• How the GM Bankruptcy Will Affect Car Buying

    On 1 June 2009, the GM bankruptcy made headlines around the world as the car manufacturer and American icon filed for a Chapter 11 bankruptcy protection. However, the news of GM’s bankruptcy is more than just news of the latest victim of the credit crisis because the restructuring and future success of GM can also affect your car buying choices and decisions.

    GM Restructures during Bankruptcy

    The GM bankruptcy has required that the US Government take a 60% stake in the company, in return for injecting 37-billion dollars into the company. President Obama feels confident of his investment, and has said that a new GM will be perfectly placed to produce high quality, safe and fuel efficient vehicles in the future.

    Before an improved GM can emerge, the company is using its bankruptcy as a chance for significant restructuring; this means closing production plants and cutting jobs. With GM’s bankruptcy process expected to last 60 to 90 days, the company is moving swiftly and has confirmed the permanent closure of nine plants, and will temporarily idle three others. However, one of the idled plants is expected to be retooled to build a small car which GM originally planned to have built in China.

    GM plans to continue with four core brands: Chevrolet, Cadillac, Buick and GMC. Cutting four other brands, GM will not be able to avoid cutting the jobs of 21,000 employees, the equivalent of 34% of its workforce, and it will reduce its 6,100 dealers to 3,500.

    Effects of GM Bankruptcy on Ford Motor Company and the US Economy

    While the GM bankruptcy has had a devastating effect on production, dealers and staff, it is important that the car maker emerge strong and successful for its own sake, and that of the car industry, its investors and the health of the United States economy. With GM’s job losses and the slowdown in production for dealers and suppliers it is possible the GM bankruptcy could actually send the already unstable economy deeper into recession.

    The structure of GM’s supplier network means it is not currently profitable. This puts major suppliers on the brink of failure as well, and if that failure was to spread through the supplier base, all car makers would be affected and so too would the entire economy. As a result, it is possible that the Ford Motor Company could be one of the next car makers to enter bankruptcy.

    However, Ford released a statement the same day GM’s bankruptcy was announced, assuring the public and President Obama that they have been making the necessary changes to their company and their productions to avoid having to rely on government support in the future.

    Effects of GM Bankruptcy on Car Owners and Buyers

    If you already have a car loan on a GM vehicle, GM’s bankruptcy does not free you from your payments. Additionally, just because a car maker is going through bankruptcy proceedings, doesn’t mean you should avoid buying their vehicles. In fact, GM dealers are likely to offer “closing down” specials which means now can be a great time for car buyers to take advantage of good deals.

    Also, if you are looking for a car loan on your new GM vehicle, car finance is more easily approved than when the financial crisis first struck, but it is still not back to where it was a year ago.

    However, even if you are not able to negotiate on the price of a GM vehicle, car buyers have the opportunity to secure up to $2,500 worth of incentives according to calculations made through the car sales website Edmunds.com. Car buyers can also take advantage of GM’s “Total Confidence” package at selected dealers. The package includes up to $5,000 for a trade in, extended warranties, one year free servicing and for those who lose their job, GM can cover payments of up to $500 a month for up to nine months.

    The US Government and GM are working hard to ensure that the company’s bankruptcy has a minimal effect on the industry, the economy and potential car buyers, meaning that GM’s Chapter 11 bankruptcy is no reason to avoid buying a GM vehicle.