Submitted by Jen Jones on Tue, 01/19/2010 - 4:56pm
No doubt in the last several years you’ve heard the phrase "Too Big to Fail" more than once. This oft-used phrase refers to the regulatory idea that many of the largest and most interconnected businesses are, in fact, so large that a government cannot allow them to fail because their failure would have a disastrous effect not only on the business itself, or even the larger industry, but also to the greater economy.
Early in the economic meltdown and late in 2008, General Motors Co. was considered just such a company. And given their huge presence in the U.S. economy, bankruptcy appeared unthinkable. Yet the unthinkable became inevitable in June 2009 as GM finally filed for Chapter 11 after years of losses and market share declines capped by a dramatic plunge in sales.
In Michael McKee’s Bloomberg article, “GM’s Long Decline May Make Bankruptcy ‘Irrelevant’ to Economy” of the car company’s “failure” he wrote:
“General Motors Corp. once mattered so much to the U.S. economy that a two-month strike in 1970 helped trigger a 4.2 percent drop in gross domestic product for the fourth quarter, as national auto production fell 82 percent.
Then, GM accounted for about half the cars and light trucks sold in the country. Now, GM controls just 20 percent of the market, and analysts say its bankruptcy filing will barely register in the broader economy.
GM’s drawn-out restructuring, an increase in U.S. manufacturing by foreign carmakers and the recession-induced decline in auto sales all have meant more to the economy than today’s legal filing.
“Bankruptcy now is irrelevant in terms of the economic consequence of what’s happening to GM,” said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. “Either way, it’s going to be a shadow of what it was, in terms of jobs and income.”
GM has been reducing payrolls for three decades. Its U.S. employment peaked in 1979 at 618,365, when it was the nation’s largest private employer and auto manufacturing accounted for 4.1 percent of GDP. At the end of this year’s first quarter, autos were 1.5 percent of the economy, and GM had 88,000 U.S. workers.”
But as unthinkable as it was last year to let GM go bust, and how “irrelevant” bankruptcy seemed at the time as a viable solution, GM has taken a surprising post-bankruptcy turn.
In short, it was too big. It failed. Nothing bad happened. And now it’s back again.
That’s right, after an aggressive bankruptcy-inspired restructuring and reorganizing, GM, even amid weak car sales, is talking about making a profit this year. According to this week’s Wall Street Journal, General Motors Co. will make money in 2010, its chairman said, “a bold and surprising forecast for a business that exited bankruptcy proceedings just last summer and hasn't turned an annual profit since 2004.” "My prediction is we will be" profitable in 2010, Edward E. Whitacre Jr. told reporters at GM's Detroit headquarters, a sign of rising confidence that also sets a tough benchmark for the still-struggling car maker's employees. "Do we have obstacles in the way? Yes. But we have a good management team and a good plan in place."
The moral of the story? Bankruptcy works.
Now in addition to convincing Tim Geithner, Larry Summers, and Ben Bernanke that it's okay to let financial firms sink into insolvency—for a restructured and reorganized future—the way small banks and businesses do every week under Chapter 11, it’s also essential to understand that bankruptcy can work for you…and isn’t a failure… but the possible key to a stronger and more productive financial future.
For more information on getting back on your feet like GM through bankruptcy visit the experienced bankruptcy lawyers of The Law Offices of John T. Orcutt.
Debts Hurt! Got debt? Need help? Get started below!
Serving All of North Carolina
Bankruptcy Attorneys Raleigh NC (North)
6616 Six Forks Rd #203 Raleigh, NC 27615 North Carolina
Tel: (919) 847-9750
Bankruptcy Attorney Fayetteville NC
2711 Breezewood Ave Fayetteville, NC 28303 North Carolina
Tel: (910) 323-2972
Bankruptcy Attorney Durham NC
1738 Hillandale Rd Suite D Durham, NC 27705 North Carolina
Tel: (919) 286-1695
Bankruptcy Attorneys Wilson NC
2215 Nash St N Wilson, NC 27896 North Carolina
Tel: (252) 234-9194
Bankruptcy Attorneys Greensboro NC
2100 W Cornwallis Dr. STE O Greensboro, NC 27408 North Carolina
Tel: (336) 542-5993
Bankruptcy Attorneys Southport NC
116 N Howe St. Suite A, Southport, NC 28461 North Carolina
Tel: (910) 218-8682
Bankruptcy Attorneys Wilmington NC
116 N. Howe Street, Suite A Southport, NC 28461 North Carolina
Tel: (910) 447-2987