It’s not the sort of headline you’d ever have thought you would read. General Motors, which was once the world’s largest car company, is filing for bankruptcy.
It’s the biggest failure of an industrial company in US history and ranks as the third largest bankruptcy in the US, after Lehman Brothers and telecoms giant WorldCom. It also means that famous car names such as Pontiac, Hummer and Saab are under threat.
General Motors, or GM as it’s usually known, had been losing market share since the 1980s and made a loss of $30 billion last year.
Time to shut off the fountain
High production costs and the collapse in credit markets and consumer spending have been blamed, but industry analysts say that the company was slow to move away from big ‘gas-guzzlers’ such as Sports Utility Vehicles (SUVs), when drivers wanted more fuel efficient vehicles.
Less fuel? That's un-American!
The company has filed for bankruptcy in the US under Chapter 11, which allows it to continue to trade while restructuring its finances, protected for the time being from its creditors. It had already received $30 billion in state aid from the US Government, which is to take a 60 per cent share in the company in order to prevent it from being broken up.
It is thought that around 20,000 workers in the US could lose their jobs under the restructuring, which will see around 11 factories in the US and Canada closed down and another three mothballed. It is thought that 30 per cent of US dealerships could lose their franchises as well.
The Chapter 11 will affect a lot of showrooms and workers
GM was founded in 1908 by William C Durant who combined the Buick, Oldsmobile, Cadillac and Pontiac companies, eventually adding Chevrolet as well. In the 1920s the company bought Vauxhall and Opel under its wing as well and during the 70s and 80s it bought stakes in Isuzu and Suzuki. It also acquired British sports car company Lotus and formed a partnership with Toyota. In the 90s it added Swedish car manufacturer Saab to its stable.
The European arm of GM, which includes Vauxhall and Opel but not Saab, is not included in the bankruptcy proceedings, however. It was acquired over the weekend by Canadian car parts maker Magna International, and has stated that it is continuing operating as normal. Even so, jobs may still be lost at Vauxhall plants at Luton and Ellesmere Port in the UK, although workers may have to wait up to two months before they find out whether or not their jobs are secure.
Vauxhall's future is safe, but all of their workers may not be
Magma is paying 700 million Euros for a 55 per cent stake of the company and GM Europe has secured approval for a 1.5 billion Euro bridging agreement with the German government based on the partnership with Magna. With this available, the European operations are isolated from any financial impact by GM’s situation in the US.
GM is the second US car manufacturer to file for bankruptcy in a short time after Chrysler went through the same process. At the end of last week another US bankruptcy court approved the sale of Chrysler to Italian motor giant Fiat. The company will be 20 per cent owned by Fiat, 68 per cent by a union trust while the US and Canadian governments will jointly own 12 per cent.
Chrysler went first
The US government is hoping that the complete restructuring of GM can be completed within three months.
Meanwhile, Honda workers in the UK returned to the production line at Swindon after a two month shut down.
These are dark and difficult times indeed for everyone involved in the car industry.
