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GM`s Bankruptcy Marks the End of a 101-Year Era

Posted June. 02, 2009 07:36,   


The fall of General Motors is expected to shatter the dreams of many American blue-collar workers, who have long considered the company a provider of stable jobs and opportunity to join the middle class.

Thanks to the powerful United Auto Workers, which secured high wages for its members, GM employees were able to buy houses, country homes and boats. They neither had to burden the cost of health insurance nor worry about retirement thanks to sufficient pension savings.

Thus, GM’s bankruptcy comes as a shock to many Americans. In a column titled “Our ‘Christine’ was a GM Chevy (short for GM’s flagship Chevrolet model),” James Cobb, an auto columnist for the New York Times, said buying a GM car was the biggest dream for many married couples in the 1950s, and his parents were one of them. They saved every penny and finally achieved the dream, so it is heartbreaking to see GM’s demise, he said.

GM back then was undoubtedly the world’s top automaker since every American dreamed of owning one. The company controlled more than half of the U.S. car market in the 1950s, and its global share even reached the 30-percent range in its heyday in the 60s and 70s. In 1979, it was the largest employer in America with 618,000 workers and had 853,000 workers worldwide.

At a confirmation hearing for Charles Erwin Wilson, GM president in the 1950s and the defense secretary-designate in 1952, he famously said, “What’s good for General Motors is good for the country.” Unfortunately, GM began to crumble in the 1980s.

In the aftermath of the oil crisis of the 1970s, consumers began to choose small and more fuel efficient Japanese cars over the gas guzzlers produced by America’s “Big 3” automakers, namely GM, Ford and Chrysler. While their Japanese counterparts went ahead in the competition, the Big 3 began to head downhill as their obsession for large cars eroded their competitiveness. Their fall gained momentum at the turn of the century, and GM was dethroned by Toyota last year as the world’s top carmaker, a title GM had held for 77 years.

GM had suffered combined losses of 82 billion dollars over the last four years, including 31 billion dollars last year alone. As a result, it found itself cash-strapped and had to rely on government life support.

By filing for bankruptcy, GM will transfer well-performing assets to the “new GM” to be born after the mess is over. Troubled assets will remain as part of “bad GM” and be put up for liquidation or disposal.

Plans call for the “new GM” to be nationalized with a combined 72.5 percent owned by the U.S. and Canadian governments, 17.5 percent by the union, and 10 percent by creditors.

The number of factory workers will fall from 62,000 at the end of last year to 40,000 by the end of next year. That of dealerships will drop from 6,246 to 2,600 next year.

GM will also consolidate its eight brands into four -- Chevrolet, Cadillac, GMC and Buick -- and cut the number of its U.S.-based factories from 47 to 34 by the end of next year and 31 by 2012. These plans are part of GM’s strategy to “downsize for survival.”

If the company wishes to survive, it must raise annual sales, which fell from 17 million units to 10 million, and generate profit. In the end, recovery will depend on the improvement of the global auto industry and GM’s ability to develop competitive models.