Whisper
November 14th, 2008, 12:32 AM
Why are we asking this now?
It has been a week since General Motors (GM), the international car manufacturer based in Detroit, warned that it is burning through its cash reserves so quickly – at the rate of $2bn (£1.3bn) a month – that it may not have enough to continue operating beyond the end of this year. The largest of America's so-called "Big Three" car makers has lost a total of $73 bn since 2004, the last year it turned a profit, and has watched its share price tumble by more than 90 per cent in the last 12 months. In October, GM revealed that its sales had fallen an astounding 45 per cent over the same period. Ford seems to be in just slightly better shape. Chrysler is stumbling again but is smaller than its two US siblings.
What Happened?
This may have turned out to be the perfect storm. Petrol prices soared in the first half of this year, scrambling a business model that had seen Detroit, otherwise known as Motown – Motor Town, depend on larger, gas-guzzling SUV-type vehicles for major profits. When petrol price soared, consumers abandoned the big cars. Then the economic crisis set in, depressing sales of new cars even further. Worse, there isn't the credit around any longer to help buyers put a new car in their garages.
GM also bears an additional burden of nearly half a million former workers drawing pensions and health benefits, preventing it from behaving nimbly in a rapidly-changing market. The company's huge liabilities and its union agreements means it can't make cars cheaply enough to be globally competitive.
What cars does GM make?
Some of the iconic brands of the American road, not least among them Cadillac, Buick, Pontiac and Chevrolet. Its light trucks and pick-ups sell under the GMC badge. In the US, it also owns the Hummer brand that, before the energy crunch set in, was the first choice of the celebrity set. For the rest of us it offers the more prosaic Saturn line. Then there is the welter of other, mostly overseas assets that the company has digested over the years, including Saab of Sweden, Opel in Germany and, of course, our own Vauxhall.
Is the crisis at GM limited only to the US operation?
The world wishes it were so. General Motors has operations on every continent of the globe, in fact in 41 different countries, including the United Kingdom, Canada, Mexico, South Africa, China and France. The company accounts for about 17 per cent of all vehicles sold around the world. The failure of GM would, therfore, be a global event. In Britain, GM's principle asset is Vauxhall. With plants in Luton and Ellesmere Port, about 5,000 British jobs are at direct risk if the company folds. What would actually happen at Vauxhall if GM were allowed to go to the wall and file for bankruptcy remains anyone's guess, however.
Has GM been standing idly by as its books turn red?
GM, like Ford and Chrysler, has been racing to cut costs, by slashing its workforce and closing down plants. But it just can't seem to move fast enough and losing jobs, in the short term, is very expensive. In the year that ended in September, GM shrank its US payroll by 14 per cent to 123,000 workers. Other reductions are in the pipeline.
GM headquarters is also exploring the selling off some non-core assets to raise much needed cash, including the Hummer unit. But finding buyers is proving tough because the value of the Hummer or Saab operations is entirely dependent on what happens to rest of GM.
So what happens now?
No one believes that GM can simply disappear. However, there are conservative, free-market voices arguing that it should be left alone to suffer the normal strictures of the capitalist system and file for bankruptcy like any normal company. Certainly, that would force management into an immediate and deep restructuring, closing plants and off-loading payroll faster than ever. It is medicine that most major US airlines have taken in recent years and most have emerged fitter for it. Rick Wagoner, the CEO of GM, is insisting that bankruptcy is unthinkable, however. Here is the problem: flying on a bankrupt airline is one thing. The trip is over in a few hours. But who is going to buy a car from a company that is in bankruptcy? No one if they care about servicing, parts and, above all, resale value. Bankruptcy would also allow the company to tear up all its labour union contracts, but the resulting renegotiation could be messy.
Which takes us to the government and the taxpayer, right?
Indeed. Legislation was already adopted on Capitol Hill this year making $25bn available to help the car industry retool and get beyond this current crisis. But, the "Big Three", who haven't received that first tranche of capital yet, have told Washington that the sum will not be nearly enough now and a bigger bailout is required.
