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Correct me if I'm wrong, but isn't it perfectly possible for General Motors go go bankrupt but continue to operate? I'd sure miss GM (particularly Cadillac, Op

• anthonyrubin 18y ago
  Of course. There are different forms or chapters of bankruptcy. http://en.wikipedia.org/wiki/Bankruptcy_in_the_United_States#Chapters_of_the_Bankruptcy_Code http://en.wikipedia.org/wiki/Bankruptcy_in_the_United_States... Chapter 7 is liquidation and Chapter 11 is reorganization.
• mdasen 18y ago
  Yes. In fact, most companies start by filing for Chapter 11 protection where they are sheltered from their creditors while they try to get their act together. In the meantime, GM would operate pretty normally from the perspective of anyone on the outside. If GM goes completely bankrupt, what will happen is that pieces of it will be sold off in order to take care of its debts/obligations. So, even if GM ceases to exist, it's very likely that the vehicles will find new life. The problem is that no one wants to buy GM whole because that comes with obligations like $75/hour labor costs and a pension system that was ill-conceived. Pieces of GM without those obligations (which can be voided by bankruptcy courts) are very valuable. GM is still the second largest auto manufacturer in the world. Despite the fact that many are yelling at GM management saying that they need to build cars that people want to buy, that simply isn't true. People do want to buy GM cars and they buy more GM cars than they do Hondas, Fords, Nissans, VWs, etc. Only Toyota does better. Maybe they don't make vehicles that yuppies like. That's different. I personally think GM cars are crap, but I'm not everyone and, as sales numbers for 2007 show, GM cars are equally popular to Toyota cars (http://money.cnn.com/2008/01/23/news/companies/gm_global_sales/index.htm http://money.cnn.com/2008/01/23/news/companies/gm_global_sal...). The problem is that GM is loosing money on the vehicles they produce (around $2,000 per vehicle). A large part of that is labor costs. Unionized plants under foreign manufacturers don't have the costs that GM's plants do, so it's not a pro vs. anti-union thing. For a lot of reasons, the UAW was able to get really great terms for its contracts since it started organizing at a time when GM could simply pass on higher labor costs to consumers. Now, that isn't the case and it's hurting both the union and the company. Unions are great things most of the time (in my opinion). However, in this case the market changed dramatically and the UAW didn't adjust rather expecting GM to make all the adjustments. Competition from Japan and others meant that the age of amazingly high auto-profits was over as consumers got choice. Likewise, that also meant the end of wages as high as the UAW had gotten them. At this point, a government bailout wouldn't help anyone - it would merely delay things. GM doesn't need cash for 12 months while they develop a new product. As an HN way of thinking about this, Digg has recently shown that it needs cash to keep the lights on - that its revenues cannot cover its costs. It isn't a matter of finishing a new product. It's just that advertising doesn't cover their costs. Likewise, sales don't cover GM's costs. They need to cut costs and become more efficient and one of the largest costs they have (compared to their competitors) is labor. In fact, based on GM's labor premium and the number of hours it requires them to build a vehicle and their annual vehicle sales, a reduction of the labor cost to Toyota's level of around $48/hour would likely make them safe with a savings of around $8bn per year (not profitable, but safe). GM still has other problems - they need to cut the number of hours it takes to produce a vehicle, they need to cut the costs their suppliers charge them by multi-sourcing more, and they need to better utilize their plants (all three of which would likely be opposed by the UAW since less labor required is bad for them, multi-sourcing means their suppliers can't offer as high wages, and better utilization of plants means you aren't paying workers to do nothing meaning you need less labor - GM has many idle workers). So, in conclusion, people like GM cars. GM has labor costs that are too high. GM isn't efficient enough in production. If GM becomes more efficient, it means requiring less labor. It's crappy for workers, but economies change. I totally understand why the UAW doesn't want to change. I totally understand why Microsoft, Sun, Oracle, and many tech companies continue down many of their paths. However, if they're paths that end because the landscape changed, it just isn't reasonable to believe you can continue taking them. When the economy changes, you can change with it or you can fade away slowly.
  • redrobot5050 18y ago
    Agreed.GM's management of the US market of cars has also been horrible. During the SUV boom, GM was losing money on most cars. Rather than try to change the car from a "loss leader" to "revenue generating", they focused on extracting revenue from their lucrative SUV and Truck market sectors. Even now, GM does not understand that the American car market is going to have to take a clue from Europe. Affordable, reliable, fuel efficient cars that do not feel like they're cheap. GM has no answer to the Mini-Cooper. Their idea of luxury is a V12 Escalade.
  • narag 18y ago
    "Unionized plants under foreign manufacturers don't have the costs that GM's plants do" FWIW, there is a GM plant near my hometown in Spain. We do have strict union laws, specially for big companies, and I guess the plant is unionized. But it's well known that GM made crystal clear when they created the plant that they would dismantle the plant and take it to Morocco in no time at the first sign of strike or two many sick leaves.
  • mattmaroon 18y ago
    Well, GM doesn't so much build cars people want as sell them in other ways. They give ridiculously low financing rates, and all sorts of other incentives. Honda may not sell as many cars as GM, but they do it with much better markup because they don't have to give 0% financing to move an Accord.
  • comatose_kid 18y ago
    It won't be business as usual from one set of outside constituents: prospective customers. Who the heck is going to buy cars from a company that's in bankruptcy?
    • hugh 18y ago
      Indeed, what they really need to do is find some way of guaranteeing that their warranty obligations will be fulfilled, by fobbing that off on someone else as part of the reorganization. If they can do that, I don't see why they'd have a problem selling cars.