As GM (GM) Prepares For Bankruptcy, "The Detroit Century" Draws To A Close

Douglas A. McIntyre

bearGM’s (GM) creditors have rejected a program that would have swapped most of the auto company’s debt for equity, effectively driving the firm into Chapter 11. The century that began with the mass production of the Model T in 1909 and ended with the worst collapse of domestic vehicle demand in history is over. It was a one hundred year period when Detroit was considered the seat of global manufacturing prowess, a period when The Big Three were among the largest, and often the most profitable, companies in the world.

Fueled by abundant and cheap gas and the availability of rubber tire production, the US vehicle market grew to a 16 million unit a year business. This year that number will be under 10 million which will cause nearly every auto company doing business in America to show red ink in the region.

GM’s bankruptcy along with Chrysler’s will certainly help drive down the US market share of The Big Three and open the door further to nimble and more well-funded competitors including Toyota (TM), Honda (HMC), Nissan, and Hyundai. It would be surprising if Detroit has only a 30% share of the American car market by the time vehicle sales recover even modestly, probably in 2011.

Once GM comes out of Chapter 11, if it does, the US government, or more accurately the taxpayers, will own 70% of GM and the UAW will own almost 18%. GM will have become a ward of the state.

In Detroit, the last person to leave can turn out the lights.

Douglas A. McIntyre