Don't let General Motors go bankrupt


The events of the past week have been unprecedented in the auto industry and in the annals of American business.

As the events have unfolded, there is the strong implication from the administration's automotive task force that Chapter 11 bankruptcy, followed by restructuring and "cleansing" of General Motors' balance sheet, is a potential scenario in the ongoing efforts to keep the giant automaker alive.

GM's new chief executive, Fritz Henderson, acknowledged as much on CNN Sunday. "You can't rule options off the table. So you basically say we will spend time to try to get it [done] outside of bankruptcy. But if we can't, we're not going to compromise our goals. We're going to get it done inside our bankruptcy. Our preferred approach is still to do it outside, but you can't rule out going in."

Over the past few weeks pundits of all stripes have appeared on financial news networks suggesting that entering Chapter 11 is GM's only way to future viability. "Get on with it," they say, and save us the agony.

It is the only way, they argue, General Motors can get relief from its immediate cash-flow issues, tear up or substantially modify its union contracts, dump unnecessary brands, close plants and "right-size" its operations. But those pundits who propose Chapter 11 fail to acknowledge that General Motors is a consumer-facing company whose success or failure is in the hands of millions of average Americans.

This group will decide to buy or not buy General Motors vehicles based on what they know, hear and even feel about GM's future. As talk of imminent bankruptcy swirls in the press, the news they hear about General Motors certainly is not reassuring, as they consider which brand to buy.

How does that manifest itself in the car-buying public? We at Kelley Blue Book asked 500 potential new-vehicle buyers a string of related questions that yield answers to that multi-billion dollar question. Their response is telling.

Asked "How likely would you be to buy a car from General Motors if they were to go bankrupt," 42.1 percent of new-vehicle buyers said they were either "not at all likely" or "not very likely" to do so.

Even with a warranty guarantee from the federal government, consumers are not very enthusiastic about considering a GM purchase. Such a guarantee only moves the needle about three percentage points with 39.8 percent saying they were either "not at all likely" or "not very likely" to purchase a GM vehicle in such a situation.

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Date published: Apr 06, 2009


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