GM in need of reorganization, speed

Monday morning, one of the world’s largest automakers filed for bankruptcy. General Motors has been experiencing slumping sales, major fiscal conundrums, and losing a technology race with its import rivals since the ’80s. The company didn’t do all its homework and is now out of the game.

GM is filing Chapter 11 bankruptcy in order to liquidate bad debt and reorganize assets. When a household goes bankrupt, a person informs their bank and the people to whom they owe money that they cannot pay. Then painful consequences of bankruptcy set in.

For a household, this could be repossession of property or permanent hits to a person’s credit among other consequences. For GM, this will cause even more layoffs, factory and dealership closings, and the death of four car brands. For now those casualties are Hummer, Pontiac, Saab, and Saturn.

None of this is new. The economic hits will only continue to hit harder, and likely last well into 2010.

GM is hoping for a speedy recovery. Some analysts have doubts as to whether that will happen at all.

‘It looks more like business as usual than real cost cutting,’ analyst Richard Tilton said in an article published in CNN Money. ‘GM will still find itself in a difficult competitive position in a very weak market for auto sales overall, neither of which point to long-term success.’

Despite how much debt GM may shed, the company cannot earn revenue or profit if it is not selling cars.

When a company is in debt and struggling at dangerous strengths, it has no choice but to act as a strict cost reducer. For GM, this could mean cutting corners and bargaining for parts and labor that may not meet the quality needed to rebuild.

Many argue tactics like this got GM into its bad situation in the first place. The lack of detail and quality has finally caught up, but now it’s too late.

In an article published in The New Republic, Jonathan Cohn predicted all this before bankruptcy seemed so imminent.

‘If anything, Chapter 11 might reinforce some of Detroit’s worst habits – starting with its tendency to seek the lowest prices from parts suppliers, even if that means switching companies frequently and paying relatively little attention to part quality,’ Cohn said.

How the bankruptcy will play out is unknown. With the economy still suffering as a whole, the recovery process for General Motors will not be easy, and most likely not speedy either.

Andrew Taylor is an economics junior and may be reached at [email protected]