General Motors Bankruptcy: End of an Era

General Motors Corp.(GM), once one of the biggest and the most profitable companies in the US, has finally filed for bankruptcy under Chapter 11. Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Founded in 1908 by William C. Durant, it was initially set up as a holding company to acquire businesses of other auto makers. It went past Ford Motor Co. as the World's largest automaker in 1932, a position it held on for close to 76 years. Faced with stiff competition from Japanese car makers like 'Toyota' and 'Honda' in the late 80's, GM started offering heavy discounts to its dealers to push sales. However, it lost out to the competition on fuel efficiency parameters. GM reported a loss of US$ 8.6 billion in 2005, and since then it has been a downhill story for the once prized company. The recession of 2008 was the last nail in its coffin.

The bankruptcy is likely to lead to major changes and job cuts at the battered automaker. But President Obama and GM CEO Fritz Henderson both promised that a more viable GM will emerge from bankruptcy. The US Federal Govt. will pump in funds to the tune of US$ 50 billion to fund its operations during re-organisation. GM will ultimately become a state owned company with 60% Govt. stake, a victim of 'Laissez Faire' capitalism. The re-organisation will result in closing down Brands and dealership and cutting fresh jobs in excess of 100,000. Owners of current GM shares, which closed at under $1 a share on Friday, will have their investments essentially wiped out. According to GM's bankruptcy filing , the company has assets of $82.3 billion, and liabilities of $172.8 billion. That would make GM the fourth largest U.S. bankruptcy on record. The company that lost the global sales title to Toyota last year, is likely to slip further.