General Motors will shed several of its brands and concentrate on Chevrolet, Cadillac, Buick and GMC. Saturn, Pontiac, Hummer and Saab will either be sold or shut down. More than 21,000 jobs will be lost through the reorganization of the failing automaker. Instead of being General, GM will now be Specific Motors. The UAW and federal government will own about 80% of the corporation and bondholders will be forced to swap their debt obligations for what could be worthless stock.
People invest in bonds for steady income and security. Bonds are not very risky if the investor intends to hold them until maturity. A bond is a debt obligation, that is the issuer borrows your money for a set period of time, usually 30 years. You get a fixed rate of interest every year on your investment then your original investment paid back. Say I bought a GM 30 year bond for $10,000 at a rate of 5%. Every year GM pays me 5% of my ten grand in interest. After thirty years they repay me my $10.000. That’s how bonds work.
Now though GM is converting their bonds to stock, a far more volatile investment and the bondholders have no say in the matter. This isn’t fair to the bondholders but their alternative is to have GM go bankrupt and lose all of their money. Anyone holding past stock in GM is losing their entire investment if the company goes under. The new owners of GM are the workers, retirees and taxpayers. How this may tilt the competitive field could be interesting. Ford elected not to accept any government loans and is healthier than GM and Chrysler because of better management. With the government owning GM will they buy any Ford products? Does Ford get screwed by doing a better job of running their company? Interesting questions.
About 40% of GM’s dealerships will disappear and, with them, thousands of jobs. GM had far too many dealerships (as do Ford and Chrysler) and they aren’t profitable enough due to the fierce competition for sales and service. I don’t feel sorry for those business persons who built those expensive, garish, huge Hummer franchises or the Saturn copy cats. Saturn was never more than a Chevy with a plastic body.
GM had too much duplication through its brand ing and consumers saw no or little difference among Chevy, Olds, Pontiac and Buick. Other than grills and tail lights, for far too many years it was all the same garbage. GM designed and built garbage for the public and refused to responsibly approach the market. Shedding these brands could result in a leaner, meaner, more responsive company.