GM declares bankruptcy

By Nicholas Zeman | May 11, 2009
Posted June 2, 2009

Said to be the third biggest bankruptcy case in American history, General Motors Corp. has filed for debt protection under federal law. Pres. Barack Obama said on June 1, that the financial crisis that began last September had crippled the American economy-including the manufacturing sector. In an effort to save jobs and an institutional American business, the U.S. treasury will be making an "additional investment" 0f $30 billion to save GM.

"GM is an American company with tens of thousands of employees in this country, and responsibility for its future ultimately rests with us," Obama said. "These steps have put our government in the unwelcome position of owning large stakes in private companies for the simple and compelling reason that their survival and the success of our overall economy depend on it."

A monthly survey conducted by Creighton University in Omaha, Neb., asked Midwest supply managers and banks how they felt about the U.S. Government's bailout of GM. Of those surveyed by Creighton, 66 percent said they were against this maneuver. A reason for this stance is that those surveyed are business people-including biodiesel producers-who might be buying parts from GM or bidding on steel, gasoline or other raw materials, as a competitor of GM in the marketplace. "GM is going to be getting loans at zero interest, so this is going to make it harder for their competitors, especially Ford, Toyota and other U.S. auto manufacturers," said Ernie Goss, professor of Economics at Creighton.

While GM is getting a lifeline from the federal government, indications are that the rest of the economy is still struggling. Supply managers in the nine-state region surveyed by Creighton continue to trim inventories. The May inventory index was 39.3 percent, up from April's record low of 36.2 percent. "We have yet to record any restocking of inventories for raw materials and supplies," said Goss in Creighton's report. "However, I expect replenishment of inventory levels later this year to have strong positive impacts on the regional economy."

In addition, most supply managers that Creighton surveyed don't think the government should be in the business of making cars. "The money that is going to be used to support GM comes from taxpayers-and supply managers certainly fall into that category-so they think that their business will face increased burdens," Goss said.

On March 31, GM reported consolidated debt of $54.4 billion, along with additional liabilities, including an estimated $20 billion obligation to the UAW Voluntary Employee Beneficiary Association. Of GM's common equity, 60.8 percent will be owned by the U.S. Treasury, 11.7 percent by the Canadian and Ontario governments and 17.5 percent by VEBA. In addition, 10 percent has been reserved "for the benefit of the unsecured bondholders and unsecured creditors of GM," the company stated.

"The government-taxpayers-are going to own the majority percentage of those shares, so who is going to vote on those shares if GM wants to close a plant in Kansas?" Goss asked. "Will it be the public? Will it be Obama? Will it be Tim Geitner? Will it be Congress? No one knows."

As far as reactions to this news from the biodiesel industry, Kelly King of Pacific Biodiesel says GM's problems won't affect their business significantly. "I don't think they've been very supportive anyway and I don't think they've been moving in concert with the development of renewable fuels," King told Biodiesel Magazine. "So I hope that whoever is left standing gets the message from the Obama Administration on how we will be moving forward."
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