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Friday, November 21, 2008
How Would GM Bankruptcy Affect You?
Terry Jackson
Bankrate.com
What if General Motors declares bankruptcy?
Aside from all the crucial issues of the thousands of people who may lose their jobs as a result, there are important questions for consumers.
While there are no fail-safe answers, here are some questions and answers to consider:
Assuming GM seeks a reorganization under bankruptcy law, as opposed to closing its doors forever -- the latter an outcome few anticipate -- should I still put a GM vehicle on my shopping list?
Under a bankruptcy reorganization, GM would continue to build cars and trucks. At some plants, the filing may not even slow down the assembly line. If a GM vehicle was on your shopping list before, there's no reason to take it off because of a bankruptcy filing.
There is one caveat here: If there are labor strikes as a result, there could be a disruption in production and perhaps a lapse in quality control.
What if I already own a GM vehicle?
A bankruptcy shouldn't affect you. Even if GM were to close some of its brands, much as it did with Oldsmobile, you should still be able to get service on that vehicle.
Will my GM warranty still be good?
This gets a little tricky. Under bankruptcy, GM could choose to void its obligations to honor warranty work. But that would be marketplace suicide, and it's likely that GM would continue to honor factory warranties.
Extended warranties, even those sold under the GM brand, also shouldn't be affected, since they are essentially insurance polices underwritten by third-party companies.
If GM stops making my brand, can I get parts in years to come?
Yes, at least for the next decade and likely longer than that. GM itself makes very few of the parts that go into its vehicles. Suppliers contract with GM for everything from axles to seats, and they or other companies will continue to make replacement parts because it's a lucrative business.
If my car is financed through GMAC, how will it affect my loan?
While you can dream that a GM bankruptcy would suddenly free you from making that monthly payment, that's not going to happen. GMAC is a separate entity and GM's status won't affect it.
Even if GMAC were to go bankrupt, another company would buy the assets -- your loan -- and you would be obligated to pay them.
What if my local dealership closes?
Only car owners in small towns may face inconveniences if a local GM franchise closes. For example, even if all the Pontiac dealerships were to close, any Chevrolet dealership could also service your Pontiac.
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It's time to let you in on a dirty little secret: You may not own the stock you own. That's right, if you invest with a brokerage firm, the shares you bought are almost certainly not held in your name. Technically, they're held in the name of the Wall Street firm you do business with, hence the term "street name."
No, you haven't been robbed. Ultimately, the decision to hold shares on the books under a different name doesn't affect the economic ramifications for you. You¿re listed as the "beneficial owner," even though the firm is the official owner of the shares. But, you are giving up some rights, and investors concerned about good corporate governance might want to get that stock back in their own names.
Here's the problem: If your stock is technically owned by, say, Merrill Lynch, then Merrill Lynch gets to do things with it that might work against your wishes. Take short selling. Investors who want to sell shares short need to first borrow those shares. The lenders are often the big Wall Street firms that are handing out Street-name shares. So, if you feel that a company you own is a victim of aggressive short selling, chances are your own shares are being used to fuel the shorting.
Also, your brokerage firm can cast ballots on some corporate matters affecting a company without getting your input. Technically, this can only happen in votes considered ¿routine¿ by securities regulators. But, there's a big catch: some big events, like board elections, are considered "routine" under law.
The good news is that you can easily fix the Street name problem: Just request that your brokerage firm makes you the listed owner of the shares. If they refuse, find a new firm.
