The GM Bankruptcy - Too Little, Too Late? Skip to main content
×
×

You are here

The GM Bankruptcy - Too Little, Too Late?

Print

You've undoubtedly been following the news of GM's steady march toward bankruptcy -“ whether you intended to or not. The media blitz on this issue has been intense, and relentless. They've been recycling the same questions: Will GM be forced to file? If so, when? Will the taxpayers foot the bill? If so, how much will it cost? How will the bankruptcy process work, and what can we expect to see when (or if) GM emerges on the other side?

Well, all these questions were answered with Monday's announcement that the Obama administration has pledged $30 billion in taxpayer money to finance a Chapter 11 bankruptcy for GM, through which the auto giant will endeavor to divide itself into two companies -“ one holding the "good- assets (and the proverbial key to its future success, so the theory goes) and the other holding all the baggage from the days gone bad, soon to be just a relic of the pre-Green past.

Alright, so you may be thinking, will this be the end of all the fuss about GM? This is, after all, what GM and the economy needed to get back on track, right? Well, it's not that simple, actually. GM rode into a taxpayer-sponsored bankruptcy on the same theme that led to the massive investment of taxpayer cash into the company last year: the notion that the company is simply "too big to fail- and needs a government bailout to prevent a collapse of the economy itself. But that really wasn't true then, and it's no more true now.

GM's control over the auto industry has been steadily eroding away over the last three decades. The rise and dominance of foreign automakers, as well as Ford in recent years, has steadily chipped away at GM's market share in the industry. Since 1979, GM has shed more than 500,000 jobs -“ reducing its workforce from a high of 620,000 at that time to a measly 80,000 today. The company now holds a mere 20 percent share of the auto industry market. And, before GM even decided to file bankruptcy, it had planned to cut another 25,000 jobs, which will result in the shutdown of some 14 to 16 production plants and 1,100 dealerships across the country.

In other words, GM is not in bankruptcy simply because of the current economic turmoil. The company has been on a downward slide due to fierce competition from automakers pushing more attractive and practical automobiles; the simple realities of a capitalistic market, right? Truth be told, GM's long term success was questionable, regardless of the recession, and regardless of whether it ever filed bankruptcy. And, given the ever-dwindling size of the market the company still holds, the ultimate fate of the economy is no longer tied to that of GM.

This is both good and bad news. On the upside, this means if GM ultimately fails as an enterprise, it won't take down the rest of the economy with it. On the downside, this means that the company's successful return doesn't promise a return to growth in the economy at large. This not to say GM's fate is irrelevant. Scores of businesses rely on GM's continuing vitality to ensure their own survival. But the point is, the problems with GM, and with the economy at large, simply run too deep now: the government can't bail out GM, and GM can't bail out the government.

From: The Law Offices of John T. Orcutt, with convenient office locations in Raleigh, Durham, Fayetteville, and Wilson. Call (toll free) 1-888-234-4181, to set up a free, confidential debt consultation. Visit www.billsbills.com for more information.

Debts Hurt! Got debt? Need help? Get started below!

What North Carolina County Do You Reside In?