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12 responses to “GM threatened with bankruptcy”

  1. David Rubie

    I see people making a lot of comparisons with the Japanese “lost decade” – but at least during that time their heavy manufacturing and motor vehicle industries were still solvent.

    It should also be noted that Rick Wagoner (erstwhile CEO) is a finance guy, not a car guy, and GM spent a lot of time in the last decade making money from finance and not motor vehicles. GM in the US became the vehicle you bought when other finance companies would not approve your credit.

    I have to say though, as much as I love Italian cars, that a marriage of Chrysler and Fiat does not fill me with confidence. It’s like tying two mangy cats together to try to make a lion.

    (obligatory car joke follows)
    Some Mercedes, BMW and Jeep engineers find themselves on a plane heading to an auto show and are discussing their quality control procedures.

    The BMW engineer says, “On our latest model, it is so well sealed from the outside that when we locked a cat in the car with the vents shut, the cat became unconscious after a couple of hours from lack of oxygen”.

    The Mercedes engineer says, “Oh that’s nothing, our cat dropped after 30 minutes”

    They turn to the Jeep guy, who says “We tried that test but we don’t use it any more. We locked the cat in the car, turned around to start the stopwatch and the bloody thing escaped”.

  2. Mole

    I cant for the life of me see why funds are being used “because the US needs 3 major car producers”.
    Surely if one fails (presumably the worst run, least competitve one) the other 2 are rewarded for prudent management?
    There is intense short therm pain (job losses/political), however isnt that how capitalism is supposed to work? Inneficent or badly run businesses go bankrupt, investors get back 10c or whatever in the dollar and efficent competitors pick up the rewards and absorb a % of the employees made redundant?

    Anything else isnt capitalism, its a retarded “no one loses” game in which everyone pays more in the long run. Im a righty by persuasion, and I think the bailouts of all descriptions are a huge mistake. The government is trying to disguise risk by its garuntees, it was disguised risk that got us into this mess in the first place.

  3. steve at the pub

    “Bankruptcy will not mean the end of either”

    Nice thought. Didn’t apply to Ansett Airlines though.

  4. Robert Merkel

    SATP: Aside from the involvement of the US government in the process – GM may not be too big to let fail, but it’s too symbolically important to let fail – US bankruptcy laws are much more oriented to saving companies rather than protecting creditors.

    Sometimes this has some rather bad unintended consequences, where better-managed companies (interestingly, airlines are a good example) have to compete against badly-run ones that get a whole new lease on life when they go into bankruptcy and have their debt burdens suddenly lightened.

  5. steve at the pub

    I agree Robert, and fully understand (with wistful frustration) many of the differences between the US bankruptcy laws (and their lending laws) and the system as it works in Australia.

    Indisputably, if GM goes out of business, there will be millions of people out of work, just like that. If that happens (cross fingers against it) the world economy will be in one heck of a mess for quite a while.

    But what will it take to save it? Never having been a subscriber to the magic pudding school of economics, I wonder just how far the US govt will be able to go with bailing out hopeless cases.

  6. Robert Merkel

    GM’s total employment is 266,000. Throw in component workers, dealer employees and so on, you’re at maybe a million people.

    There are currently 12.5 million people unemployed in the United States alone. Furthermore, if GM (hypothetically) shut down, that would get rid of much of the chronic overcapacity in the car industry, meaning that a lot of job losses in other car companies won’t happen.

    Not to minimize the pain it would cause, but GM’s failure wouldn’t take the world economy much further down than it presently is; the symbolic effects would be far greater than the actual systemic economic impacts.

  7. steve at the pub

    We’re most likely bound to find out what will happen.

  8. Katz

    Once upon a time the US produced most of the world’s televisions.

    This development is a continuation of a long-term trend.

  9. billie

    When we are talking about General Motors we need to consider not only the 266,000 current employees but the pensioned off employees who are still reliant on General Motors for their income [pension] and health care [Blue Cross]. I believe there are 3 million former workers who are too old to work even if there was work going. It just goes to show that employer based superannuation or pensions are not effective when the firm moves offshore like James Hardie or goes broke like General Motors
    Does America need 3 car companies so they can produce tanks and army vehicles in times of war? You can bet that America isn’t going to let China become the most powerful economy without a fight.

  10. Robert Merkel

    Billie: as I understand it, the government either already guarantees, or will guarantee, the pensions and healthcare of former GM employees.

    As for defence implications, military vehicle production is miniscule compared to civilian production, and total war between reasonably evenly matched industrial powers is never going to happen again. The Manhattan Project may or may not have ended WWII, but it ended the possibility of future wars like it.

  11. Government Shouldn't Have Interfered in the First Place

    Maybe if all those decades ago, the US government hadn’t bailed out Chrysler (remember?), the remaining 2 players would now be solvent.

    The market is far far far from perfect (as recent events have shown), but I prefer it as a decision maker over government. This isn’t to deny that governments have some role in redistributing wealth, spending on public goods and services, etc.

  12. murph the surf.

    “While bankruptcy will not mean the end of either – aside from the likelihood that the government will again step in after bankruptcy, American bankruptcy laws are reknowned (perhaps notorious) for their ability to resurrect broken companies – it will mean the opportunity for a huge number of previously sancrosanct contracts to be broken.”
    Rick Wagoner is reported to be a pension for life of $US 20,000,000 per year.
    Is that the sort of contract that may be renegotiated?
    The finance guy who ruled the car company – ” You do want a car with that finance package don’t you ?”