What's going to happen to our retirement if GM goes bankrupt?
30yrs GM were do we stand? 3million affected What is going to help
these people? or Who?
- Anonymous1 decade agoFavorite Answer
In other words, Wagoner was calling bankruptcy unthinkable. And for a long time, that's exactly the way it seemed. GM has $34 billion in cash and could free up roughly $15 billion more selling various businesses. That alone should be enough to keep the company running for a few years. What's more, its cash-burn rate of $2 billion a quarter will slow down as a recent restructuring, which will eliminate nine factories and 30,000 workers over three years, takes hold.
But despite Wagoner's protestations, investors are clearly starting to ponder the unthinkable. The price of GM's credit-default swaps, which are insurance in case the carmaker can't pay back its loans, have soared in the past month. They now cost a premium of 12 percentage points of the value of the debt that they insure, four times what they cost in January. Few people believe that Washington would help bail out GM, as it did with Chrysler. Investors, suppliers, and employees, meanwhile, are starting to imagine how a GM bankruptcy would unfold and taking steps to defend themselves if it should happen. Some suppliers, for example, are trying to get shorter payment terms from GM in exchange for lower prices.
What would a GM bankruptcy look like? It probably would be the most massive Chapter 11 filing of all time -- a watershed moment in the history of American business, with far-reaching consequences for all of GM's stakeholders. While the direct impact on the national economy would be relatively modest, the Midwest would be hit hard by the combination of job losses at GM and its suppliers and benefits cuts for the company's retirees.
Plenty of observers believe that this suffering would be worthwhile, of course, if a stronger company emerged from bankruptcy. As airlines and steelmakers have done, GM could use Chapter 11 to rewrite union contracts, potentially enabling it to slash retiree benefits and close plants without having to pay furloughed workers. The auto maker could even dump tarnished brands and get bankruptcy court protection from dealer lawsuits. "Bankruptcy could do great things for GM," says William J. Rochelle III, a bankruptcy attorney with Fulbright & Jaworski LLP. But, of course, Chapter 11 is no sure bet. History is full of examples of companies that have emerged from bankruptcy simply to return in a few years. Here's a quick overview of how a GM bankruptcy might unfold for some of the key players:
One big risk of a bankruptcy filing is that it would cast such a pall over GM that sales would plummet. Consumers will buy airline tickets from a bankrupt company, but cars are a long-term commitment. Many buyers would worry (unnecessarily, in all probability) that GM wouldn't be able to honor its warranties. No U.S. carmaker has filed for bankruptcy in decades. But retailers such as KMart (SHLD ) and Hechinger and carmaker Mitsubishi all saw sales fall when their financial problems became widely publicized, notes Thomas T. Stallkamp, former Chrysler (DCX ) president and now the industrial partner for private equity firm Ripplewood Holdings LLC.
To stem eroding market share, GM could eventually use the lower costs achieved through bankruptcy to drop prices and lure more buyers, says Diane C. Swonk, chief economist with Mesirow Financial Services in Chicago. But cutting prices further could just exacerbate GM's already severe revenue problems. Its per-vehicle revenue of $21,000 is $3,500 less than rival Toyota's.
Rental car companies, purchasers of about 15% of GM's volume, would get nervous, too. They often sell their used models back to the auto maker. They're worried they would have to liquidate the cars themselves if GM went bankrupt, says Maryann N. Keller, a longtime GM watcher who sits on the board of Dollar Thrifty Automotive Group Inc. (DTG ). And, of course, if the company's retail sales are down, the value of used GM cars would fall, too. "GM should do everything it can to avoid bankruptcy," says Keller.
Big players like parts maker Tower Automotive Inc. and American Axle & Manufacturing (AXL ) rely on GM for a large chunk of their business. If its market share slid more quickly, they would suffer declines in revenue. The carmaker would try to keep the disruption to key business partners to a minimum, but many smaller parts makers could topple into bankruptcy, predicts Stallkamp. He says Ripplewood considered buying one thriving parts maker recently, a company with about $500 million in revenue. But it was too dependent on GM. If the auto maker stopped paying suppliers even just for a few weeks after filing, that company and a handful of others could end up in bankruptcy, he says.
That's why some parts makers are starting to open talks to get paid sooner. GM has already stretched payment terms out to two months in most cases. Suppliers are also trying to diversify their sales with other auto makers, relying less on a GM that will be downsizing for the foreseeable future.
- Anonymous1 decade ago
Now you will feel what the steel industry went through in the 1980's. Go to the Mon-Valley near Pittsburgh,Pa and you will find out how bad it is going to get. The mon-valley is like a ghost town now. Braddock is at the heart of it. The whole valley goes for about 25 miles from Brownsville,Pa to Charleroi to Braddock to Homestead and to Pittsburgh, It has yet to recover. So good luck.Source(s): http://www.15104.cc/ruins.html