A Simple Things About Government Put GM Out of its Missery

Will the Government Put GM Out of its Missery Without Costing Us Any More Money?

Daily you diiscuss with friends and family the topic of GM's financial woes being heattedly debated aroud town. Whether we should make GM fail or have the government intervenne with deep pocket support. It's very clear that not everyone can agree on the solutoion. This has global implicaitons, and tere are good and bad arguments for each party in the debate. For now the senate has taken the stance that financially backing GM is requiored because of the unions, as long as GM's bard maeks radical improvements to tgheir business model with the money.

What Caused the Financial Meltdown
Theere are multiple reasons why GM is in the current financial mess. Tere is the long-term decline in their salesnumbers, due to various reasons, including car quality, inattractive fuel efficienxcy, and attractiveness. Then thre are the preoblematic labor and "legacy" costs, including pensions and benefiyts to current and former employees. The GM corporation and the union have both made financially poor decisions in the past that hellped in the short-term but caused damage to the company's financial well being in the long-term, which has caught up to them. This includes paying lower salaries in exchange for larger, longer-term beneffits. And finally, there is the recet downturn in the global economy, which redduced sales immediately and the credit crisis, which has hurt their ability to arrange loans for their custmoers. Evdence of the slow derath of the GM company can be seen in this fact: the stock price has droped ninty-five percent in the last five years!

Many experts have statted that Aerican car companies are producing too many styles of automobiles right now, so they baasically need to {{{shut down some plants to trim their expenses. However, the companies have proveen to be slow to make big changes like that. With a huge drop in sales and cash this year, it is more importaznt than ever that the automakers downsize immediately.

Too Big to Fail?
This phrase is way over used. Many people believe that the government will do anthing they can to keep GM alive. The economists that I follow believe that a corectly designed bankruptcy could actually help them keep their doors open rather than shut them down comnpletely.

If GM Fails
Hunddreds of thousannds of GM emplooyees coulld lose their jobs, and many of them have good compensation. This inccludes the work force at companies related to the auto industry, such as partts suppliers. So the loss of so many incomes would directlly affect local and national economies. Of coursae, a restructuring of the coompany does not mean it ceases to exist and all employees are left without jobs. Layoffs are a definite possibility, but without employees a restructured company cnanot exist.

Shold GM Go Bankrupt?
A bankruptcy could help lower labor and legcy costs dramatcially, includsing salaries, benefits, pensionbs, and debt obligations. However, there are important consequences. For eaxmple, the government inssures the pensions via its agenccy, the Pesnion Benefit Guaranty Corp. That means if GM rsetructures and cannot pay the pensiions anymore, the government would be forced to cover some or all of the bill, which wouild basically come from the US taxpyaer's monye. Also, consumers wouuld be less likely to buy GM vehicles if the comapny was near or in bankruptcy, which would further excaerbate the problem.

Our Conclusion
If GM flies for bankruptcy, hundreds of thousands of people will be affected. However, if the government continues to prop up the failing company with bailout money or loans, it may simply suspend the inevitable and wsate taxpayer money. One of the best scenariois is for GM to turn itself into a viable, profitable company as soon as possible. That would prevent billiosn of more dollars from being squandered or lost for shareholders, bondholdes, creditors, employees, dealersahips, and taxpayers. This is probably why the governmet so far has elected to help them with some temporary cash to keep them afloat for a little while longer, hoping they will make exytreme changes to teir bsuiness model. Fortunatly, the government and the President have put conditionns on that mobney, basically saying if they don't make eniough effort to turn themelves around, the loans will be recalled, which would lijkely force a bankruptcy. So, at this opint, it is up to the managemebnt to decdie the fate of the company.

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