I have been interested in reading the massive downturn in the Ca Manufacturing industry for a while now, but only now, after reading about GM have I felt the need to put it in words.

Cars are essentials- almost as essential as clothes these days and it is astounding to see how the financial turmoil has thrown some of the biggest companies in the world into their worst situations. GM has gone into bankruptcy and the Obama Govt. is taking over its management. This raises a lot of questions – starting with what events led it to its bankruptcy? How will the US Govt. control the company while also being a major stakeholder in Chrysler? What will the result of standing on the two opposite fronts of the Carbon emissions issue be? What will their attitude towards using imported parts be? How will the trade policy issues be treated?

The numbers are both shocking and astounding. The important elements involved in the process are as follows –

* The bondholders are to surrender US$ 27.1 b in unsecured debt in exchange for 10% equity in the new GM (also dubbed as Government Motors now – amusing much?),
* the United Automotive Workers’ Union will take over health care obligations of retired workers in return of 17.5 % stake in the new GM,
* 14 plants close down in the US resulting in 21000 work cuts,
* 42% of their dealerships are axed and
* The Canadian government taking a 12% stake.
* Hummer and Saab sold by GM.



The ex CEO of GM claims that the main problems to throw GM over the line not only involved the current financial crisis but also its rather generous health schemes for its employees and the bitter fact that its cars did not hold a lot of popularity in general public. Eventually, adding to those financial complications was the invariability of the doom in the car industry affecting GM adversely. The sales went down drastically – in Australia alone, the new car sales went down by 20.3%. The price of its shares as of Friday stands at US$.75 cents as opposed to US$ 93.62 in 2000.

Obama’s take over is also a very contradicting move breaking the general tendency of the nation’s commitment to private sector, which is only one of the many contradicting situations arising from this. The US government is also a major stakeholder in Chrysler, a competitor. How independent will the management be considering the implication affecting rival companies, especially in these do-or-die circumstances? Obama instigates that this is only a temporary move and that eventually the control will be moved back to private sector. How much damage will be done by then? His government’s management of these potential conflicts will come under a lot of scrutiny. A statement of intent or nominating a person/body vote the shares will not be sufficient and I hope, with the belief that I have in Obama, he will not stop at that. The effect of his government funding reaching the companies outlets overseas is debated upon considering his strict policies on usage of the taxpayers’ money.

This downfall and downsizing will further the unemployment problem in the US. Will it be able to handle all this? Will it worsen the economic crisis? Will Obama actually turn things around or is it an impossibility? Will this affect his favour ratings? To what extent will this affect markets globally? I have a feeling this bankruptcy will end up being another big thorn in a dying rose bush in this season of an extremely dry summer.