BAILOUT OR bankruptcy: these unsavoury options seem the only ones open to General Motors and, in turn, European governments faced with rescuing its operations here. The automotive giant is currently dependent on multi-billion dollar US government bailouts to keep it afloat. With an estimated one in ten US jobs linked to the motor industry, the closure of GM would seem to be too frightening a prospect for an already crippled US economy to contemplate.
Yet even with this support, the firm’s future remains uncertain. A viability plan, submitted to the US treasury last month, was based on an annual US new car market of at least 11.5 million vehicles. Actual sales for the first two months suggest the reality may be as low as 9.3 million this year. GM’s auditors, Deloitte and Touche, last week expressed “substantial doubt” about its ability to continue as a going concern.
As it struggles for survival, its loss-making European operations are being forced to sink or swim on their own. GM has warned that its European arm may run out of cash in the next two months, with up to 300,000 jobs at risk.
The US administration is understandably loathe to have its taxpayers’ money spent supporting European jobs. That was evident from the decision to cut adrift the loss-making Saab brand. GM’s chief executive Rick Wagoner has made clear he “envisions no scenario where we continue with any significant ownership”.
Other European governments, particularly Germany, must now decide how they will react to requests for up to €3.3 billion in support. GM says it needs to keep the likes of Opel and Vauxhall in business. In return for a bailout it has offered a 50 per cent stake in a new European holding company. European politicians have been less than enthusiastic about the plan.
The reality is that even with massive government bailouts on either side of the Atlantic, a great deal of pain lies ahead for the motor industry. It produces far too many cars for a rapidly shrinking market. Recovery seems unlikely for at least three or four years.
Sales based on scrappage schemes and discounting belie the fact that production levels must be dramatically cut. That invariably means factory closures and job losses. By taking a stake in GM Europe, politicians would then become directly involved in wielding the axe. That’s something they are clearly determined to avoid. Yet the alternative looks equally bleak. GM and its European brands don’t seem to have many other options.