Tuesday, June 2, 2009
Yesterday, General Motors entered bankruptcy protection as Chrysler emerged from it. Both historic actions raise a number of questions -- especially for those who own vehicles made by the two struggling automakers.
I have a GM, Chrysler or Dodge vehicle. Is my warranty still good?
Yes, under the terms of the federal government's Warranty Commitment Plan announced in March. Extended warranties also are honored. The same is true for Chrysler and Dodge vehicles. Owners of GM vehicles purchased before bankruptcy will continue to have their warranties honored by the company.
Does bankruptcy mean GM is going out of business?
No. GM is entering a Chapter 11 restructuring in which a troubled company goes to court and asks for protection from its debts and time to figure out what to do next. Typically, debt-holders get a percentage of what they are owed so the company can remain in business. Another type of bankruptcy, Chapter 7, is a going-out-of-business exercise. It's when a failed company is sold off for parts.
What if I own a Hummer or a Saturn?
GM has been shopping its Hummer and Saturn brands. Their warranties will still be honored by the manufacturers, even if they are sold to a foreign automaker, GM said yesterday.
Is my GMAC loan affected?
Will my OnStar service be interrupted?
No, GM says.
What happens to shares of GM?
Because of the bankruptcy, GM will be delisted from the Dow Jones industrial average on June 8 and its shares will become worthless. If GM emerges from bankruptcy, it will do so as a private company and then stage an IPO to go public, the company said yesterday. The shares still have a few days to live, however, so professional traders are buying and selling them to manipulate the price for profit. Also, says the Motley Fool's Joe Magyer, some novices don't understand that the shares will soon be worthless.
How did GM end up in bankruptcy?
That's a complex question that will be debated in business schools for years to come, but a few obvious reasons stand out.
For decades, GM was a virtual monopoly in the United States and adapted slowly to change when the oil crises of the 1970s hit and the Japanese imports started streaming in.
Also, GM was forced to capitulate to escalating union demands for years that not only drove up wages, making GM less competitive with foreign automakers who paid their workers less, but also burdening GM with billions of dollars in health and retiree costs, which also drove up the cost of making vehicles.
Finally, GM depended too heavily on high-profit trucks and SUVs in the 1990s, essentially giving up the passenger-car market to foreign automakers. Even though GM was able to win the promise of wage and benefit concessions from the union in 2007, they would not kick in until 2010. When gas prices soared to $4 per gallon, the recession hit and the credit markets froze up last fall, it was more than GM could withstand.
-- Frank Ahrens