General Motors Enters Bankruptcy

May 28, 2009

Auto giant General Motors announced that it’s seeking to file for bankruptcy, which could result in one of the biggest Chapter 11 filings in U.S. history. Senior Fellow Martin Baily examines the possible outcomes of this action saying GM, like Chrysler – which has already filed for bankruptcy – had lost its edge in the increasingly global and competitive auto manufacturing business.


“The issue was with GM and Chrysler was that if the went into a disorderly bankruptcy that would mean they would not continue to operate, and so there will be a lot of layoffs, a lot of layoffs in the parts industry as well as in the companies themselves in GM and Chrysler themselves, and the second concern was if you have bankruptcy then no one would buy the car at all because they would be concerned about the warranty and whether this was something that was going to hold value.”

“…I think they have decided that they could manage both of those problems. Firstly by allowing credit so they can continue to operate so that they would have working capital. What happens if you go into bankruptcy is you may not have working capital so you can not run anymore, and then by guaranteeing giving on warrantees saying that yes we are going to continue to honor the warrantees that they could overcome that problem as well.”

“…To think General Motors would go into bankruptcy, I mean after Pete Sloan kind of led the way in modern management techniques and was one of the pioneers. They have made huge contributions to the American Economy along the way, and it’s sad I think that we now see because of the combination of mismanagement of some decisions that the Unions made that probably didn’t serve them well but we are now seeing in bankruptcy. I have been very disappointed that it has taken so long for GM and its Unions and Chrysler and its Unions to really realize what they have to do to become competitive, and I think it’s just a broader point for our economy. A lot of people complain about globalization but the fact is globalization is here and the best companies from around the world are going to operate in the United States just as American companies have operated around the world, and if you want to compete you better be willing to stand the heat if you are going to stay in the kitchen, and I think that’s a lesson to everybody.”