Monday, June 01, 2009

The GM Bankruptcy

I discuss the GM bankruptcy announcement over at the Guardian. The General Motors that emerges from bankruptcy will be a different corporate entity that will acquire the useful assets of the old GM.
The old GM controlled 54 percent of the market in 1955, and has seen its share steadily decline since. The new GM will be much smaller, perhaps small enough to make it in the current recession:
In the bankruptcy plan, GM will cut capacity sharply. When the company first went to the government for help, it presented plans to the government to break even in a total market of 16 million vehicle sales a year. As recently as February, GM maintained it could make it in a market of 11.5-12.0 million annual sales.
In its new form the company will be sized to survive in a market of 10 million units a year – if it doesn't lose even more share. And even that would be cutting it close. Vehicle sales in May inched up to 9.5 million on an annualised basis. As part of the restructuring plan, GM is closing 14 more manufacturing plants, including the last operating auto plant in Delaware.
We will see whether GM can forestall further erosion of market share, but at least the plan is based on a realistic assessment of the current market conditions.

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