Jonathan M. Cook
When I first heard about the bankruptcies of General Motors (GM) and Chrysler I was worried about what it would mean for me. You see, I own a GM vehicle, and I usually get my car serviced at a certified dealer in town.
I wondered if the dealer that usually serviced my car would be going out of business, which would mean traveling to a dealer in another city to have work done. I was also worried about my warranty being cut because of the bankruptcy.
I talked to a few experts to help me understand the problems with the auto industry. They told me these worries probably aren't worth losing sleep over, but there are a few things to look out for when buying a car.
Let's get a better understanding of why the companies went bankrupt before we delve into those worrisome questions.
We'll take a closer look at GMs case in particular.
GM failed because it took on insurmountable debt, according to CNNMoney.com.
GMs excess debt came from a combination of the following :
- Owning too many dealerships
- Producing gas guzzling vehicles people no longer wanted
- Banks cutting back on auto loans, reducing the number of people who are able to afford cars.
These problems combined to create the economic perfect storm that eventually capsized GM. This left the US economy with the fourth largest bankruptcy in US history .
This sounds terrible, right? Well, believe it or not, the bankruptcy isn't all bad news.
By filing for bankruptcy protection, GM will be able to drastically change its business structure in a way that wouldn't have been possible before. For example, GM executives will close 1,400 dealerships across North America before next year; they will also reduce the number of vehicle models GM produces .
The bankruptcy allowed GM to get out of otherwise binding contracts with dealers, suppliers, and past employees. With these contracts out of the way, GM could make more radical changes to the business, such as closing those 1400 dealerships at once.
The bankruptcy also gave the federal government 60 percent ownership of the company, according to Time Magazine. This means US taxpayers now own the majority of GM stock.
With any luck, these cuts and government ownership will allow the company to turn a profit in the near future. For more information, check out this Time.com article or this Q&A from The New York Times Web site.