The End of the Road

Within hours, the giant will be dead. General Motors will be no more. The world’s largest car maker will file for bankruptcy in a New York court room.

With $176.4bn of liabilities – it will be the world’s largest industrial bankruptcy, the world’s third largest to date, after Lehman Brothers and Worldcom. The colossus of the auto-industry that dominated it for so long will have the humiliation of seeking protection from its creditors.

For so long the saying “What’s good for General Motors is good for the country” was seen as true, but not any more.

The fall has been fast. It is something that, as the New York Times puts it, “would have been unfathomable even a few years ago, much less decades ago, when it was a dominant force in the American economy.”  As the Times continues “Rarely has a company fallen so far and so fast as General Motors.”

Only eight months ago, Rick Wagoner, then the company CEO, celebrated the company’s 100th anniversary. “We’re a company that’s ready to lead for 100 years to come.” GM’s stock price has fallen from $70 when he took charge at the start of the decade to 75 cents a share on Friday.  GM won’t be leading anyone anywhere.

It will be the American government taking the huge risk, with Obama acquiring a massive 60 percent ownership stake in  GM. American taxpayers will invest an additional $30 billion on top of the $20 billion they have already invested. How much they will get back is anyone’s guess. Some 21,000 union workers will lose their jobs and some 12 to 20 factories and 6,000 dealerships will close. It will be turbulent times ahead.

Despite this polls at the weekend had over half of Americans thinking it would have been better simply to let GM go out of business, a prospect Obama said, would have “horrendous effects” on the overall economy.

GM is said to be looking for a quick turnaround with a new, slimmer model appearing out of the ashes of the old huge beast. But will it be a greener model? If GM’s executives have anything to learn it is that they failed to see the perfect storm of growing environmental consciousness, the need to respond to climate change and the global recession all on the horizon.

They carried on making Hummers and SUVs as that is where the big money supposedly was. But when consumers demanded smaller, cleaner cars, the company has high and dry.

As the WSJ says today, environmental issues such as climate change and fuel efficiency will be one of the first challenges for the Obama Administration and the new company. “Already the administration has said it wants to direct GM to make more fuel-efficient small cars, a potential threat to the company’s near-term profitability.”

But for once, GM may have to forgo short-term profitability for long term corporate survival. It does not want to go bankrupt twice.