What You Need To Know -
What does bankruptcy mean? Is GM out of business? No, GM is not out of business. Within the framework of the bankruptcy, a "new" GM will continue to function and take on the assets of the old one. The automaker, however, is expected to close 14 plants and restructure its operations while protected from some of its most costly contracts, creditor's demands for repayment, and other financial obligations. It will now try to shed many of its obligations permanently. Under current plans, it will not be publicly traded during the bankruptcy.
How long will the process last? GM intends to undergo a Chrysler-style "surgical" bankruptcy, but it will still take at least 60 to 90 days. The process is designed to make the automaker viable as quickly as possible while allowing it to maintain its value as a manufacturer and to become a more efficient competitor. But GM is a much larger and more complex company than Chrysler is, and, as a result, it could take longer to emerge.
Have any other car companies gone through bankruptcy and come out successfully? Before this year, no major U.S. car company had ever gone through a bankruptcy. Once they are in mortal danger, automakers typically stop production or merge with a larger firm (as AMC did with Chrysler Corp. in 1987.) Ford Motor Co. was in dire straits after World War II, but it pulled out of its nose-dive with the help of a strong postwar market and a now-legendary, top-flight management team known as "the Whiz Kids." There hasn't been a bankruptcy since the early days of motoring due to fears that consumers won't buy cars from a bankrupt company.
What about other major non-automotive companies? The record is mixed. United Airlines is one of the best-known U.S. firms to come out of bankruptcy. It filed in 2002 and emerged four years later, but not without drastic cuts. By contrast, Bethlehem Steel, once the second-largest U.S. steel producer, was dissolved in 2003 about two years after filing for bankruptcy. In one of the most famous cases in recent years, energy trader Enron went into bankruptcy in 2001 and then sold or spun off many of its assets, following years of accounting fraud. Now wrapping up its liquidation, it has basically ceased to exist.
What happens to my warranty? GM and its dealers are required to honor warranties, and the Obama administration is already backing up these programs up with a portion of its $50 billion aid package for the auto industry. So the automaker will be able to reimburse dealers for replacement parts and warranty work on your vehicle. And even if your dealership is one of the more than 2,000 closing by 2010, you can still go to another GM facility to have warranty work done. It would be good to safeguard your maintenance records, however. Your vehicle has to be maintained to company standards to be eligible for warranty repairs, and you might have a hard time proving that it was if your records are not available to you.
How much of GM is now owned by the government? The federal government is due to own about 60 percent of GM, the Canadian government 12.5, and the UAW union 17.5 percent. Bondholders are scheduled to take a 10 percent stake in the new GM, but their share could rise to 25 percent.
What incentives on GM vehicles can consumers expect during the bankruptcy? Expect higher cash rebates and/or more generous financing deals. Dealers will have to sweeten their offers to move new vehicles off their lots. During the first month of the Chrysler bankruptcy, the cash rebates on most models were up $500, to as much as $3,000 or $3,500. One example: The incentive on a Dodge Grand Caravan went from $1,500 to $2,000. "A 33 percent increase in rebates is significant," said Tom Libby, an independent auto analyst in Detroit. Some industry analysts even believe that as much as $5,000 to $10,000 could come off the price of some models. They suggest shopping at the dealerships that are closing to get some of the best deals.
How will the bankruptcy affect the resale value of my used GM vehicle? Resale value will decline substantially, if the track record for Chrysler's vehicles during its first month of bankruptcy is any indication. According to the Automotive Leasing Guide, the projected resale value of Chrysler vehicles after three years fell by an average of six percentage points after the automaker filed for bankruptcy. If a 2009 Chevrolet Malibu were to drop at that rate, it would be worth $6,568 instead of $7,864 in 2012. But resale values could rise again if GM's restructuring proves successful.
How will the bankruptcy affect the availability of replacement parts? GM is obligated to make parts available to its dealers and customers. But the bankruptcy does put parts availability at risk, particularly if it lasts for months. Supplier bankruptcies and shutdowns are already rippling across the country. GM depends on contractors for most of its original and replacement parts. As the bankruptcy interrupts the flow of cash they need for their operations, they may shut production down. But the damage won't be limited to GM. Auto suppliers are highly interconnected, with each other and every automaker in the U.S.
Will the cost of insurance for GM vehicles rise? The American Insurance Association says it is hard to predict insurance rates for GM products, given the complexity of its bankruptcy. In general, however, shortages of replacement parts could push up their prices. Since vehicle components represent half the cost of repairs after an accident, this could in turn put pressure on insurance rates. Consumers may be better off if their insurer allows the use of non-manufacturer parts for repair work after a crash. A number already do, although sometimes just for older vehicles.
What model lines are likely to survive the GM downsizing? GM has already announced it will eliminate its Pontiac brand and plans to sell or shut down Saturn, Saab and Hummer. But GM is keeping its Buick, Cadillac, Chevrolet and GMC lines and is likely to make product decisions based on sales, fuel economy and profit per vehicle. The new federal fuel economy standards may force GM to keep cars like the Chevrolet Aveo and Cobalt in its lineup. High-profit Cadillacs, the Chevrolet Silverado and GMC Sierra pickups are likely to survive, as are GM's contenders in hotly contested segments, such as midsize cars. For example, it would be difficult to imagine GM doing without a Chevrolet Malibu in that arena. Even some classic SUVs could survive due to their high profit margins, Libby said.
