuver, instead of a last resort. Since a recent low in 2006, bankruptcy filings have increased every year.

On the supplier side, so many auto suppliers have gone bankrupt over the last couple of decades, it's hard to sort out how much GM's bankruptcy filing contributed to the trend.

So much for the stigma of bankruptcy. It's true that GM and Chrysler, which went bankrupt a little over a month earlier that GM, have been slower than Ford (F) to recover auto sales. Ford didn't declare bankruptcy last year, but its officials admit it was a close call.

Anyway, the memory of bankruptcy does not appear to be holding GM down. Year-to-date through April, for instance, GM's U.S market share was 18.7 percent, down from 19.1 percent in the year-ago period. That's not good, but it's not as bad as Wagoner apparently expected.

Meanwhile, bankruptcy allowed GM to tear up its labor contracts, repudiate a lot of its debt, jettison dealers, close factories and brands it didn't need, and borrow billions from the U.S. taxpayer.

Edmunds.com said filing for bankruptcy may turn out to be, "one of the best things that ever happened to the company."

Chart: American Bankruptcy Institute