Print
Email
Discuss this article ( Comments)
zoom
Iconic carmaker General Motors hit the wall last week when it filed for bankruptcy in a New York courtroom. With Chapter 11 proceedings underway, a leaner, stronger company is expected to emerge from the wreckage - but at what cost?
It was once a motoring industry colossus that epitomised the dominance of corporate America. But after 101 years of selling cars, General Motors last week became the largest US manufacturing company in history to declare itself bankrupt.
On June 1, the US automaker filed for Chapter 11 proceedings in New York, in a bid to give GM's beleaguered management time to reorganise the stricken business, which has $82.3bn in listed assets against $172.8bn in debts. The global recession and frozen credit lines have hastened GM's demise, but bosses now have a maximum of 90 days to arrest a slide that has gathered pace over a matter of years, not months.
Among the plans, the company is expected to shed thousands of US jobs, offload various underperforming divisions and dealerships, and carry out a management reshuffle. Tens of thousands of autoworkers in the US and Europe are likely to be affected, although GM Middle East president Mark Devereux claims the fallout will have no effect on this region's 11,000 workers.
It's one less concern for the US company, which is banking on a $30bn government investment to stay afloat. The sum is in addition to the $20bn of US taxpayers' money that GM had already received in emergency loans prior to last week.
In exchange for its latest cash injection, the government will claim a 60 percent stake in the business - and US president Barack Obama will be using that stake to press a restructuring programme that will drastically change GM, with some 21,000 US workers thought likely to lose their jobs as the firm pares down its operations.
The carmaker currently has 173,000 employees across the US, Canada and Mexico, and the cuts will represent 34 percent of the global workforce. Around 2,600 dealerships will close.
While admitting such action will heap more misery on GM autoworkers, president Obama appealed to those caught in the fallout to stand firm at a crucial time for the future of the American manufacturing industry.
"I know you've already seen more than your fair share of hard times," he said. "I want you to know that what you're doing is making a sacrifice for the next generation - a sacrifice you may not have chosen to make, but a sacrifice that you are nevertheless called to make so that your children and all of our children can grow up in an America that still makes things."
The restructuring programme will also see GM chief executive Frederick Henderson replacing some existing directors with fresh blood. It's thought that the government will help choose the new faces to take the company forward.
GM plans to retain its core brands, Chevrolet, Buick, Cadillac and GMC, while Chinese manufacturing firm Sichuan Tengzhong Heavy Industrial Machinery is set to buy its Hummer division, for less than $500m according to some analysts. The US automaker is also hoping to offload its Saturn and Saab brands and wind down the Pontiac division.
Failure to meet these objectives could have a devastating effect on the company's turnaround strategy, according to Maureen Kempston Darkes, group vice president and president of GM Latin America, Africa and Middle East.
"GM has contributed so much to the economy, and so many jobs are dependent on it: millions, just millions," she tells Arabian Business. "But more than [the people GM employs directly], it's also about all the suppliers, the dealers.
"It would be a huge downtake on the US economy if we didn't get GM right," she says. "Clearly we need to get through this, we need to get back on a solid foundation and move forward and that is what we are committed to doing."
Changes may be afoot in the US, but it is business as usual for the company's operations in this region. A day after president Obama outlined GM's recovery strategy, Middle East chief Devereux told Arabian Business that the restructuring will have no impact over here.
"The only thing we have to make sure people understand, is that there isn't anything for people to think differently about the car they own or the car they are going to buy because nothing has happened here," he says. "We have some restructuring that we are doing in the US and that's about it. Our office in the Middle East is not part of the filing.
"We are a self funded, vibrant, profitable company, as many of the units outside the US are for GM," Devereux adds. "While the events are very large and important in the US, commercially here for us in the Middle East, what happened yesterday is a non-event.
"Our dealers are open for business, warranties will be honoured, spare parts will flow, dealers continue to invest in new facilities both for selling and servicing vehicles; there is nothing that should deter anybody from buying one of our products."
The company has no plans to close any of its 20 dealerships across the GCC, Levant, Iraq and Yemen. In fact, Devereux reveals it will launch various new models this year, including a new Camaro, Chevrolet Cruise and Malibu, as well as two cross-over SUVs, a GMC Terrain and Cadillac SRX.
"The product onslaught from GM continues unabated and we look forward to continued success that we have been enjoying over the last few years," he insists.
