Archive for March 5th, 2009
Thursday, March 5th, 2009
General Motors’ auditors said today in a report filed with the SEC that there is “substantial doubt” about the company’s financial viability and its ability to continue operating. The news may increase pressure on Washington to grant GM the $30 billion in federal loans it seeks to stem bankruptcy.
However untenable that option may seem, offering further government loans is better than standing by as GM goes bankrupt, according to Smeal’s Fariborz Ghadar, director of the Center for Global Business Studies. He says that the company and the economy have little to gain in bankruptcy.
“Under the current arrangement with the government, everything that takes place in a bankruptcy is happening now,” Ghadar says. “GM is already negotiating its contracts with labor, lenders, and suppliers. A bankruptcy filing will only make recovery more difficult and add another financial burden by scaring off consumers who are weary about warranties from a bankrupt company.”
Ghadar says that, for now, the government should do what it takes to keep automakers afloat:
When sales were numbering 15 to 17 million cars a year, there was plenty of room for all of these car companies. As sales dropped to about 10 to 11 million per year, we saw the companies start to struggle. And now, at about 9.5 million cars per year, they are really hurting. But these are not normal economic times, and that number cannot be sustained. We’re destroying about 12.5 million cars per year right now. Sooner or later these cars will need to be replaced and demand will pick back up. We need to see our automakers through to that point.
If we can keep them afloat for a year or so, demand will rebound, and then consumers can choose the types of cars they want and the market can determine what companies will stay in business. At that point, if an automaker can’t survive, it should be allowed to go bankrupt.