Margareta Pagano: Broken and broken-up – GM may need more than a loan

We have coughed up for the banks, so why not for our auto industry?

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Goodbye then, the pink Cadillacs, the Buick Hummers and mighty Chevrolets whose drivers have cruised around the American highways living off the fat of the land and cheap gasoline for more than a century.

Today another little bit of that American dream dies when General Motors, owner of those iconic brands, files for Chapter 11 bankruptcy proceedings in a New York courtroom. It is an ignominious end of the road for what was once the world's biggest company, and now it's third largest bankruptcy after Lehmans and WorldCom.

Over the past four years, GM has lost $88bn (£54bn) as the biggest of Detroit's "Big Three" car-makers sought to beat sky-high oil prices, soaring production costs, powerful unions and enormous pension liabilities.

True, GM's Rick Wagoner shed thousands of jobs, cut production of many of the gas-guzzling sports utility vehicles and trucks to introduce smaller cars. There were similar moves to cut costs in Europe too, where GM owns Opel in Germany and Vauxhall in the UK. But it was too little, too late.

When the credit markets collapsed nearly two years ago, GM, like Chrysler which is also going through Chapter 11, saw consumer demand fall off a cliff. By the end of last year, GM had global assets of $91bn but liabilities of $176bn and it has been on life-support from the US taxpayer ever since.

It's impossible to know how GM will emerge from the Chapter 11 process, designed to protect it from creditors and give it time to restructure. But Fiat's dynamic boss, the Italian-Canadian Sergio Marchionne who is fast emerging as the unlikely hero of the US car industry, is said to be interested in helping out in the shake-up, just as he is doing at Chrysler – where Fiat will take a 20 per cent stake.

Excess capacity worldwide is still at the root of the problem, which is why governments in the US and here in Europe are finding it so tricky to decide whether to prop up these ailing dinosaurs or let them go to the dogs, as the market would dictate.

And it's not just the car-making jobs they want to save but those of the millions employed in related industries. In the US, there are more than one million people – three times the number working for Ford, GM and Chrysler – employed in dealerships alone. In Europe, there are 50,000 GM jobs – about half of which are in Germany, but at least four times that number are involved in the service industries. In the UK, the 5,500 jobs at Vauxhall's Ellesmere Port and Luton are a fraction of the related jobs elsewhere – there are 7,000 jobs in supplier companies and 23,000 employees of the connected service industry.

It is for this reason that Lord Mandelson, the Business Secretary, has quite rightly been negotiating so hard with Magna Interntional's Frank Stronach, who has now struck a deal to buy Opel and Vauxhall, to spearhead his drive into the Russian market.

Stronach has pledged to protect all the jobs. Already, however, there are growing doubts over whether he can keep his promise at Vauxhall's Luton plant.

The big question for the UK taxpayer, already funding the banking bailout, is whether we should help Magna with loans, as the Germans have done, to support Vauxhall. As the unions have pointed out, we have coughed up for the banks, so why not for our auto industry which employs nearly one million people.

It's a tricky one – Britain is already living on borrowed time and money. Do we really want more pain now, by adding to the national debt to keep these industries going? But if we don't help out now, there will be costs later when the taxpayer has to pay for unemployment benefits to the thousands who now face losing their jobs, quite apart from the social cost of having more people out of work.

There are alternatives. One is for Vauxhall, together with Mandelson, to come up with a deal which involved converting loans into equity in Magna's new business, in which case it would be worth stumping up more money to help keep the company going.

Or, if Magna doesn't want the Vauxhall plants, why don't the management and unions – if they truly believe the car-maker has a viable future – ask the Government to guarantee commercial loans for their own buyout, thus investing in their future and ours. It could be a neat solution and a nice home-coming – Vauxhall hasn't been in British hands since 1925 – and they are far better made than those romantic Cadillacs.

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