Under discussion is another bail-out package of $25bn or more with GM getting much of it. George Bush was rather cool about the idea at first, but Barack Obama, the President-elect, and the Democrat-controlled Congress have indicated over recent days that they are ready to dig deeper for the industry. And the issue may be tackled at a special session of Congress next week. Mr Obama said after the election that the car makers are the "backbone" of America's manufacturing sector and cannot be allowed to fail – not least because it would cost US taxpayers billions in lost tax revenues.
Would letting GM wither and die be such a disaster?
The collapse of GM would create a contagion that would surely force Chrysler and Ford into bankruptcy. The entire industry would be at risk. Moreover, it would not be just GM that would die but the scores of other companies – and their workers – that directly and indirectly supply its factories.
While the "Big Three" directly employ about a quarter of a million people it the US, the number of jobs that depend on them totals, by some estimates, as many as three million. The impact on the wider economy of those jobs being lost all at once is almost unthinkable. The suburban landscape of America would also change, with dealerships everywhere suddenly forced to close. And there is the issue of American pride. Foreign car makers have been invading US territory for years, but the loss of GM would be a profound blow to the national psyche.
Would a bailout be enough to guarantee GM's future?
No. The company would still be expected to accelerate its restructuring and a bailout would probably come with conditions attached, particularly a requirement on all three of the car makers to invest more intensively in green car technology, an issue that is especially important to Mr Obama.
Even though plants have been closed and mothballed, for now, production is far beyond actual demand. Most experts think that of the 21 factories still operated by GM in North America, at least another five would have to close.
Is General Motors a doomed enterprise?
Yes...
* It is losing $2bn a month andhas barely $16bn left before it'sall gone.
* It is far from clear that the American taxpayer is ready to embark on yet another big bailout.
* The big problems are unchanged: huge liabilities mean it just can't be competitive any more.
No...
* The US government succeeded in saving Chrysler in 1980, so why not GM in 2009?
* No responsible US government could let GM fail because of the wider economic implications.
* Fuel prices are falling again and with some help GM can cross this bridge and prosper again.
~~~~~~~~~~~~~
http://www.independent.co.uk/multimedia/archive/00082/bigQ141108_82556a.jpg
It has been a week since General Motors (GM), the international car manufacturer based in Detroit, warned that it is burning through its cash reserves so quickly – at the rate of $2bn (£1.3bn) a month – that it may not have enough to continue operating beyond the end of this year. The largest of America's so-called "Big Three" car makers has lost a total of $73 bn since 2004, the last year it turned a profit, and has watched its share price tumble by more than 90 per cent in the last 12 months. In October, GM revealed that its sales had fallen an astounding 45 per cent over the same period. Ford seems to be in just slightly better shape. Chrysler is stumbling again but is smaller than its two US siblings.
What Happened?
This may have turned out to be the perfect storm. Petrol prices soared in the first half of this year, scrambling a business model that had seen Detroit, otherwise known as Motown – Motor Town, depend on larger, gas-guzzling SUV-type vehicles for major profits. When petrol price soared, consumers abandoned the big cars. Then the economic crisis set in, depressing sales of new cars even further. Worse, there isn't the credit around any longer to help buyers put a new car in their garages.
GM also bears an additional burden of nearly half a million former workers drawing pensions and health benefits, preventing it from behaving nimbly in a rapidly-changing market. The company's huge liabilities and its union agreements means it can't make cars cheaply enough to be globally competitive.
What cars does GM make?
Some of the iconic brands of the American road, not least among them Cadillac, Buick, Pontiac and Chevrolet. Its light trucks and pick-ups sell under the GMC badge. In the US, it also owns the Hummer brand that, before the energy crunch set in, was the first choice of the celebrity set. For the rest of us it offers the more prosaic Saturn line. Then there is the welter of other, mostly overseas assets that the company has digested over the years, including Saab of Sweden, Opel in Germany and, of course, our own Vauxhall.
Is the crisis at GM limited only to the US operation?
