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GM, the largest company in the world, filed for bankruptcy relief this week. The government gave GM another 20 billion to usher it into a "prepackaged" bankruptcy and to give it enough cash to operate while it remains in bankruptcy. The administration confirmed that the bankruptcy was needed so that GM could be reborn as a leaner, more competitive, and profitable business enterprise. In bankruptcy, GM is expected to raise cash by selling major assets, cut down and restructure debts, void contracts, shed hundreds of dealerships, reduce union and employee benefits, restructure ownership, and reduce brand names and product lines.
GM is the maker of Chevy, Cadillac, Saturn, Hummer cars and trucks and has been the flag bearer of American business in the last century. It is a sad day for all Americans that this icon of American business acumen has knocked on the door of bankruptcy court this week but the fact is, without bankruptcy protection and reorganization, GM would have collapsed after the 20 billion new infusion of government funds was used up. The cash infusion would have permitted GM to continue operating for another sixty days. Thereafter, without new funds or bankruptcy court protection, GM would not be able to pay its legal obligations. Banks, suppliers and other creditors could no longer be paid.
Isn’t it ironic to say that GM would get reborn as a profitable business after going through bankruptcy? Not in the least. Bankruptcy protects GM from all creditors and legal obligations and permits it to shed unwanted debt while allowing it to conduct business as usual. Thus, bankruptcy provides a protective wall around GM while it reorganizes and reshapes itself. A Chinese equipment maker has offered to buy Hummer, and a racecar driver has offered to buy Saturn as soon as the Chapter 11 petition of GM was filed. The Chinese company will market Hummer in China where it is perceived to be a status symbol for the new rich there. A high end Hummer will retail for $200,000 in Beijing. It’s hard to imagine how an expensive gas-guzzler can sell in a communist country but the Chinese company has made the offer to buy and the purchase is pending bankruptcy court’s approval. The British flag bearer Jaguar was sold to Tata, the largest Indian carmaker, last year. So, it’s not that surprising that the new owner of Hummer will be Chinese. The world economic order has been reshaped in the last 20 years and continues to be reshaped. Colonial powers have ceased to exist for the last half century and the new rich are making their economic strength felt worldwide.
