Today, GM (NYSE: GM) yet again made history – with its massive bankruptcy filing. In fact, the company has a staggering $172 billion in debt and only $82.3 billion in assets.
In other words, GM has been propped up – over the years – by incredible feats of financial engineering. It seems that lenders thought that the company would somehow find another way to keep alive.
But of course, with the credit crunch and global recession, the plunge in auto sales was the tipping point. And, of course, GM has now become a ward of the state.
Even though the bankruptcy will be relatively smooth, the after-shocks will not. There will be real pain across the country.
For example, there will be plant closings (from 12 to 20). Ad budgets will get slashed. And auto dealers will close down (about 40% of its 6,000 dealer network).
Actually, using the BizEquity database, I was able to get a sense of the size of the auto dealer market place. I just focused on the smaller ones (with sales under $10 million).
The upshot? Well, over the past year, the average valuation went from $918,251 to $642,227. Unfortunately, in light of the recent bankruptcies of GM and Chrysler, the valuation plunge will likely continue.
Keep in mind that auto dealers are the proverbial home-town business. They help communities. They provide jobs.
Unfortunately, this positive force will be severely contracted – putting yet more pressure on the US economy.