Quote:
Originally Posted by trademaster
GM did survive Chapter 11 bankruptcy, the bankruptcy sale to NGMCO endorsed and financed by the governments of the United States and Canada. GM required a cash injection to maintain continuing operations. Without financing for the bankruptcy process the company would have had to liquidate assets on an insane scale into a market with extremely limited demand. Nobody in the private sector was in a position to finance the restructuring of GM at the time. Remember the condition of the major financial services firms at this point in time -- disrepair.
The bailout was not about saving GM for the sake of the executives. GM was propped up, along with many of the biggest financial services and industrial/manufacturing firms, to prevent a systemic shock => sharp downward shift in aggregate demand => drop in output, that would have plunged the economy into depression. Ford was even pushing for the rescue of their competitors because they knew if financing for bankruptcy wasn't secured the shock to the supply chain would drive them out of business as well. The Fed chose the lesser of two evils and it worked.
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Not just Ford but also the Japanesse automakers and possibly some of the larger European manufactures. The key problem with letting GM go 'poof' (which is pretty much what would have happened without federal bailout money, since the auto industry took as big a hit as the financial industry did nobody on wallstreet was willing to hand over tens of billions of dollars to an auto company) is that there were a bunch of suppliers on the brink as well. They had all experienced a nearly 50% drop in demand within a matter of months. If GM had to close down, they lose another another big chunk of their revenue. When that happens, a number of them go bankrupt themselves. Since automakers share suppliers for everything, and since you can't build a car with missing pieces, having a bunch of suppliers go out at once would cause other automakers to stop their lines. Which in turn puts more pressure on the already fragile supply system. And the downward cycle continues.
People can deny the 'doomsday' scenario all they like, but I haven't heard of any supply chain management expert who understands & is familiar with the auto industry say that it wouldn't happen with GM. Sure, the occasional 'in house' expert voiced his or her opinion for their native 24hr news channel. But people actually working within the industry, that knows all its ins & outs? The farthest I've heard any of them go is a 'maybe' on losing Chrysler -maybe the industry can handle it, maybe it can't. But GM? The main differences in opinion were on how bad it would be.