3
GM: Future is in 'substantial doubt'
A locked gate blocks the entrance at the out-of-business San Rafael Chevrolet Saab Hummer Hyundai in San Rafael, California.
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
TEXT OF STORY
Tess Vigeland: As a general rule, corporate America loathes acknowledging any hint of trouble. "We'll be fine," goes the mantra. "It'll be OK." Yeah, Bear Stearns anyone? Lehman? AIG? Well, today one of the Big Three automakers confirmed something in writing that industry watchers have long suspected -- that its future is in "substantial doubt." Ashley Milne-Tyte reports on what's next for General Motors.
ASHLEY MILNE-TYTE: GM's annual report says the company could end up filing for bankruptcy, if a few of its plans don't work out, including the one to get another $16 billion in government loans. Dave Sedgwick is editor of "Automotive News." He says the Obama administration will come up with the cash.
DAVE SEDGWICK: Keep in mind that with the jobs market collapsing just about the last thing you would want to do is to have the nation's largest automaker collapse, drag down hundreds of suppliers with it.
Not to mention, he says, the other carmakers that rely on those suppliers and hundreds of dealerships.
SEDGWICK: On top of that there's the political issue: The Obama administration is a close ally of the United Autoworkers.
He says filing for bankruptcy would be a last resort. Jon Blank of Decision Economics agrees.
JON BLANK: If they did a Chapter 11 in the most depressed auto sales environment that we've seen in 50 years, it would almost certainly doom the restructured company as much as the one that's in play right now.
He says GM is getting rid of some of its brands, but given the state of the economy...
BLANK: They cannot get out of this by what basically amounts to a modest repositioning of the company's product portfolio.
Blank says to survive, GM must also slash labor and health care costs. And persuade its bond holders to take a haircut by swapping their debt for company stock.
I'm Ashley Milne-Tyte for Marketplace.
GM has to file for Chapter 11 in order to break down the conglomerate and its impossible constraints;the healthcare burden,employee costs, and too many dealers. Only Chap 11 can allow it to do this. Each brand should make a stand-alone business case for re-birth and survival; synergies through shared manufactureing etc are essential but secondary requirements. GM is NOT an American icon; only the brands are.Nobody buys GM cars, they buy Chevrolets or Cadillacs etc. Ford has realised this and is going for its "one brand" strategy.GM has to do the same, and only retain and promote one or two key brands.
It will hurt, in the short run, to lose those jobs. But, supporting old technology isn't going to help jobs in the future. When the economy comes back up, demand for fuel will rise, and since there's been no investment in new fields when oil is $40 per barrel, how many SUV's will GM be selling? It will be back, claiming it needs more money due to decreased sales.
Why did GM falter? It spends too much in health care, which may or may not get solved by this administration. It's biggest profit maker isn't selling cars, its GMAC, which financed SUVs that are no longer worth their initial price, and GMAC also invested in mortgages.
What are the odds a business run this way will exist in the future? Can we invest instead in a business model that will keep jobs in the future? If so, then let's not invest in GM's old way of doing business, then.
