2015年08月06日

The Po[censored] r Auto Companies Unavoidable Fate

General Motors which was earlier the top auto maker in the world has fallen down from its dominancy to become shadow of what it was in the past. Most recent talks are that the company's auditors are not sure about the finances and how to sustain the operating expenses without going bankrupt.

The predicament faced by GM is not understood clearly by the people. The only question to be posed in front of us is that whether the government should help the company by providing bailout or just leave it on its own to bankruptcy. The company's business model is a total failure so it is wise to think whether reorganizing its business model will have any positive impact. The fundamental difficulty that the company faces is a cynical feedback loop. The company's trouble is exposed and known to everyone but it hopes to get back in shape through restructuring through heavy leverage given to investors and unions. But it has no other option except to file for bankruptcy as it makes much more sense but it gives raise to another problem. No one would buy a product for $30k, $20k or higher from a firm that is going bankrupt. If you are still doing it, you would one among the very few people doing it. The company proposed its restructuring plan based on the high sales that are expected in the coming years. The bottom line is that it would require quite some time for sales to recover hence its plan would be a total failure considering its high estimated sales.

There is another problem for which GM cannot be held responsible but the poor state of private financing is to be blamed for. Whenever a company declares it has gone bankrupt it gets financing to save the company and its employees. This financing is monitored under bankruptcy court so that it gives assurance to creditors. The only hope that GM has is getting bailout from the Federal Govt., though it has already been given funds of over $10 billion, it really had a minimal effect. So the company has asked for another $30 billion. In reality, the sales projection for the next year looks not so promising hence the company actually needs around $100 billion. This may cause confusion as to whether to save GM or just let it go down. There is no point in investing $100 billion in a company that has no clear way to make profit. If we still go ahead at the cost of tax payers' money it is unlikely to yield desirable results considering the economic situation. This po[censored] r auto maker did report that its own survival was in doubt and the White House said that assisting the auto industry was a priority.

GM had its own time in the past prospering but its high time to let it cease. Other companies like Ford and other manufacturers will come in terms and come up with pragmatic business models to win customer's trust.

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posted by edwinmarshallt at 10:20| Comment(0) | 日記 | 更新情報をチェックする
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