General Motors: End of the road
I laid out what needed to be done to save two of America’s most storied automakers – General Motors and Chrysler. These companies were facing a crisis (that was) decades in the making,” explained American President Barack Obama, in an announcement that would have broken the hearts of millions of Americans, though they had long seen it coming. June 1, was the fated date when the world witnessed another American iconic brand getting ripped apart on the papers, when the 100 year old ailing General Motors (GM) filed for bankruptcy under the Chapter 11 treatment.
Although the Obama administration will be providing another $30 billion in aid (apart from the $20 billion given earlier) and have a controlling 60% stake in the company, the Obama administration has announced that it has no interest in running the company, which, in plain words, signifies that Obama’s auto task force will not interfere in the day to day operations. Moreover, the Canadian and Ontario governments have also given a helping hand as they are putting in $9.5 billion for a 12.5% stake. The Government is aiming at a leaner GM, which will include more job cuts, dealership closures, plants shutting down and shedding of brands. GM is planning to close 14 US factories and three warehouses to cut on its operating costs, affecting its 20,000 workers. The company is aiming to bring the total number of plants in US from the current 47 down to 33 by 2012.
In fact, the company may also shed brands like Pontiac, Saturn, Saab and Hummer. As the Government plans to split the company into two parts; out of which, one will be the new and ’so-called’ healthy GM and the other the old GM will comprise the sick assets of the company. This will be done through a Section 363 sale, which would transfer the new GM assets to an entity owned by the US and Canadian governments, the United Auto Workers(uaw) union and the company’s unsecured creditors. Obama frankly explained the importance of the company to US citizens as he said, “In the midst of a deep recession and financial crisis, the collapse of these companies would have been devastating for countless Americans, and done enormous damage to our economy – beyond the auto industry.” But will this landmark streak of communism in the ‘die hard capitalist US’ be able to give the Americans their pride back?
Going by the example set in the recent past of Chrysler, there’s surely a ray of hope. Though many experts claimed just before Chrysler was planning to file for bankruptcy that it will lead to a collapse and sales will fall down very drastically; that didn’t happen. Rather, the company recorded higher sales figures for May than that of April. But as San Oppenheim’s auto analyst Christian Breitspecher elucidates, “GM is very large and different from Chrysler and restructuring the company will take a lot more effort and time as compared to Chrysler.”
Chrysler has already taken some bold steps in the form of closing production units, cutting on franchises and more importantly, announcing their plans in the electric segment. As Obama predicted that Chrysler needs a two-month reorganisation, the destination is more or less in sight now, as Italy’s Fiat will be taking over its healthy assets. There is no denying that GM has a much more complex structure. But a way out could be listening to the consumer and providing cars they need; in particular, smaller, fuel efficient cars.
