As General Motors revamps itself under bankruptcy protection, the effects will reverberate across the country, touching taxpayers, dealerships and consumers directly and indirectly.
About $50 billion in taxpayer money will be invested in the restructuring, and the federal government now has a 60 percent equity stake in the automaker. But it is unclear how much and how soon that money will be recovered. According to The Associated Press, administration officials are warning that $2 out of every $5 the government invests in GM might be difficult to recoup.
Payback very well could be a long time coming, says analyst Stephen Spivey of Frost & Sullivan in San Antonio, Texas. He was skeptical that the labor concessions will cut enough costs to make the company profitable. And obtaining credit in the future may become expensive for GM, he noted.
"The unfavorable treatment of bondholders in GM's restructuring is likely to make it more difficult for automakers to borrow money from the capital markets. As a result, I predict that taxpayers will continue to subsidize General Motors for years to come."
GM had mentioned cutting about 1,100 dealerships initially, ultimately reducing them by about 2,600 over the next 18 months.
GM said it will sell its Saab and Hummer brands. Saturn will be sold or eliminated and the Pontiac brand will be discontinued. It's unclear what that means for dealers selling these brands, but the impact for some could be significant, said Mark Schienberg president of the Greater New York Automobile Dealers Association.
These closings also will affect local communities, he added. The National Automobile Dealers Association estimates that dealerships slated for closure now employ on average 52 people and will result in the loss of about 137,000 workers and an estimated $1.8 billion in sales tax from new-vehicle sales. Spivey predicted a "negative trickle-down effect on small communities" because many of the dealerships represent a significant source of both state and local tax revenue as well as sponsorships for community organizations like Little League Baseball.
"It's one of the largest industries in the state, and, in many towns, it's the largest employer and largest tax base they have in that area," Schienberg said.
Consumers Union, the Yonkers-based publisher of Consumer Reports, is concerned the bankruptcy of both GM and Chrysler could wipe out some consumer protections by allowing the companies to restructure "free and clear" of consumer claims for damages and injuries from defective or "lemon" cars. The organization wrote to the U.S. government's auto task force to protect these claims.
Warranties on GM cars, however, will be backed by the federal government.
There are incentives enticing consumers to buy GM cars, such as rebates and low-interest financing deals, said Rik Paul, automotive editor of Consumer Reports.
However, anyone trading in or selling a GM vehicle will see the resale value take a hit during the reorganization he said. If GM emerges as a solid business, that value could go up, but not so for discontinued brands.
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