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?

Share
Related Topics

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.

m.pagano@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Austen Lloyd: Private Client Solicitor - Oxford

Excellent Salary : Austen Lloyd: OXFORD - REGIONAL FIRM - An excellent opportu...

Austen Lloyd: Clinical Negligence Associate / Partner - Bristol

Super Package: Austen Lloyd: BRISTOL - SENIOR CLINICAL NEGLIGENCE - An outstan...

Recruitment Genius: Sales Consultant - Solar Energy - OTE £50,000

£15000 - £50000 per annum: Recruitment Genius: Fantastic opportunities are ava...

Recruitment Genius: Compute Engineer

Negotiable: Recruitment Genius: A Compute Engineer is required to join a globa...

Day In a Page

Read Next
Syrian refugee 'Nora' with her two month-old daughter. She was one of the first Syrians to come to the UK when the Government agreed to resettle 100 people from the country  

Open letter to David Cameron on Syrian refugees: 'Several hundred people' isn't good enough

Independent Voices
Amjad Bashir said Ukip had become a 'party of ruthless self-interest'  

Could Ukip turncoat Amjad Bashir be the Churchill of his day?

Matthew Norman
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project