By Jen Lynch
Today General Motors announced that it would be shutting down 13 out of 20 manufacturing plants in North America on and off throughout the summer months to help save money on unsold cars in production. The issue at hand deals with a third party, Delphi Corporation (GM's auto parts supplier) and its lenders. Delphi has rejected a solution that would have solved its bankruptcy case quickly through just one proposal. In many cases of bankruptcy, companies are dealing behind-the-scenes with other parties, often influencing the outcome of bankruptcy filing.
You might also be wondering, what happens to the employees at these plants that are being shut down? GM President Troy Clark said that union workers will continue to receive full pay through a combination of state unemployment benefits and support from GM. Thousands of GM workers are going to be temporarily laid off, but their United Auto Workers union contract requires GM to make up most of the difference between their usual wages and state unemployment benefits. This is also scary because now you have thousands of workers sitting at home, getting by with benefit payments, and certainly not spending- which is even worse for the economy.
The auto-task force has been busy focusing on Chrysler, GM's long-time rival, which is facing an April 30 deadline to submit a restructuring plan to the Treasury Department for more bailout money. Chrysler has already received approximately $5 billion from the government and is still asking for more to keep business going. But now with Chrysler's deadline approaching, Obama's auto-task force is changing its focus to GM and Delphi, giving the auto supplier (Delphi) until May 4 to propose a new plan to its creditors. The U.S. bankruptcy judge set a hearing for May 7, and is giving creditors until the next day to make their decision.
It is important that Delphi gets the loans it needs, not furthering its current state of bankruptcy. If the company is unable to provide parts to GM at a reasonable price and with cooperation, then GM will face many more economic, production and distribution issues. If creditors decide not to back Delphi's new proposal, GM will most likely be pushed closer to bankruptcy; a situation that would cause even more problems for the auto industry and our overall economy. GM has already received about $13.4 billion in government loans and could possibly get $5 billion more before May 30. President Obama has said GM must significantly restructure by this date in order to be eligible for further financial aid.
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