June 2, 2009

GM bankruptcy has long-range impact

The impact of General Motors Corp. filing for bankruptcy could affect parts suppliers, state budgets and even homeowners, economists said.

Most immediately, GM announced Monday that 14 plants would close and 21,000 union workers would lose their jobs. GM will also close 40 percent of its dealerships, reducing local tax revenues in thousands of communities.

It means (California) Gov. Schwarzenegger has to make even more cuts, said Martin Weiss, president of Weiss Research.

Small auto parts suppliers, which make up 70 percent of the supply chain for automobiles, will quickly feel the impact, USA Today reported Tuesday.

Large parts suppliers Visteon, Metaldyne and Noble International have already filed for bankruptcy protection this year and others are expected to follow. Production at Ford Motor Co. and Chrysler LLC may slow down as some parts become difficult to find.

As the U.S. Treasury pumps an additional $30.1 billion into supporting GM, it's one more poison pill the Treasury has to swallow, Weiss said.

Mortgage rates may even rise as the filing impacts the U.S. government's credibility, which in turn affects the bond market, Weiss said.

Mortgage rates are tied to government bonds.

It's certainly a stress test for the economy, Dan Seiver, finance professor at San Diego State University told the newspaper.