General Motors Faces Fresh Bankruptcy Concerns Amid Losses and Market Decline
With US government still holding a major stake, GM’s share price and losses in Europe have renewed debate over its stability just three years after its historic bankruptcy.
General Motors’ financial stability again came under scrutiny in August 2012, with analysts and columnists highlighting continued losses in Europe, declining US market share and a persistently low share price. Just three years after its historic Chapter 11 bankruptcy and government-backed restructuring, some questioned whether the company could face further trouble if trends continued.
GM filed for bankruptcy on 1 June 2009, listing assets of $82.29 billion and debts of $172.81 billion. The US government stepped in with a $30.1 billion investment to support the company’s reorganisation, following $20 billion in earlier aid. The resulting ‘new GM’ shed brands such as Hummer, Saturn and Saab, and aimed for a leaner, more competitive operation.
By August 2012, the US Treasury still held a 26% stake in General Motors. To break even on its investment, the government would have needed GM shares to reach $53, but the price hovered around $20. This translated to an unrealised loss of $16.4 billion for taxpayers, according to analysis published by Forbes. Compared with its value at the company’s November 2010 IPO, the government’s stake had lost about 39%, while the Dow Jones Industrial Average had risen by nearly 20% in the same period.
Market share and European losses
GM’s US market share, once nearly half the market in 1960, had dropped to 18% for the first seven months of 2012. That was down from 20% in the same period of 2011. The decline raised questions about the competitiveness of its model range, especially in the crucial D-segment of mid-sized family saloons, where the Chevrolet Malibu faced strong rivals from Ford, Honda, Hyundai, Nissan, Toyota and Volkswagen.
In Europe, the company’s Opel division remained a major source of losses. GM reported a $361 million loss in the region between April and June 2012, with Reuters reporting that Opel was producing around 500,000 vehicles a year in excess of demand. This overcapacity, combined with weak European consumer confidence and the ongoing eurozone debt crisis, put further pressure on the company’s global finances.
Outlook and debate
While some commentators argued that GM’s product line-up and profits since bankruptcy suggested recovery, others pointed to the continued government stake, falling share price and weak performance in key markets as warning signs. The prospect of a second government bailout was raised in some quarters if the company’s fortunes did not improve, especially given the political context of the 2012 US presidential election.
GM’s future depended on its ability to regain market share with new models and to stem losses in Europe. The launch of the redesigned 2013 Chevrolet Malibu was seen as a test of whether the company could compete in the most important US car segment. Early reviews, however, were mixed, with some analysts doubting it could match rivals or even its predecessor.
With the government still a major shareholder and the company’s performance under close scrutiny, the next year would prove critical in determining whether General Motors could sustain its recovery or would again require intervention.
