The government has said it wants GM’s trip through bankruptcy to be quick, and various stakeholders will have to accept sweeping changes.
Still, the future of the auto giant — and its significant presence in Western New York — is shrouded in questions.
The answers matter to everyone — active and retired workers, dealers and suppliers, and, most importantly, to car buyers.
GM has an engine plant with more than 1,000 jobs in the Town of Tonawanda. Suppliers with a local presence, including Delphi Corp., American Axle & Manufacturing, and other smaller companies ship products to GM. In the eight counties of Western New York, 48 dealerships sell new GM vehicles.
And retirees rely on the automaker for health benefits and pensions.
Here is a look at what might unfold:
1. Employees
Members of the United Auto Workers last week approved revisions to their 2007 labor contract with GM, with 74 percent voting in favor.
If GM went bankrupt, the union felt, it was better to have an amended contract in place.
A lot of local jobs are at stake. The Tonawanda plant has about 1,140 employees, including about 1,010 hourly workers.
About 360 of the hourly workers are on layoff.
The amended contract calls for suspending workers’ cost-of-living adjustments and suspending performance bonuses planned for this year and 2010.
It also eliminates the chance of a strike against GM until 2015 and shortens workers’ break times. A new round of buyout and early retirement offers was included.
Garry Graber, a partner in the Hodgson Russ law firm, doubts the contract will be altered in bankruptcy court.
“A judge won’t change the labor contract unless the company asks them to,” he said.
And he doesn’t expect GM to ask for changes, since the contract was just agreed to.
2. Retirees
The revised contract calls for reducing retirees’ health benefits in areas such as dental and vision programs.
The reduced benefits could lead to an “induced effect” on retirees, said George Palumbo, an economist at Canisius College. If they have to spend more on health care costs, they might cut back their spending in other areas, affecting the local economy, he said.
Retirees will have a major interest in the future version of GM: The union’s retiree health care trust will have a 17.5 percent stake in the company.
3. Plants
GM is downsizing its U. S. manufacturing and plans to announce Monday the closing of 14 plants by the end of 2010 to reduce its capacity and costs.
The Tonawanda plant probably will not be targeted, according to Art Wheaton, director of labor studies at Cornell University’s School of Industrial and Labor Relations in Buffalo.
“They can build more than one type of engine,” he said. “They’re not a one-trick wonder.”
Paul Lacy, who analyzes powertrain operations for IHS Global Insight, was less sure.
The Tonawanda plant is “certainly more vulnerable than some of the others,” he said, citing GM’s decision earlier this year to delay indefinitely a diesel engine line that had been announced for the site.
“Without the previously planned 4.5 liter diesel, the plant seems to be without purpose,” he said.
The plant closings will be costly to their home communities, eliminating about 21,000 jobs.
4. Suppliers
Even before bankruptcy talk began to swirl around GM and Chrysler LLC, suppliers to the auto industry were financially strained. The sharp downturn in auto sales has led to less production, so the automakers need fewer parts.
Both Chrysler and GM plan to idle many of their manufacturing operations for several weeks this summer to reduce their vehicle inventories. Those cutbacks will be felt through the chain, as suppliers cope with reduced business.
“The backward linkage [from automakers to suppliers] is extensive,” Palumbo said.
A GM bankruptcy filing could create more pain for suppliers, depending on the payments they collect. Suppliers might not get paid, or may have to settle for pennies on the dollar in compensation, Wheaton said. “It depends on what deal they cut.”
The federal government’s $5 billion Supplier Support Program is designed to help “tier one” suppliers that directly serve GM and Chrysler stay out of bankruptcy. Some suppliers have called for expanding its eligibility.
Gibraltar Industries supplies both GM and Chrysler, and both companies are current in their payments, said Ken Houseknecht, a Gibraltar spokesman.
While Gibraltar has good relationships with both automakers, the company over the years has diversified, lessening its reliance on the auto industry’s sales trends, he said.
The automakers have a “mutually dependent relationship” with many of their suppliers, Graber said.
“The manufacturer needs them as much as they need the manufacturer,” he said.
It is in GM’s interest to ensure its suppliers survive, he said, but there are limits to how much support it can provide to them.
