GM Brazil Survives Bankruptcy

By Jaylan Boyle, Contributing Reporter

RIO DE JANEIRO – When America sneezes, Brazil catches a cold. That old saying can be particularly true for industries with an overwhelming dependency on the United States economy.

In the automobile manufacturing trade, that proverbial sneeze came on Monday of last week, when General Motors filed for bankruptcy in a Manhattan courthouse.

The world’s second largest automaker has put in a request for ‘Chapter 11′ protection against creditors after sustaining total losses of US$81 billion over the last four years. And yet, it looks like GM Brazil’s economic health will not be affected.

According to the President of GM’s Brazil and Mercosur division, Jaime Ardila, the Brazilian arm of the embattled US automotive giant is to remain stable in light of the North American collapse. Sales from 2008 to 2009 have gone from strength to strength, up 3% against the grim backdrop of a 20% slide in US sales. In May of this year, GM sold 48,000 vehicles in Brazil, up from 35,000 in April.

Ardila has assured concerned parties that GM Brazil operates as a financially independent entity, and will continue to do so. He has also asserted that should additional financing become necessary, it can be sourced locally, further distancing GM Brazil from the entangled US situation. As would be expected, the prospect of job losses cannot be discounted, however this is more a reflection of the current economic climate than a result of the larger GM dilemma. GM Brazil currently employs 21,000 people, and this figure is expected to be reassessed at the end of the month when an agreement to reduce the taxing of cars expires.

In GM Brazil’s favor, the regional investment programme of US$2.5 billion USD until 2012 is to be maintained, of which US$2 billion is earmarked for Brazil. Some of these resources are to be used in producing a new model, the Viva, which could be completed as early as this year, and four new models are scheduled for completion in 2010. Brazil is GM’s key Latin American market, where sales have been rising despite a severe economic slowdown.

There is one repercussion for Brazil, however. The US government will own both ‘New GM’ and GM Brazil for a while. What this means for Brazil remains to be seen. According to Mr. Ardilam, “In financial terms, GM Brazil is healthy, profitable, and in 2008 had it’s best year. This gives us peace of mind that we have sufficient resources to ensure our operation and investment programme. GM Brazil does not need or expect outside help.”

The case is America’s largest instance of industrial insolvency, the third largest US bankruptcy of any kind, and means that GM is the second of the top three US auto manufacturers to be placed under government control. Producing brands such as Chevrolet, Cadillac, Opel and Vauxhall, the company has ceased, after 84 years, to be included in the Dow Jones industrial average.

The company is to be split into the so-called ‘Old GM’, and ‘New GM’; the former includes those aspects of the business earmarked for sale, while the latter includes GM Brazil and other divisions deemed to be in good health. ‘New GM’ is also the part of the company that will fall under temporary control of the US Government. It is expected that this government administration will last for a period of 2-3 months.