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May 29th, 2009

Govt is Betting on GM’s Recovery, Are You?

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What is it about General Motors? Why does our government continue to pump billions of taxpayer dollars into this company? They’re making a bet with our money that we’re pretty sure most taxpayers wouldn’t take. What it comes down to is that the government is supplying GM with what could amount to almost $50 billion to emerge from bankruptcy quicker and stronger. But what if they don’t?

Experts predict it will take GM 6-18 months to return to a publicly-traded company. Washington has gone “all in” on the hope that the automaker’s restructuring — freeing themselves from under a mountain of debt, slashing high labor costs, cutting out half of their product lines, and slimming their inventory — will lighten the load enough to get them on the profitable side of the ledger. But there’s one problem that all the Federal money in the world can’t solve: how do you get consumers interested in buying GM vehicles?

That problem, according to the White House, sits squarely on the shoulders of GM:

“We’re not going to run advertising campaigns or take charge of brand rehabilitation,” said an Obama administration official.

Since it’s your money that the government is pledging to rescue this automaker, we want to know if you think it will work. After all the time, money, and effort that has been dedicated to GM, will they return return to profitability, or will they re-fail?

Will GM emerge from bankruptcy a better company?

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10 Responses to “Govt is Betting on GM’s Recovery, Are You?”

  1. Gordon Says: May 29th, 2009 at 12:25 pm

    It’s all about fuel efficiency. If GM doesn’t want to make fuel efficient cars, then they will ultimately fail in the long run. In order to keep pace with the foreign automakers, GM is going to have to move away from the gas hogging SUVs that have been their bread & butter for the last 10 years. I think Americans are slowly realizing that the worlds oil resources won’t last forever and if GM can jump on board, then they can pull out of this funk their in.

  2. Tim Manni Says: May 29th, 2009 at 12:37 pm

    Hey Gordon,

    I know for a fact there are a lot of people who agree with you. I just read that crude oil prices could be making their largest monthly gain in a decade! Whenever the time comes when you will be purchasing your next vehicle, will fuel efficiency factor into your decision? Would you lean more towards a domestic or foreign company?

    I hear you loud and clear on the mileage, but what about dependability? GM isn’t exactly know for their high-mileage/dependable vehicles. Granted, there are GM vehicles out on the road that are over 130,000 miles, but GM certainly doesn’t hold the same reputation of dependability as other companies.

    Any thoughts?

    Thanks for commenting,
    Tim

  3. Gordon Says: May 29th, 2009 at 1:10 pm

    It just so happens I am currently in the market for a new vehicle and will most likely be purchasing one by year end. Fuel efficiency & dependability will definately play a role in making my final decision.

    I have only ever owned American made SUVs, however I am 90% sure my next car will be neither American or an SUV. It seems like the American car companies are being stubborn with regards to making fuel efficient, reliable cars. The technology is out there to make far superior cars then what GM is currently producing. I realize special interests (big oil) have a hand in this, but look at the condition GM is in right now. Somethings gotta change.

    I think the Obama administration is taking good strides to try and bring the American carmakers in line with the rest of the world. Imposing taxes on any cars that don’t fit into a certain fuel efficiency standard is a good step. Hopefully the fate of GM will provoke the other American carmakers to come around

  4. Tim Manni Says: May 29th, 2009 at 1:26 pm

    Gordon,
    All very interesting. It’s a good thing that you’re in the market for this type of vehicle in the short term. I’m in the process of writing an article about the cost of smaller, compact, more fuel-efficient vehicles is going to rise significantly in the next few years.

    While Obama’s new fuel standards are good for both the environment as well as consumers trying to save on gas, they are going to cost the automakers money to implement the new technology on their assembly lines. Months ago the Big Three (GM, Ford, Chrysler) were given approx. $20 billion to fund the research of “greener vehicles.” So while they did get some funding for research, I’m betting the new fuel regs will cost them to implement.

    Also, with all the plant closings and their “new and improved” slimmed down business model, automakers (not just domestics) have and will continue to sell less vehicle than years before — but this time they’ll just cost us more.