The Center for Automotive Research believes the survival of the suppliers, like the dealers, requires a quick bankruptcy process.
“If GM and Chrysler are able to emerge from bankruptcy and resume operations within 60 to 90 days, the supplier sector — aided by the U. S. government — could remain viable,” its report said.
Delphi has been in bankruptcy for years, but there is a twist to its situation.
GM intends to reacquire five of Delphi’s operations, including its Lockport and Rochester plants, that were part of GM before the Delphi spinoff a decade ago.
5. Dealers
GM already informed more than 1,100 dealers that it will not renew their franchise agreements as of October 2010. On top of those reductions, it plans to cut ties with its Saturn, Hummer and Saab brands, and drop Pontiac altogether.
Saturn, Hummer and Saab all could survive under new owners. GM intends to concentrate on its Chevrolet, Cadillac, Buick and GMC brands.
Since auto dealers are protected by state franchise laws, GM dealers targeted for shutdown could go to court. But bankruptcy law trumps those franchise laws, giving a GM in Chapter 11 more sway in making decisions about its dealer network.
It’s “very possible” a bankrupt GM could seek to move up the termination date for the targeted dealers or add dealerships to the target list, said Michelle Krebs, senior industry editor with Edmunds.com.
When Chrysler LLC filed for bankruptcy in late April, it named 789 dealerships it planned to drop and set June 9 as the cutoff date. Chrysler LLC is not buying back dealers’ unsold vehicles and parts but has pledged to help arrange the transfer of those items to other dealerships.
Would consumers still buy cars and trucks from a bankrupt GM?
That was a top concern when the bankruptcy threat surfaced for Chrysler and GM. The Obama administration pledged the government would back the warranties of newly purchased GM and Chrysler vehicles to quell consumers’ fears.
It is difficult to pinpoint just how much Chrysler’s bankruptcy filing has hurt its sales, Krebs said, given the industry’s poor overall sales climate.
As for GM, “some customers don’t even know which brands belong to General Motors,” she said. But if bankruptcy becomes a reality, she added, GM dealers likely will field more questions from informed customers about warranties and service protections.
The Center for Automotive Research in Michigan studied Chrysler’s bankruptcy and GM’s potential filing. It distinguished between a process finished within 60 to 90 days, and a drawn-out, more damaging process.
“A prolonged hibernation by GM would put an unbearable financial strain on many suppliers and dealer franchises,” the report said.
6. The government
You own an auto company. What do you do now?
The Obama administration — and by default, taxpayers — must answer that question now that the federal government is about to take big stakes in two of the nation’s storied industrial companies and their joint financing arm. Based on the latest bankruptcy and bailout plans, the government will hold 72.5 percent of GM, 8 percent of Chrysler and 35 percent or more of GMAC Financial Services, the car loan business.
Ideas for what to do with those shares are colored by both politics and investment philosophy, and they’re sure to be debated.
Some economists and financiers believe President Obama should dump the stock almost immediately, to whatever buyer the government can find.
Others say the administration should find a partner, maybe a savvy investor such as Warren Buffett or an equity firm such as Oaktree Capital to operate the businesses for a generous share of any profits on the condition that the government gets its money first.
And some believe Obama should just stick the shares deep into a desk drawer and let the next president worry about an exit strategy. GM and Chrysler will either fail again or become corporate home runs. Only time will tell.
The administration says significant government involvement in GM ends with its efforts to reconstitute the company’s board of directors, which would happen as part of an expected bankruptcy filing by Monday.
White House Press Secretary Robert Gibbs reiterated Friday that Obama did not want to run auto companies.
That’s the right approach, said David Cole, chairman of the Center for Automotive Research.
“Our government doesn’t have a clue about what manufacturing is or how to manage it,” Cole said.
If the Obama administration resists any inclination to meddle in the operations of these companies, taxpayers have a chance to recoup a substantial amount of money they poured into the auto industry, Cole said.
7. The future
Just how quickly GM can move through the bankruptcy process is the next question.
Experts say Chrysler’s case is progressing more quickly and smoothly than expected, but add that GM’s case is larger and more complex.
Resolving GM’s case quickly will benefit the manufacturer as well as the overall economy, Graber said.
“Until the bankruptcy is settled, there’s a lot of uncertainty out there,” he said.
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