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October 2, 2022

Global crisis unsettles hierarchies

“We witness the demise of a legend – General Motors – as it has been known for decades. The future is uncertain and, as some analysts say, the failure of the awaited streamlining could generate more financial efforts toward redressing a bet that’s all but lost.”

General Motors, the No 1 world giant automaker for the past 77 years, filed for bankruptcy protection Monday, after it announced Sunday an agreement being reached on its downsizing. A new company will be created to take over the most profitable assets of the car making group. The US government will come up with USD 30.1 bln for the new company and will control 60 per cent of its share capital. In its turn, the Canadian state and the Province of Ontario, where GM has several plants, will help the new enterprise with USD 9.5 bln and hold a 12 per cent stake in the company. Also, the trade union fund in charge of financing the health expenditure of the former GM employees will receive 17.5 per cent of the share capital of the company.

A historic day for the company, the end of the old GM, the beginning of the new GM, US President Barack Obama said Sunday evening.

It is hard to tell now whether this is a historic day indeed for the future of one of the symbols of the industry across the ocean. Yet, June 1, 2009 is surely a historic day, as it spells the end of a giant enterprise that has dominated the automotive industry for over seven decades.

Few were those to have predicted a few years ago the imminent GM bankruptcy. The international global crisis, which started in the USA of all places, is affecting small and large enterprises, as well as the giants with clay feet. What we are witnessing is a resettling of hierarchies and analysts don’t shy away from forecasting other surprises too, both in the car-making sector and other fields as well. PetroChina has recently become the world’s most valuable company, outrunning Exxon Mobil. On the other hand, China outranked Japan as the top holder of US treasury bonds. GM supplies yet another example of radical changes, as only a few days earlier, Opel – the European division of General Motors – signed a takeover agreement with a joint venture made up of a Canadian company, Magna, along with Sberbank, Russia’s top bank, and Russian GAZ auto maker. Magna and Sberbank will jointly control 55 per cent of the Opel stock. A number of 180,000 Opel cars are to be assembled at the GAZ plant near Moscow. It looks like a tough lesson when a symbol of the US industry (even if the European branch) is taken over by Russian controlling capital.

It is difficult to say how ‘commercial’ Opel takeover negotiations have been really, with various sources speaking rather of political ‘negotiations and high-level arrangements between Berlin and Washington D.C. Sergio Marchionne, the general director of FIAT – among the first interested to take over Opel – said that negotiations did not involve comprehensive financial information, and talks turned increasingly political.

The US car industry feels rather unwell. Chrysler will most likely be taken over by FIAT, and Ford, the only survivor of the big three is not shielded from financial woes at all. Instead, many are those that could cash in on a streamlined global auto market. As we can see, Russia is one such player. In their turn, Asian manufacturers would like to be the main beneficiaries of the ongoing situation, various analysts speculate. Asian stock exchanges saw significant rises yesterday, with the Nikkei Japanese stock exchange index rising 1.6 per cent to hit an eight-month high. European bourses opened on the rise Monday. European car makers have seen a substantial boost in stock trading. Peugeot surged 7.5 per cent, also boosted by a price target hike from credit Suisse, while Renault advanced 6.4 per cent and BMW rose 4.6 per cent. Yet, Asian automakers Toyota, Honda, Nissan and Hyundai hope to increase their market share, taking advantage of the GM restructuring and so-called ‘revival’.

A study made public yesterday by the X-Trade Brokers brokerage firm shows that Asian countries will see the fastest economic rebound on a backdrop more favourable than in other parts of the world. China registered a 6.1 per cent growth in the first quarter, and India, 5.8 per cent. One more reason for world market to downsize while the crisis is going on, and not just in the auto field.

US economy indicators are contradicting and the Obama administration bail-out plan alone cannot improve them for the mere reason that two to three months is too short an interval for its effects to be absorbed by the economy. The plan also has a host of negative consequences, as the US government reached a spectacular degree of indebtedness, with the public deficit standing at USD 1,800 bln for the ongoing year; covering it involves monetary policy aspects, the interest issue namely, according to the study concerned.

As for Eastern Europe, it appears that Poland and Cyprus are in favourable positions, with Q1 GDP growths of 1.4 per cent and 0.8 per cent respectively.

We witness the demise of a legend – General Motors – as it has been known for decades. The future is uncertain and, as some analysts say, the failure of the awaited streamlining could generate more financial efforts toward redressing a bet that’s all but lost. After the bank and financial funds flops in the US and Europe, with dramatic effects worldwide, here comes another surprise name on the list of crisis-induced victims. Others are likely to follow against a backdrop of unsettled economic hierarchies.

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