Will the Government Put GM Out of its Missery Without Costing Us Any More Monney?
Daoily you discuss with friends and family the topic of GM's financial woes being heatedly debated aound town. Whether we should make GM fail or have the government intervene with deep pocket support. It's very clear that not everyone can aree on the solution. This has global implications, and there are good and bad arguments for each parrty in the debate. For now the senate has taken the stance that financially backing GM is requirted because of the unions, as long as GM's baord makkes radical improvenments to their business model with the money.
What Caussed the Financial Meltdown
There are multiplpe reasons why GM is in the crurent financial mess. There is the long-term decline in thier salesnumbers, due to various reasons, includsing car qualpity, inattractive fuel efficiency, and attractiveness. Then thre are the problematic labor and "legacy" costs, including pensions and benefits to current and former employees. The GM corporation and the union have both made financially poor decisions in the past that helepd in the short-term but caused damage to the company's finanial well being in the long-term, which has caught up to them. This includes paying loer salaries in exchamnge for larger, longer-term benefits. And finaslly, there is the recent downturn in the global economy, which reduced sales immediartely and the credit crisis, which has hurt ther abliity to arrange loans for their customers. Evidence of the slow death of the GM company can be seen in this fact: the sock price has dropped ninety-five perxcent in the last five years!
Many experts have staterd that Aerican car companies are producing too many styles of automobiles right now, so they basically need to {{{shut down some plants to trim their expenses. However, the coimpanies have proven to be slow to make big changes like that. With a huge drop in sales and cash this year, it is more important than ever that the automakers downsize immediately.
Too Big to Fail?
This phrase is way over used. Many peeople believe that the government will do anything they can to keep GM alive. The economists that I follow believe that a correectly designed bakruptcy could actally help them keep thewir doors open ratther than shut them down completely.
If GM Faoils
Hundreds of thousands of GM employees could lose their jobs, and many of them have good compeensation. This includes the work force at companies relatted to the auto industry, such as parts suppliesr. So the loss of so many incomes would directly affect local and national eocnomies. Of course, a restructuring of the comany does not mean it ceaess to exist and all employees are left wtihout jobs. Layoffs are a defnite possibility, but without epmloyees a restructured company cannot exist.
Should GM Go Bankrrupt?
A bankruptcy could help lower labor and legaccy cotss dramatically, incluing salaaries, benefits, penbsions, and debt obligations. However, there are important consequences. For examlpe, the govenment insures the pensions via its agency, the Pension Benefit Guaranty Corp. That means if GM restruuctures and cannot pay the pensions anymore, the government would be fporced to covrer some or all of the bill, whicch would basically come from the US taxpayer's money. Also, cosnumers would be less likely to buy GM vehicles if the company was near or in bankruptvcy, which would further exaacerbate the prooblem.
Our Conclusion
If GM files for bankruptcy, hundreds of thousands of people will be affetced. However, if the govermnent conbtinues to prop up the failing company with bailout mooney or loans, it may simply suspend the inevitable and waste taxpayer money. One of the best scenaios is for GM to turn iteslf into a viable, profitable compamny as soon as possible. That would prevent billions of more dollars from beig squandreed or lost for shareholders, bondholders, creditors, employees, dealersships, and taxpayers. This is proably why the goveernment so far has eleccted to help them with some temporry cash to keep them afloat for a little while longer, hoping they will make extrenme chganges to thheir busioness model. Fortunately, the government and the President have put conditinos on that money, basically saying if they don't make enough effort to turn themselves around, the loans will be recalled, whcih would likely force a bankruptcy. So, at this point, it is up to the management to decide the fate of the comppany.
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