So, it has come to pass. General Motors, ultimate symbol of the world’s greatest car-owing democracy, is to end up in state hands. Henry Ford might have said history is bunk but it is still humbling for all Americans to see Ford’s great rival rescued by the Government, wiping out most bondholders and shareholders. What happens next?
This deal, with its maze of myriad related smaller transactions, has been all about vested interests. The Government would be forced to support workers made redundant if the business was not saved. Banks would take a harder hit. And suppliers, such as Magna, GM’s biggest, rely on the business continuing to save their own significant workforces.
That leaves little left for investors. In theory chapter 11 should allow GM to focus on how to cut its cloth, free of such parties desiring a quick return on their investment. GM might then become a leaner machine, better able to cope with the tougher economic outlook. Can the Obama administration make the necessary cuts to achieve this?
Unlike with Chrysler, there is no Fiat waiting in the wings to teach GM what to do. However, the company has already said going forward it will focus on four US brands: Chevrolet, Cadillac, Buick and GMC. The others - Pontiac, Saturn, Hummer and Saab - will either be scrapped or sold, with attendant plant closures, by the end of the year.
Finding a solution for GM’s European businesses, although tricky, has proved less tortuous. Ultimately, production can be moved east to cheaper locations. That’s the essential offer provided by Magna, however much it is couched in terms of saving jobs in European Union locations, principally Opel’s heartland Germany. Fiat couldn’t compete.
Magna, which is more active in Europe than North America, has links with Russia already. Last September Russian industrialist Oleg Deripaska reluctantly offloaded his stake in the Canadian car parts provider to his creditors. However, he remains in control of Russia’s largest automaker Gaz, which has plans to beef up its car making capabilities.
Opel’s largest shareholder will be Sberbank, Russia’s biggest bank, which is state controlled. Undoubtedly much business will be transferred to Gaz to the benefit of both Sberbank and Magna. GM’s restructuring in Europe has some industrial logic, with the company’s leading supplier, with most to lose, effectively engineering the rescue.
(PHOTO: Jounalists gather outside Bankruptcy Court in Manhattan ahead of GM’s bankruptcy filing)
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8 comments so far
This bankruptcy was inevitable. Whether GM (Government Motors) can survive is still very questionable. The new GM will turn out small fuel efficient cars the public may not want to buy. I certainly do not want a 2010 $40,000 “Volt”.
- Posted by Paul KinnickWill the government raise the gasoline tax to force the American consumer to buy these new GM cars? If so, the economy will suffer even more. From an economic standpoint, I do not see the light at the end of the tunnel.
Thought for the day - Dump the UAW and all of its 1900’s thug mentality and watch how the normal business chain of events will take care of itself in a positive way.
- Posted by FrankGM’s current condition remind us a poignant story which was circulating during the 70’s, during the period when US auto makers were at their heights. As the story told.
When EPA told to gathering executives from all car manufacturers the new regulation for emission controls and mileage. All read the same information, took the same notes. At the end of the session, they all called their HQ. All described the new regulation. At the end of the conversation, they all barked the same sentence “take care it”. One small difference.
The Japanese and Europeans were talking to their Engineering departments. Detroit was talking to their legal department.
For decades Detroit was not only selling low quality and wasteful automobiles. They also were selling us perception, and sense of superiority (the mantra of “keep up with the Joneses”), while the foreign car manufactirers were selling us a prodcut to which it was intended for. Reliable, inexpesive, affordable and comfortable means of tranportation to averge American.
The sad part is, detroit never saw the wrting on the wall. it continued with their bankcrupted idology of “the bigger the better”. Concerned about the next fiscal quarter, instead of the next quarter century. Evetually their short sigted idiology have caught on with them. Themselves became the same illusion of their glorious past.
In my view, no executive had caused more harm to Detroit then Bob Luts himself, with his idiotic push of more and more muscle cars.
- Posted by M. LevyObama has supposedly saved GM, now the government needs to get out of the automobile business and let GM sink or swim in the capitalistic way.
- Posted by jaymacGM - Government Motors (nice way to put it Paul. very funny indeed).
There is another important lesson to learn - particularly for those who oppose the universal health care system.
Lets remember that all American auto manufacturers were saddled by an average $1500 per car built, just to pay for its workers health care (even to the retirees). An important element which foreign car makers do not have.
As bad as it may sound, had we had a universal health care in place, GM, Ford and Chrysler would have a better level playing field with their competitors.
- Posted by M. LevyAll the more reason to support a single payer system, instead of 700 different insurance companies, each with its own forms and pay schedules. Much like Medicare. One form of insurance claim, and only one payer.
The truth be told… the green folks have had their way with the American auto industry. All of the US auto makers are on life support, not just GM, and would not exist today without it. Why? Historically one can trace the beginning of the end to last year’s Commerce and Energy Committee meetings where the auto executives were dragged into their meetings and shamed for not having turned their manufacturng over to “green” cars sooner even though market demand had not previously required them to do so. Political correctness and the election’s hot topic frenzy delt the killing blow to the heads of the once rock solid main artery industry which is the golden goose that lays a good portion of America’s golden eggs. When is someone with a brain going to realize that one cannot simply flip a switch and CHANGE everything over night to suite the whims of a fad crazy public panicked innecessarily by global warming hype?
- Posted by sarah“Historically one can trace the beginning of the end to last year’s Commerce and Energy Committee meetings where the auto executives were dragged into their meetings and shamed for not having turned their manufacturng over to “green” cars sooner even though market demand had not previously required them to do so. Political correctness and the election’s hot topic frenzy delt the killing blow to the heads of the once rock solid main artery industry…”
Can you explain how European and Japanese companies managed to escape this fate? You’re literally saying that getting yelled at by Congress caused century-old companies to collapse in a year?
- Posted by DavidThe problem is much more complicated and pervasive than anyone here seems to realize. We’ve allowed our great nation to take go down the path to failure; one that’s been the downfall of both capitalist, socialist, and communist nations. It is a mindset in which the vast majority of the population are viewed as consumer objects (pawns), who exist solely for the purpose of peretuating the power of the wealthy elite. Corporations have simply evolved into tools for insuring the continuation of this mindset. The idea that unfettered capitalism serve the interest of the majority of the population is no more credible than saying that a communist model does the same. Both implicitly insist that some people are somehow far more valuable and deserving than others of the fruits of prosperity. This inequity has advanced to absolutely obscene levels. Until the idea that prosperity is measured by the success of the upper class is rejected by the majority, our tax dollars and those of our children’s children’s children will be squandered as rewards for those who’s flawed ideas and policies have come to be the norm for our pitifully inequitable form of capitalist extremism.
- Posted by Jon T. Wells