General Motors (GM) will be going into bankruptcy just as Chrysler is coming out of bankruptcy.  What exactly does bankruptcy mean for GM?  What does it mean to American taxpayers, investors and workers?  Big changes starting with the sale of assets and downsizing of factories, labor and dealerships.

What are assets?  Assets are technology, factories, dealerships and inventory.  GM is going to have to make big and painful changes in order to remain in existence.  What exactly those changes will entail depends on the bankruptcy judge and the Obama administration.

The American public has a stake in the outcome.  Not only because unions, factories, parts makers/dealers and car dealerships will affect every state in the nation, some more than others, but because we the people have provided hard earned tax money as bail out funds.

According to The New York Times, GM will be having a “controlled” bankruptcy overseen by the Obama administration.  GM will be at least temporarily nationalized, with the U.S. taking a 60 percent ownership stake, in hopes that GM will come out of the back end of the bankruptcy process as a viable automaker.

GM will be closing 12 to 20 of its factories and 40 percent of its dealerships. More than 21,000 union workers will lose their jobs.  The irony is that GM’s troubles and forced downsizing will probably hit Mexico and South Korea as well since GM has been manufacturing cars in both countries.   For all of the talk that American workers will suffer under GM’s bankruptcy, it needs to be remembered that GM had already outsourced jobs to other countries.  That GM car you’re driving might not even be an American made car.

The Obama administration says it does not want to manage GM’s day to day business, but will only be overseeing the restructuring.  After all, the American people have already loaned GM $20 billion and will be providing $30 billion more during the restructuring.

America is not the only country that has provided loans or is taking an ownership interest.  Canada has taken a 12 percent interest in the company.  Many GM cars and parts are built in Canada.

Although every state in the country will suffer at least a little during bankruptcy proceedings and the accompanying downsizing, it will keep GM from being totally liquidated out of existence.  Rather than having the unemployment rate from a totally insolvent GM reach 10 percent, the Obama Administration is hoping that this “controlled” bankruptcy will allow the car maker to remain in business, employing a smaller workforce in fewer factories.

The hope is that the American taxpayer and other investors won’t lose their investment in GM, labor won’t lose all of its jobs and some factories will stay open.  GM is expected to emerge a leaner more competitive company that will be able to compete against such foreign automotive giants as Honda and Toyota.

No one knows what the final company or the resultant auto scene will look like.  If all goes well, GM will survive.  Another positive possibility is that smaller innovative car companies like Tesla, Smart ForTwo, Aptera, and others will be able to gain some a bigger share of the automobile industry pie, possibly by purchasing some of the soon to be defunct GM factories and by providing jobs for some of the out of work employees.

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Entry was posted on Monday, June 1st, 2009 at 11:40 pm under Auto.

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