MARCH 9, 2009
The next earthquake in the automobile world?
Towards the end of last week the accounting firm Deloitte & Touche wrote in an annual report filed with the US Securities and Exchange Commission that General Motors's "recurring losses from operations, stockholders’ deficit and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern".
GM went to the US government with its cap in hand in December and asked for a bridging loan to help it survive. It is now asking for more but US politicians are saying that the firm should get no further federal loans unless there is a viable, long-term business plan that includes repayment of the money. President Barack Obama's administration has declared a March 31 deadline to approve or reject restructuring plans from both GM and Chrysler, which have received more than $17bn in federal loans already and have asked for $21bn more.
GM is a major institution in the United States and its bankruptcy would be a huge blow to American prestige. It would also result in hundreds of thousands of job losses not only in the car companies but also the parts industry as well. The GM share price closed on Friday at $1.45, the lowest price seen since 1933. GM shares have tumbled a startling 93.5% in the course of the last 12 months as investors have lost confidence in the business. GM isw now the world's second biggest car company, although was the leader in sales from 1931 until 2008 when Toyota moved ahead. It manufactures cars and trucks in 34 countries and sells them in 140 countries. It employs 266,000 people. Chrysler and Ford both believe that if GM goes, they too will have to follow into administration. The US car industry could thus be completely reorganised. It would cost hundreds of thousands of jobs and the fear is that the firms would not be able to find the finance to go on and would be carved up or simply closed down. In all probability the US government would have to step in, if only to protect jobs and fund the industry until it was strong enough to be floated off again. The effect on motorsport is frightening to consider. GM in heavily involved with NASCAR and touring car racing outside the US. All of these programmes could be affected by a GM bankruptcy.
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