Implications of President Obama`s Warning on GM Bankruptcy

The U.S. President Barack Obama has denied the turnaround plans tendered by General Motors (GM) and Chrysler for extra funds citing insufficiency as a reason. Instead, the government called on GM to completely redraft restructuring plans within 60 days, and forced Chrysler to merge with Italian suitor Fiat. Even if GM's chief Rich Wagoner, dubbed the U.S. auto industry's godfather, has decided to resign, President Obama harshly slammed the car industry saying that bankruptcy law would be applied once turnaround efforts are insufficient.

GM's financial structure has precipitously deteriorated evidenced by corporate deficits that have been generated for four straight years -- a $30.8 billion deficit last year alone -- and a debt excess of near $86 billion. Even amid plunged sales and accumulated deficits after the corporate credit rating degradation to the level of speculation grade, no endeavors have been made on a structural reformation with both managements and labor unions only seeking their own profits, resulting in the current condition in the end.

Considering a possible collapse of GM, boasting a 101-year history and the world's largest vehicle production volume, domestic automakers should also be fully prepared for probable worst case scenarios.

A possible liquidation of GM or Chrysler was also reflected in President Lee Myung-bak's mentioning of a necessity on 'an epoch-making improvement' during last week's government release on the auto industry support plans. Vice Minister Lim Chae-min of Knowledge Economy's belated remark, saying that ' a 70 percent vehicle tax deduction cannot be supported without the enhancement in illegal wage and salary practices? should be also implemented in substance.

[Translated by Eun-jung Kim / JYJ]

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