America was in great shock when General Motors [GM] became officially the fourth-largest bankruptcy in history. This is indeed an extremely scary time, with anxiety spreading like wildfire, GM being the third major company to file for bankruptcy within the past nine months only reassures the hopelessness that we may never see the end of this. President Obama acknowledged that GM was in more debt than they could handle when he stated “[General Motors] is buried under an unsustainable mountain of debt.” At the time of filing, GM reported having $82.3 billion in assets, and liabilities of $172.8 billion.
A large contribution to the company’s downfall were the extremely high fuel prices back in 2008, which is what’s slowly happening once again right now. Many of the automobiles that GM produced were not fuel-efficient, thus causing their sales to decrease immensely. Many consumers were also unable to acquire loans to purchase GM’s vehicles, causing even more financial pain.
GM also faces tough competition from Toyota Motor [TM] and Ford Motor [F, Fortune 500], which are both in much stronger financial condition. Toyota and Ford were more financially equipped before the recession, which is why these two companies are in better shape now than GM.
The Obama Administration provided $19.4 billion to GM to try to help keep it out of bankruptcy but even that was not enough. The government will be granting the company another $30 billion to keep it running during the Chapter 11 process. GM is expected to lose potentially $37 billion worth of debt through Chapter 11.
The company is closing 14 plants and facilities and putting three more on standby. GM is cutting up to 40% of its franchise agreements with 6,000 dealerships. Job loss is estimated at 20,000. GM will lose Saturn, Pontiac, Saab and Hummer brands.
How does this affect Americans? Unfortunately, American taxpayers will end up with a 60% stake. The government will own 60% of GM, but President Obama states that he has absolutely no intention of running the company and that it’s future decisions will be up to a team of professionals.
President Obama remains optimistic about the future of GM saying “This is the end of an old GM, and the beginning of a new.” Such optimism is not shared by everyone, however.
The only thing it makes clear is that the government is firmly in the business of running companies using taxpayer dollars, said U.S. House Minority Leader John Boehner.
Owners of GM vehicles will still have their warranties honored, so they won’t experience much change. Most likely Americans will continue to buy vehicles from GM. As for whether or not the sales will increase or continue to decrease is yet to be seen.