GM: The Country’s Latest Corporate Beggar

From the Financial Times:

General Motors is seeking a sizeable capital injection from outside investors as a possible alternative to a deal with Chrysler, the carmaker’s smaller Detroit-based rival.

Such an investment would be along the lines of Warren Buffett’s recent purchases of minority stakes in General Electric and Goldman Sachs.

Many industry experts have questioned the benefits of a tie-up between GM and Chrysler, pointing to their overlapping vehicle line-ups and dealerships. Rod Lache at Deutsche Bank said: “In a worst case scenario, the cannibalisation of GM and Chrysler products could negate cost savings, leaving GM with $16bn more debt, three more brands and 3,500 more dealers.” A person close to the talks said: “There are any number of issues on that deal that have to be grappled with. Price would be one, financing would be another, governance could be a third.”

The possibility has also been raised of GM seeking a government bail-out or filing for bankruptcy protection. These two avenues are considered unlikely for the time being although Detroit carmakers’ debt securities are already trading at bankruptcy levels.

Poor GM. Nobody wants it.
I personally don’t like GM cars, but realize that a failed GM would be bad for the domestic economy. As a long-term plan, GM needs to streamline its designs, drastically downsize, go electric, and start selling better-quality cars.

Before that, someone who is not Hank Paulson needs to rescue it. Another government bailout financed by everyone else’s future earnings would be truly sad.

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Written by Drea Knufken

Drea Knufken

Currently, I create and execute content- and PR strategies for clients, including thought leadership and messaging. I also ghostwrite and produce press releases, white papers, case studies and other collateral.