    Good luck with your search,
    Tim

  5. Mickey Herley Says: May 29th, 2009 at 2:39 pm

    American automakers became complacent with record profits year over year. But, the domestic research and design teams seem to have been caught behind the 8 ball. As foreign companies invested time and money into fuel efficiency and hybrid technology, the domestic automakers increased production of “bigger and better” SUVs.

    As a result, domestic inventories have become stale and jobs have been eliminated. Dealerships are now being forced to close because their lots are clogged with cars that no one wants. Consumers are still in need of cars. However, engine size and horsepower may be of lesser importance than fuel efficency and MPG.

    With little to no option in the Big 3, consumers have been forced to spend elsewhere. In order for GM, Ford and Chrysler to survive this administration must oversee a strategy to keep consumers here. What good is a company that has been “rescued” if it is still attempting to sell the same stale inventory? Evolution happens, the key is to stay ahead of the curve.

  6. Tim Manni Says: May 29th, 2009 at 3:46 pm

    Mickey,

    You made some great points that remind me of some older posts we wrote on this subject. The administration has time and again dumped billions of our dollars into GM and Chrysler (somehow Ford has emerged independent) without implementing any incentives for consumers. Sure there are the 0% financing, employee pricing, and the “we’ll make your payments if you lose your job” incentives, and while I’m certainly not discounting their importance, they’re simply not enough. Washington decided long ago to invest in these automakers, so there’s little my whining is going to do to change that. But they should have used all that money to generate consumer demand instead of fighting this monetary, uphill battle with retiree pensions, bond holders, UAW officials and so on.

    What’s going to change after they emerge from bankruptcy?

    Thanks for commenting Mickey, hope to hear from you again soon,
    Tim

  7. Lucia Says: May 29th, 2009 at 8:03 pm

    What’s going to change after they emerge from BK is that they will make only small light cars just like the govt ordered. Some consumers will buy them, but I think a lot more won’t. SUVs and light trucks were popular, contrary to the opinions of mostly city dwellers. Most Americans want a safe, roomy, comfortable vehicle, and many will be reluctant to let go of their older larger vehicles. When talking with strangers about what they drive, most are supportive of gas sipping vehicles because they are “good for the environment” but say they can’t afford to buy one. Older vehicles don’t have a payment, which is important for those without jobs.

  8. Tim Manni Says: May 29th, 2009 at 8:22 pm

    Hey Lucia,

    I’ve been thinking about the whole bailout thing a lot lately (as I’m sure you can imagine), and no part of me feels bad for these automakers. If your business model fails and you go “hat in hand” to the govt, you’re at their disposal…I know it may not necessarily be right, but that’s what happens. The old biz model failed, so here’s a new one. For their sake, they shouldn’t completely abandon the larger vehicles — as you pointed out — there is still a market for them, I think we both believe there will always be. Also, I think gas prices have a lot to do with things. I know we’ve talked about this before, but I’m dying for the day my car payment runs out…I just know if my Ford will last that long.

    Always a pleasure, thanks for commenting,
    Tim

  9. Mitch Says: May 30th, 2009 at 12:02 am

    Sure, once again I stand alone; for now. lol

    Truthfully, I think there are some institutions that are just so American that they can’t be allowed to fail. That may be too much patriotism coming out, but hey, I’m a military kid. I really do believe GM is worth saving, and if it can be saved, would be a great testament for how business and government really can work together for the greater good. No, the greater good isn’t GM; the greater good is jobs, and lots of jobs.

    GM could have moved all their plants out of the country like some others did, and this would be a much different conversation. I think that kind of American loyalty deserves to be helped, even if they did mismanage themselves into this mess. So, I’m hopeful; eternal optimist maybe.

  10. Tim Manni Says: June 1st, 2009 at 11:35 am

    Mitch,

    Do you think the re-organization will be a success? I think the fact of job loss is forgotten by a lot of critics. The administration is really getting blasted for creating “Obama Motors,” so for their sake, and mine, I really hope it doesn’t turn into that. Patriotism is certainly not lost on me either, and so I truly hope this company removes themselves from under Washington’s umbrella asap.

    Will consumers buy back into the new GM after bankruptcy?

    Great comments, thanks,
    Tim

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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