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General Motors (GM)
General Motors files for bankruptcy
Another one bites the dust. After months of speculation and recovery attempts, General Motors has finally reached a much anticipated ending. General Motors filed for bankruptcy Monday morning, submitting its reorganization papers to a federal clerk in Lower Manhattan. Today's filing marks the second company out of the Big Three that has filed for bankruptcy protection. Chrysler filed for Chapter 11 bankruptcy protection in April, so that leaves Ford (F: Charts, News, Offers) as the last company standing. What does this filing mean for the future of the automotive industry? How will GM's bankruptcy impact an already bruised and beaten economy?
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| Stock Analysis |
The last two years have been extremely hard for the auto industry. As the housing market spun out of control, people had no choice but to reevaluate their spending habits. Although purchasing a new car was enticing to many Americans, they were forced to take their income and use it for basic necessities. The economy continued to crumble and American carmakers ended up crumbling along with the economy. Even the government's intervention and billions in bailout funds just couldn't pull some companies out of the downturn that many of them were experiencing. Unfortunately, GM was one of the companies that couldn't make this turnaround on its own. The actual filing by GM was very anticlimactic because it had been the subject of speculation for months now. Nonetheless, the filing still caused a wave a various emotions as Americans watched a company that has been woven in the history of the United States reach such an unwanted ending.
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The future of the auto industry is still a very gray area. The bankruptcy filings of both Chrysler and General Motors have already started to impact the industry. Last month, both automakers started shutting down various dealerships across the nation. Those closures impacted employees, companies that did business with the dealerships, and towns that depended on the dealerships as sources of revenue. Under the reorganization, an additional 21,000 union workers will lose their jobs, 6,000 dealerships will close, and the government will have to infuse another $30 billion in the troubled automaker. The government will also be swimming in uncharted waters by owning such a large stake in General Motors during its reorganization. The government's intervention in the company may be just what the company and the industry needs to get back on the right track or it may end up causing more havoc than before. At this point, anything to help the company survive is worth trying.
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There is no doubt that the economy will be impacted by the bankruptcy of Chrysler and General Motors. As previously discussed, with this reorganization comes more job losses and dealership closings. That will put a strain on an economy that has already seen record growth in the amount of individuals losing their jobs and filing for unemployment benefits. Other industries that rely on automakers such as General Motors may also end up taking a beating or even possibly closing. The Obama administration is committed to softening the blow to the economy as a result of this decision. Hopefully this commitment will prevent the economy from heading back in the wrong direction and erasing any progress that it has recently made.
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All taxpayers can do is wait and see if the investment in the General Motors will pay off. Many people speculated that this day would be come, but it's still a hard thing to watch unfold. The once powerful GM earns a place in history as the largest U.S. industrial company to file for bankruptcy protection. GM's stock tumbled to the lowest price in the company's 100-year history on Friday, closing at just 75 cents after trading as low as 74 cents.
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Profile |
Click here to view a detailed profile of General Motors.
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