General Motors has already received about $20 billion in U.S. government aid and is looking for another $30 billion. In exchange the U.S. government will own 60 percent of GM. The company will be forced into a sleeker operation -- or, arguably, one that is only a shadow of its current one. There are currently 54,000 Americans still working at GM factories. Some 21,000 are going to lose their jobs.
At least 11 GM plants in the United States will close. Another three may follow -- they will be put on hold, at least until the end of 2010, with no production activity until then at the earliest, at the expense of 21,000 jobs and as many as 20 factories. Nearly half of the GM dealers across the United States will close. Bondholders will be given about 10 cents on the dollar. GM stock closed Friday at 75 cents a share; in April 2000 it was worth more than $93 a share.
The Wall Street Journal reported Monday that Al Koch, who helped Kmart in its trip through bankruptcy, will join GM as restructuring officer and would likely lead a new management team if GM is able to get through bankruptcy.
General Motors CEO Fritz Henderson issued a statement saying the once mighty automaker would use the bankruptcy process as an opportunity to restructure itself for the challenges of the 21st century marketplace.
"The economic crisis has caused enormous disruption in the auto industry, but with it has come the opportunity for us to reinvent our business. We are going to do it once and do it right. The court-supervised process we are pursuing provides us with powerful tools to accelerate and complete our reinvention, as well as strong safeguards for our customers and our business," Henderson announced.
Many of the factors that doomed GM hit its Detroit rivals Ford and Chrysler with equal force. Ford, however, has managed to survive the waves of foreign competition, slumping demand and heavier labor costs better than GM. Although Ford managements in the past made their share of serious errors, GM made far more. The previously unthinkable idea that GM could become a virtually nationalized company, even temporarily, was heralded by the systematic failure of its own leaders and corporate culture. Since they did so badly, the argument goes, how can any change be worse?
Of course, the U.S. government doesn't want to keep GM on its hands forever. The hope of the rescue plan is that the company will be able, one way or another, to adapt to the new marketplace with new products and once again stand on its own feet.
In that respect, Chrysler, which has been in serious trouble for far longer than GM, is offering at least a faint ray of hope by its own example. Chrysler is making a rapid transition through its own bankruptcy process, and a judge has cleared the way for its sale to Italian automaker Fiat, meaning that the company could be out of bankruptcy soon.
There is a certain irony in the fact that the U.S. government, which now measures its own annual budget deficits in trillions of dollars, is taking over a company that for years has lost billions.
The inescapable image that comes to mind is of the blind leading the blind.
The grim bottom line from GM's demise, at least in its old form, is that the bottom of the current U.S. economic depression -- it seems naive and inaccurate to still try and refer to it as merely a recession -- has not yet been reached: The hemorrhaging of American jobs -- particularly in what is left of the industrial sector -- is continuing with no end in sight.