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The GM bankruptcy

Yesterday, GM filed for bankruptcy. No surprise, and Flexo on Consumerism Commentary offered a great post titled “What General Motors’ Bankruptcy Means For You” which was well organized and addressed the employees and retirees, vehicle owners, and stock and bondholders.

I’d like to dig a bit into two aspects of this bankruptcy. First, the creditors, which includes supliers. I found a copy of the General Motors’ Creditors List, and it made for interesting reading. No, really. This list contains the top 50 creditors, starting with Wilmington Trust, at $22.7B, and the UAW at $20B. But by the time we get to position number 16, we are looking at only $26.7M for American Axle, one of their subcontractors. Remember, much of the content of a car are componants which are purchased from Tier 1 suppliers. (The phrase Tier 1 refers to the vendors who sell to GM and other car manufacturers. These include many of the creditors listed as trade debt on the list. Tier 2 are subcontractors or vendors to the Tier 1 vendors.) Banks will feel the impact for sure, but as GM morphs into the new company ahead, those Tier 1 vendors will be impacted as well, and that ripple effect should not be ignored.

The retirees – I’ve read some unsubstantiated remarks about auto workers, and I find these remarks misguided. I’m not talking about management, I mean the line workers, those who put in a day’s work for a day’s pay, and have done this all their lives. The Pension Benefit Guarantee Corp does guarantee a worker’s pension, but only to a certain limit. It will give a retired 65 year old an annual guarantee of $54,000. This may seem like a lot of money, but consider, for most of these people, working all their life at GM, they expected their pension to be guaranteed, and worked with that expectation. So the 40 year employee who worked his way up to the top of his pay scale and accrued a benefit of, say $75,000, now has to look over his shoulder for fear that his pension is cut by nearly one third.

I try not to choose political sides, and don’t label myself pro or anti union. But I am anti ‘having the financial well being of a 70 year old retiree ripped out from under him’. Disclosure – when I bought my current car I was choosing between a Ford Taurus, built in Canada, or a Toyota, built in Kentucky. Talk about an odd decision. I chose the car built in the US.

I wish the workers and their families well.

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