The world wishes it were so. General Motors has operations on every continent of the globe, in fact in 41 different countries, including the United Kingdom, Canada, Mexico, South Africa, China and France. The company accounts for about 17 per cent of all vehicles sold around the world. The failure of GM would, therfore, be a global event. In Britain, GM's principle asset is Vauxhall. With plants in Luton and Ellesmere Port, about 5,000 British jobs are at direct risk if the company folds. What would actually happen at Vauxhall if GM were allowed to go to the wall and file for bankruptcy remains anyone's guess, however.
Has GM been standing idly by as its books turn red?
GM, like Ford and Chrysler, has been racing to cut costs, by slashing its workforce and closing down plants. But it just can't seem to move fast enough and losing jobs, in the short term, is very expensive. In the year that ended in September, GM shrank its US payroll by 14 per cent to 123,000 workers. Other reductions are in the pipeline.
GM headquarters is also exploring the selling off some non-core assets to raise much needed cash, including the Hummer unit. But finding buyers is proving tough because the value of the Hummer or Saab operations is entirely dependent on what happens to rest of GM.
So what happens now?
No one believes that GM can simply disappear. However, there are conservative, free-market voices arguing that it should be left alone to suffer the normal strictures of the capitalist system and file for bankruptcy like any normal company. Certainly, that would force management into an immediate and deep restructuring, closing plants and off-loading payroll faster than ever. It is medicine that most major US airlines have taken in recent years and most have emerged fitter for it. Rick Wagoner, the CEO of GM, is insisting that bankruptcy is unthinkable, however. Here is the problem: flying on a bankrupt airline is one thing. The trip is over in a few hours. But who is going to buy a car from a company that is in bankruptcy? No one if they care about servicing, parts and, above all, resale value. Bankruptcy would also allow the company to tear up all its labour union contracts, but the resulting renegotiation could be messy.
Which takes us to the government and the taxpayer, right?
Indeed. Legislation was already adopted on Capitol Hill this year making $25bn available to help the car industry retool and get beyond this current crisis. But, the "Big Three", who haven't received that first tranche of capital yet, have told Washington that the sum will not be nearly enough now and a bigger bailout is required.
Under discussion is another bail-out package of $25bn or more with GM getting much of it. George Bush was rather cool about the idea at first, but Barack Obama, the President-elect, and the Democrat-controlled Congress have indicated over recent days that they are ready to dig deeper for the industry. And the issue may be tackled at a special session of Congress next week. Mr Obama said after the election that the car makers are the "backbone" of America's manufacturing sector and cannot be allowed to fail – not least because it would cost US taxpayers billions in lost tax revenues.
Would letting GM wither and die be such a disaster?
The collapse of GM would create a contagion that would surely force Chrysler and Ford into bankruptcy. The entire industry would be at risk. Moreover, it would not be just GM that would die but the scores of other companies – and their workers – that directly and indirectly supply its factories.
While the "Big Three" directly employ about a quarter of a million people it the US, the number of jobs that depend on them totals, by some estimates, as many as three million. The impact on the wider economy of those jobs being lost all at once is almost unthinkable. The suburban landscape of America would also change, with dealerships everywhere suddenly forced to close. And there is the issue of American pride. Foreign car makers have been invading US territory for years, but the loss of GM would be a profound blow to the national psyche.
Would a bailout be enough to guarantee GM's future?
No. The company would still be expected to accelerate its restructuring and a bailout would probably come with conditions attached, particularly a requirement on all three of the car makers to invest more intensively in green car technology, an issue that is especially important to Mr Obama.
Even though plants have been closed and mothballed, for now, production is far beyond actual demand. Most experts think that of the 21 factories still operated by GM in North America, at least another five would have to close.
Is General Motors a doomed enterprise?
Yes...
* It is losing $2bn a month andhas barely $16bn left before it'sall gone.
* It is far from clear that the American taxpayer is ready to embark on yet another big bailout.
* The big problems are unchanged: huge liabilities mean it just can't be competitive any more.
No...
* The US government succeeded in saving Chrysler in 1980, so why not GM in 2009?
* No responsible US government could let GM fail because of the wider economic implications.
* Fuel prices are falling again and with some help GM can cross this bridge and prosper again.
~~~~~~~~~~~~~
http://www.independent.co.uk/multimedia/archive/00082/bigQ141108_82556a.jpg