Preface to a new GM

GM: What drove General Motors into bankruptcy? It’s tempting to blame the broader financial crisis, which torpedoed the US economy, slashed car sales and shut carmakers out of the capital markets. That certainly precipitated the demise of America’s largest carmaker. But it was not the ultimate cause.

Insolvency has, in fact, been stalking GM for several years, as our accompanying collection of Breakingviews.com articles shows.

IN April 2005, for example, while markets were worrying about rating agencies downgrading the manufacturer’s debt a notch or two, GM’s onerous unfunded healthcare and pension liabilities looked to have punched a multi-billion-dollar hole in its balance sheet. That suggested a filing for Chapter 11 protection looked like the only way to get GM back on track.

That’s not to say GM’s executives sat back and did nothing. In the past four years they have halved the shop floor workforce in the US, laid off white collar staff in droves, renegotiated union contracts and healthcare costs and sold businesses like Allison Transmission and GMAC, its financial services arm, to raise cash.

None of that was enough. GM was losing market share faster than it could shrink its operations, even before the precipitous declines of the more recent credit crunch. And other measures were either slow to materialise, such as slashing the dividend. Or they were shunned as taboo by then chief Rick Wagoner, such as shuttering or selling some of GM’s eight brands, whose products often competed for consumers’ attention.

Even this past year, while on government-funded life support and under imminent threat of bankruptcy, GM executives moved too slowly. They twice had to revise their rosy assumptions for their restructuring plan and could only watch as Ford - which has received no aid from Washington - was quicker to strike deals with the unions and its creditors.

Though Breakingviews.com has argued strongly in favour of GM seeking bankruptcy protection, we take no pleasure in being proved right. With luck – and with the generous support of US and Canadian taxpayers whose $60bn or more of loans are unlikely to be repaid in full – the expedited bankruptcy process the Obama administration is steering GM into will allow the company to emerge in a position to compete profitably again. If not, another bankruptcy will be on the cards.