78° Good Evening
78° Good Evening

Will GM's bankruptcy mean future success?

Will it work?

Whether General Motors survives and prospers as a smaller company after the Chapter 11 bankruptcy reorganization announced Monday will depend on how well it is steered by its executives and the government, how soon the new-vehicle market recovers, and whether enough consumers will buy a car from a bankrupt company and, later, a restructured GM.

At stake besides hundreds of thousands of jobs nationally is $50 billion in taxpayer money. Most of that is to be converted into a 60 percent equity stake in the "new" GM. The "old" GM lost almost $31 billion last year and has lost more than half its market share since its heyday of the 1950s through the '60s. In theory, the government would sell the stake over time as GM's fortunes improve, so that taxpayers are at least partly reimbursed.

At Northwood University in Midland, Mich., Timothy G. Nash, dean of its DeVos Graduate School of Management, said that stake and those by the Canadian government and United Auto Workers create an inherent conflict between a quick return to profitability and the need to invest in new products. "You certainly have a multiplicity of conflicts that have to be resolved," he said.

President Barack Obama Monday called the U.S. government stake an "unwelcome position," but said it was a choice of taking the ownership stake or saddling GM with even more debt than it could repay.

Already the U.S. government has taken a history-making role in GM, forcing out chief executive Rick Wagoner as a condition for receiving more help. But Obama said the government would be making only the "most fundamental decisions." He added, "What we are not doing, what I am not interested in doing, is to run GM."

Analyst Joe Phillippi of AutoTrends Consulting in Short Hills, N.J., noted GM's strength in pickup trucks, and large and midsize SUVs, and said relatively low gas prices will help the company recover. "There are plenty of larger families who need something bigger than a sedan," he said.

A major hurdle facing GM - and what drove it over the financial edge - is the shaky economy, which has left millions of consumers jobless and unable to afford new cars, nervous about major purchases or unable to obtain financing. Sales are the lowest since the early 1980s and analysts surveyed by Bloomberg News predict this month's will trail year-ago levels by 35 percent.

But Lincoln Merrihew, an auto expert based in Boston for the market research firm TNS North America, said consumer confidence is improving, along with stock prices and credit availability.

Merrihew said it's unlikely GM will recover much of any lost share soon because of the likely loss to competitors of some customers who would have bought Pontiacs, Saturns and Hummers - brands to be discontinued or sold off. GM is keeping Chevrolet, Cadillac, Buick and GMC.

A survey published Monday by CNW Marketing/Research of Bandon, Ore., however, suggests the bankruptcy filing may not hurt GM sales as much as expected. In July, 90 percent of those surveyed said they wouldn't consider buying a car from a bankrupt company. But last week, amid the news of GM's impending filing, the number saying they would not buy a GM product was 37 percent.


We're revamping our Comments section. Learn more and share your input.

More news