Tuesday, November 18, 2008

IS GENERAL MOTORS WORTH SAVING ? How about Proton Berhad ?

Lately there have been news surrounding or circulate the whole issue about General Motors in U.S. In the early September, no doubt the federal government of US has already pump in USD 25 billion to help the industry (General Motors Corp, Chrysler LLC and Ford Motor Co); still they are asking more for another USD 25 billion in loan to help them to get through the whole idea to reorganize their company.

What really happens here is still in an early stage. What is really going to happens to Proton Berhad will be another issue. The whole issue now is; many countries have entered into a recession with Hong Kong and Japan were not spared from it.

How about Proton Berhad sales in Europe and other foreign countries ? Will Malaysia survive this financial meltdown ? How about Proton Berhad ? At the moment Proton Berhad share prices are entering to all time lows since its first listing in the year of 1992. The share prices now currently traded at RM 1.88 per share. Let us examine this article in order for us to be well prepare if any of these do happens in the first place.

An article from Times: For months, General Motors had been telling everyone who would listen that bankruptcy was not an option. It had a USD 30 billion cash pile and plans to restructure the company as the economy rebounded and 2007 U.S. auto sales topped 16 million units.

Then came October. Sales plummeted an astounding 45% over the same period last year, a result of a slowing economy and a dearth of financing for would-be car buyers. Total U.S. car and light-truck sales this year could come in at 13.5 million, 2.6 million fewer than last year.

"That's in nobody's business plan," says Kimberly Rodriguez, an automotive specialist with Grant Thornton. "The best planning in the world cannot survive that fluctuation." It's now clear that GM can't survive as an ongoing entity without massive federal assistance.

The company is burning through more than $2 billion each month. It has USD 16 billion left. As if they were aboard a dirigible losing altitude, GM's bosses have been frantically throwing all manner of stuff overboard — retiree health-care benefits, people, assets, new car design — to conserve USD 5 billion. That will get it through the year.

But 2009 is the year of reckoning for GM and the rest of the domestic auto industry, if not the economy as a whole. The GM crisis is raising once again the issue of how far the government should go in rescuing banks, insurance companies, mortgage holders, credit-card issuers and now carmakers.

GM has no doubts about it. "Immediate federal funding is essential in order for the U.S. automotive industry to weather this downturn," GM president Fritz Henderson admitted to investors during a conference call in which GM announced a third-quarter loss of USD 2.5 billion.

No one is more aware of that need than Barack Obama, who carried Michigan by a huge margin. The President-elect is committed to helping the Detroit Three, and House Speaker Nancy Pelosi is leading a rescue party that plans to get a bailout bill in front of President Bush before Thanksgiving.

So far, the President has offered only to speed through Congress an already approved USD 25 billion loan to help Detroit create new fuel-efficient models. But GM needs an additional USD 10 billion simply to pay its bills next year and USD 15 billion more to close plants, compensate redundant workers and dump some of its lesser-performing brands.

The issue boils down to a historic proposition: Is what's good for GM still good for the country? "If GM were to go into a free-fall bankruptcy and didn't pay its trade debts, then the entire domestic auto industry shuts down," says Rodriguez.

The system — the domestic auto plants and their interconnected group of suppliers — is far bigger than GM. It includes 54 North American manufacturing plants and at least 4,000 so-called Tier 1 suppliers — firms that feed parts and subassemblies directly to those plants.

That includes mom-and-pop outfits but also a dozen or so large companies such as Lear, Johnson Controls and GM's former captive Delphi. Beyond those are thousands of the suppliers' suppliers.

Although the Detroit Three directly employed about 240,000 people last year, according to the industry-allied Center for Automotive Research (CAR) in Ann Arbor, Mich., the multiplier effect is large, which is typical in manufacturing. Throw in the partsmakers and other suppliers, and you have an additional 974,000 jobs.

Together, says CAR, these 1.2 million workers spend enough to keep 1.7 million more people employed. That gets you to 2.9 million jobs tied to the Detroit Three, and even if you discount the figures because of CAR's allegiance, it's a big number. Shut down Detroit, and the national unemployment rate heads toward 10% in a hurry.

Even if just one of the Detroit Three — and GM is the most likely, as Ford is in better shape and Chrysler is much smaller — spiraled into a free-fall bankruptcy, the systemic effects, at least initially, would be huge. The whole industry would not be able to build cars in the U.S., because of the lack of parts.

"Unlike the airlines or steel, when you look at the automobile industry and the fact that the whole supplier base is connected — to Ford, Chrysler, Toyota — it will have a ripple effect on the entire industry," says Nicole Y. Lamb-Hale, a bankruptcy expert at the Detroit office of Foley & Lardner, a law firm that represents some GM suppliers.

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