General Motors reported November 7th that it has spent $6.9 billion, taken $3.5 billion in credit, and paid $1.2 billion in bankruptcy payments to parts supplier Delphi (Freed, 2008).
Ongoing Problems for General Motors
GM’s share prices have fallen to their price in 1946, down 23 percent to $3.36, on fears that the company would run out of cash (Calmes, 2008).
GM’s 2.5 billion net loss led to a downgrade by Deutsche Bank, putting a one-year price target of zero on the company’s stock (Bensinger, 2008).
GM’s sales have declined 20% this year, and the company has cut production and benefits; nearly 6,000 workers in North America will be laid off (Bensinger, 2008).
Many feel the automaker is in jeopardy of bankruptcy before the end of the year. If the GM, Ford and Chrysler collapse, it would mean the loss of three million American jobs (Calmes, 2008).
Should the US Government Bail out GM?
Commentators such as Dan Freed have noted that a GM bankruptcy would not lead to the collapse of automobile travel in the world, as the failure of AIG would have led to drastically reduced consumer credit (Freed, 2008). Therefore, it is not as necessary to bail out GM as it was to bail out AIG.
As the Economist.com points out, to rescue a company which has been crippled by its own inefficiency and failure to innovate at a pace necessary to remain competitive is not an effective way to stimulate the economy; to keep a large company on life support only allows its inefficiency to prevent full recovery for the financial system as a whole (Economist.com, 2008).
Obama’s Perspective
Obama’s intervention in the auto industry would extend beyond the life support cautioned by the Economist. He would require GM to produce cars which are more energy efficient and reduce emissions (Calmes, 2008). He sees the crisis as an opportunity for a green revolution of the auto industry.
Bush’s Trade Deal
President Bush may withhold his support of a GM bailout in hopes that Democrats will pass his trade deal with Columbia.
Obama has long opposed the Columbia deal because Columbia has a record of human rights abuses against union workers as well as poor environmental standards. Democrats seem unlikely to waver in their opposition (Calmes, 2008).
The Standoff
If Bush will not support a bailout of GM, the company may fail before Obama takes office.
Sources:
Bensinger, K. (2008, November 11). General Motors shares driven down on forecast they could soon be worthless. Los Angeles Times.
Calmes, J. (2008, ). Obama Asks Bush to Provide Help for Automakers. New York Times.
Economist.com. (2008). Sensible Stimulus. Economist.com. Available: http://www.economist.com/blogs/democracyinamerica/2008/11/sensible_stimulus.cfm [2008, November 11].
Freed, D. (2008). GM Needs a Bailout, but It Is No AIG. TheStreet.com. Available: http://www.thestreet.com/story/10446834/1/gm-needs-a-bailout-but-it-is-no-aig.html?puc=googlen&cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA [2008, November 11].
Jeffrey Donaldson - J. Donaldson lives in New York City, and is interested in writing about literature and science.
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