ANALYSIS:The White House plan for General Motors is too good to be true, writes JAMES DORAN.

LAST NOVEMBER, when the US economy finally entered the eye of the global economic storm, Rick Wagoner, the General Motors chief executive, said the idea of putting the broken-down car maker into Chapter 11 bankruptcy was “unthinkable”.

But that was then. Now Wagoner has gone, and the new management at GM – under replacement chief Fritz Henderson and his masters at the White House and the US Treasury Department – is thinking the unthinkable.

The White House has let Henderson know that he should be aiming for some kind of “surgical” bankruptcy filing by June 1st. And Henderson has no choice but to accept the order. After taking $13.4 billion (€10 billion) of government aid, he serves at the pleasure of Barack Obama and must do as he is told.

Obama and his car industry gurus think it is possible to force GM into a two-tier bankruptcy whereby the “bad car company” – the bit with all the debts and the cars nobody wants to buy – will be killed off. Meanwhile, the “good car company” – the bit with all the cars people want and the sound finances – will trundle merrily along.

If such an idea sounds too good to be true, that’s because it probably is. But politicians have a knack of deftly skirting the practicalities of a situation, particularly where business and industry is concerned, choosing instead to head straight for the convenient sound bite.

There are several problems with bankrupting a company of GM’s gargantuan size and scope.

The first and by far the most troubling is that the company is so vast, with so many stakeholders, from customers, bondholders, suppliers, vendors, shippers – the list is almost endless. This means it is sure to take a very long time to work out just which bits belong to the “bad” and which to the “good”.

Government insiders claim that the “good GM” could skip in and out of bankruptcy in as little as two weeks. Anyone who has ever been involved in a Chapter 11 bankruptcy will tell you that such a notion is utterly preposterous.

Then there are the bondholders – many of whom are already preparing to sue the car-maker if it goes into Chapter 11. If the bank does file, the bondholders will likely have to agree to swap their $28 billion in debt for equity.

If I were a bondholder, I would not find such a prospect very appealing.

Then there are the unions, who unfortunately refuse to shoulder their share of the responsibility for the collapse of the US car industry. If it were not for their refusal over the years to give an inch of negotiation on health insurance and pensions that far outreach average US workers’ benefits, the auto industry would likely not be in the perilous state it is in today.

And the unions will not budge until the bondholders give quarter. We could be in for a long fight.

The arguments against bankruptcy that Wagoner championed have not gone away either. Many of them are even more relevant today, as the economy has worsened in the four months since he expressed them in a memo to his 350,000 former employees.

Most importantly, he argued, customers might stop buying the cars altogether once the filing is made, fearful that the company will not survive long enough to fulfil warranty promises and to supply spare parts in the future.

And what about the suppliers, many of whom are based in Ireland?

If GM goes bankrupt, the disruption to the supply chain could force a great many of them to the wall, which would in turn hobble the healthier car-makers like Ford and Toyota, dealing a crippling blow to the industry when it is least equipped to absorb it.

And as for shareholders, they tend to get the worst deal in a bankruptcy by being wiped out altogether.

Bankruptcy might be the only chance GM has to finally adapt to the modern industrial world. Look at the US airlines and the US steel industry, most of which emerged from Chapter 11 transformed and still surviving to this day.

If GM takes this path, it is going to be painful – and certainly won’t be over in two weeks, despite what the Obama administration says.