Answers to questions about GM's bankruptcy

McClatchy NewspapersJune 1, 2009 

WASHINGTON — General Motors' bankruptcy filing Monday raises a number of questions for consumers. Here are some answers.

Q: Will I be under warranty if I buy a GM car during bankruptcy?

A: Yes. The company will continue to honor its warranties, and the federal government promises to backstop GM warranties on all purchases during the bankruptcy period. President Barack Obama urged Americans Monday to consider buying a GM vehicle, noting that warranties "will be safe and government-backed."

Q: I've gone to my GM dealership for service. Will it still be there?

A: For now, yes. During the next 90 days, however, GM is expected to pare down its dealer network with an eye toward reduced automobile production in the years ahead. That'll cause some dealers to close and could create some warranty servicing problems, although warranty coverage would remain in force.

Q: Many dealers provide financing for car purchases. What will happen to that?

A: Although GM is entering bankruptcy, GMAC Financial Services, founded in 1919, isn't. The financial arm of GM recently converted into a bank holding company, a move that made it eligible for taxpayer bailout funds. The Treasury Department on May 22 lent GMAC $7.5 billion in an effort to stimulate vehicle purchases. Additionally, the Federal Deposit Insurance Corp. is providing loan guarantees to GMAC even though it doesn't enjoy investment-grade debt ratings. It all adds up to greater lending for car purchases. GMAC is likely to be 35 percent government owned because of the taxpayer assistance.

Q: Will GM continue to make its existing lineup?

A: No. It will concentrate on "core" products, and smaller brands such as Saturn and Hummer will be sold. GM also will sell overseas brands such as Saab and Opel. GM will continue to make its most popular vehicles, such as the new Camaro.

Q: Will GM make fewer cars?

A: Yes. It will set a new break-even point for profitability at 10 million vehicles. Until Monday, that number had been around 16 million. This is why the number of salaried union workers will fall to around 23,000 after GM emerges from bankruptcy and why GM plans to close from 11 to 14 plants. GM has committed to making a new line of small cars in the U.S., too.

Q: I own GM stock. What happens to me?

A: Unfortunately, shareholders will be wiped out in the bankruptcy. The new company will emerge as a privately held company for at least a year and likely two or more years. There wasn't a lot left to lose, as the decline in GM's market value has been breathtaking. In 2000, GM stock traded above $90, but it traded at less than $1 on Monday.

Q: What about GM bondholders?

A: Institutional bondholders that own large numbers of GM bonds will get a 10 percent ownership stake in the GM that emerges from bankruptcy. Small mom-and-pop investors who bought GM bonds for the interest they paid won't be able to get much out of this ownership stake.

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McClatchy Newspapers 2009

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