Newswise — Two University of Alabama at Birmingham (UAB) professors from the School of Business say General Motors' (GM) bankruptcy is no guarantee of a successful future and warn that released details about the reorganization strategy raise serious questions about the plan's potential success.
GM, the largest U.S. car maker, announced a government-supported bankruptcy today as a result of weakened sales and mounting debt in the wake of the country's deep economic recession. The plan is likely to result in a new and successful spin-off company comprised of GM's best performing brands, including Chevrolet and Cadillac. Weaker brands, such as Saturn and GMC, could be rolled into a second, likely-to-fail company.
UAB Assistant Professor of Finance Andreas Rauterkus, Ph.D., a bankruptcy expert, says the GM bankruptcy is unlike any other in history.
"I cannot remember a large auto bankruptcy that went smoothly with the company coming out stronger or even able to survive," Rauterkus said. "Still, we have never seen this level of government intervention in a bankruptcy proceeding with the federal government essentially taking over the business for a period of time. That influence could be the difference because government cash could help a reorganized GM move quickly towards profitability."
But a move towards profitability hinges on the level of restructuring GM realizes in the bankruptcy process, according to Thomas L. Powers, Ph.D., professor of marketing and a former marketing manager with the Ford Motor Co.
"The idea that simply dropping some brands will lead to profitability is not necessarily correct because the brands you keep would still be operating under the old GM business model, which was not successful," Powers said. "You need to fundamentally restructure the business model, including major improvements to the product lines, if you are going to achieve success at GM.
"In addition, the idea to spin off GM's best brands into a new GM is not necessarily a cure-all because even the company's best-selling brands are selling fewer cars compared to their foreign competition," Powers said.
In the short term, the trend of GM selling fewer autos compared to its competition will continue, Rauterkus said.
"The foreign auto makers with plants in Alabama and many other states were clearly already building the kinds of cars Americans want, which is something GM has not been doing," Rauterkus said. "So those foreign brands were well-positioned and should continue to excel while GM reorganizes.
"In the much longer term, and if GM is able to survive with its best brands intact, there is the chance for the company to challenge other automakers," Rauterkus said. "Because with a narrower brand focus and cash freed up through the resolution of its crushing debt, GM may be able to invest in new concepts, ideas and designs that American drivers will want, which is something the company hasn't really done for decades because of its financial hardships."
About UABThe UAB School of Business is located in the heart of Alabama's largest city and business center. For more information on how the school's Birmingham location provides unique internship and other out-of-the-classroom experiences, log on to http://www.uab.edu/business/.
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