by John M. Curtis
(310) 204-8700

Copyright June 2, 2009
All Rights Reserved.

        Filing for Chapter 11 in New York June 1, General Motors, an icon of American industry, bit the dust, hoping to emerge from bankruptcy to eventually sell stylish, fuel-efficient cars.  Announcing that Chinese manufacturer Sichuan Tengzhong Heavy Industrial Machinery Co. agreed in principle to buy GM’s Hummer line of heavy-duty quasi-military vehicles.  GM entered into a “memorandum of understanding” with the Chinsese company to buy its rugged, heavy-duty, gas-burning line of military-style SUVs.  Rusting in dealerships around the country, the Hummer line nosedived when skyrocketing gas prices and a stubborn recession killed the market from $60,000 vehicles.  GM hopes to save some 3,000 jobs, taking Hummer off the government payroll.  Hummer’s Shreveport, La. assembly plant hopes to continue manufacturing until 2010, after which Hummer switches operations to China.

            GM’s spectacular collapse stemmed largely from failing to anticipate the public’s changing needs and expectations.  GM continued to manufacture larger, gas-burning car lines, watching sales lose ground to Japanese and German competitors.  GM also announced intent to sell its Swedish Saab, American Saturn and German Opel car lines, hoping to emerge from BK in 60 days.  While everyone—including Wall St.—expected GM to go broke, watching an American icon bite the dust rattled financial markets.  GM’s bankruptcy, while expected, depressed U.S. currency markets, continuing to drop U.S. currency rates against the pound Sterling and euro.  GM’s bankruptcy spooked many foreign and domestic investors, uncertain whether the new GM would have any more clout in world currency markets.  GM tried to get a single buyer like Chrysler but its filing was too complicated.

               Selling off Hummer, Saturn, Saab and European Opel, preserves its core lines of Chevrolet, Cadillac, Buick and GMC.  Once the world’s biggest automaker, GM will emerge from bankruptcy as shell of its once mighty self.  Unlike Chrysler, where Italy’s Fiat Grop SpA acquires its main assets, GM was too debt-ridden and unwieldy for any one company.  GM personified the American Century that bigger is better.  Now it’s reinventing itself that less is more, dropping brands that don’t fit within the new concept of technologically advanced, fuel-efficient cars.  Canadian auto supplier Magna International and Russian-owned Sberbank agreed to purchase GM’s highly successful European division of Adam Opel GMBH, a real shame when you consider Opel serves as a model of GM’s future.  Opel competes favorably in Europe with the continent’s most successful brands.

              GM hopes to emerge from Chapter 11 in 60-90 days, far longer than the expected 30 days for Chrysler, whose new parent company Fiat wants to hit the ground running.  Fiat hopes to be rolling off it stylish, fuel-efficient cars off former Chrysler assembling plants within a year’s time.  “They have a lot of ducks-in-a-row because the terms of the government financing forced then to get all parties to the table in a very, very short period of time,” said Sharon Lindstrom, managing director of Protiviti, that helped put Chrysler’s merger with Fiat together.  Unlike Chrysler, the U.S. government expects to own about 60%, with the Canadian government getting 12.5% and the United Autoworkers Union receiving 17.5% of the new GM.  U.S. Bankruptcy Court Judge Robert Gerber expects to complete the GM sale by June 30, immediately getting GM access to $15 billion in government loans.

                Judge Gerber should do more than preside over liquidating GM’s profitable assets.  Recovery from bankruptcy requires the U.S. get out of the auto business at the earliest possible time.  To be successful, Chevrolet, Cadillac, Buick and GMC requires the kind of guidance that only a Toyota, Nissan or Volkswagen could potentially bring.  “Certainly, the court showed that it can address 363 [sale] transactions in an expeditious manner,” said GM CEO Fritz Henderson.  Though Henderson said he learned from Chrysler’s bankruptcy, he hasn’t found a suitable foreign competitor to provide the new designs and technology needed to make GM products profitable in a global economy.  Selling off Opel is a big mistake since its platform constituted the blueprint for Saturn’s success.  GM’s remaining lines must adopt the same styling, technology and fuel efficiency to be successful.  

            GM’s bankruptcy shakes the faith of the world’s leading superpower, watching the U.S. industrial base—and economy—crumble on the global stage.  Recent declines in the U.S. dollar, and corresponding rise in gold and silver, have left foreign governments leery of massive U.S. debt.  GM faces $172.1 billion in debt against a measly $82.29 billion in assets.  With the government already kicking in $20 billion, there’s no end in sight to the government’s financial commitment.  Selling off profitable assets isn’t enough.  GM should look to partner, like Chrysler, with a financially solvent auto company, capable of shifting the burden off U.S. taxpayers.  While a bankruptcy plan should eventually help GM reorganize, it also hurts global perception of the U.S. economy.  Profitable automakers would like nothing more than to get a bigger piece of the U.S. auto market.

 About the Author

 John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.