Experts Weigh In on GM

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Closing a projected 1,000 to 1,500 dealerships alone could eliminate 100,000 jobs, while most suppliers won't be able to survive without GM orders. Even before the bankruptcy, the unemployment rate in Detroit reached 21%, not far below the 25% rate seen during the depths of the Great Depression. If GM decides to move its corporate headquarters from the Renaissance Center in downtown Detroit to its technical center in Warren, Mich., it will leave an immense amount of unoccupied office space that will be almost impossible to rent. It would also kill off other businesses that support the headquarters, says Harvard's Tedlow.

"What's going to happen to Detroit? The same thing that happened to New Orleans after Katrina?" asks Tedlow. "The ripple effects are simply going to be gigantic."

• Gary Chaison, a professor of management and a labor historian at Clark University in Worcester, Mass., says the UAW "has a very limited future." The union took on enormous risk by agreeing in 2007 to assume responsibility to provide health-care benefits for retired workers through a special committee, with GM at that time agreeing to fund 70% of the cost. Now that the union has been forced to take stock in lieu of cash from the company—giving it 17.5% ownership of GM initially—it needs the company to recover and gain value, says Chaison. "It's going to try to protect what it got in the past. It's in retreat, and it's trying to make it an orderly retreat."

Chaison thinks the Obama Administration insists on characterizing this as a quick and simple restructuring because it doesn't want to shake consumer confidence in GM's brands, knowing how fragile it already is. But filing for bankruptcy is akin to just getting a critically ill patient to the hospital without giving any thought to the patient's ability to survive an operation that's never been done before. "It doesn't really solve the problem of [whether] anyone will want to buy these cars afterwards," Chaison says. Liquidation is still a real possibility, he adds.

• Gerald Meyers, former president of now-defunct American Motors and a professor at the University of Michigan, believes the new GM will be given enough latitude, time, and funds to allow it to get a firm footing and survive. "I don't believe the task force would want to be tarred with the failure of a newborn baby that is either stillborn or [a victim of] sudden infant death."

With virtually all the cost-cutting already wrung out over the past few years, the key to the auto manufacturers' survival will be revenue and market penetration, Meyers says. And for that "they need to be smart and have great products." Despite all the talk about small, fuel-efficient cars, Meyers believes there will still be demand for GM to emphasize "high quality and lots of room." He says Europeans don't understand why Americans love their big cars. "The reason is that this is an immense country, and President Eisenhower [pushed for the creation] of superhighways crossing everywhere." Americans drive long distances to visit national parks and "they live in their cars when they travel. Europeans like to drive, too, but they're going from Berlin to Geneva. Big deal."

Bogoslaw is a reporter for BusinessWeek's Investing channel.

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