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GM bankruptcy: How will it impact the US?

The automaker got key concessions from bondholders this weekend to help smooth bankruptcy proceedings, which are expected to begin Monday.

By / May 31, 2009

Amid the recession, GM dealers are offering good deals, such as 0 percent financing at Santa Monica Chevrolet in California. But GM's bankruptcy, set to be announced Monday, is not expected to result in a fire sale at dealerships.

Reed Saxon/AP

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General Motors put its house in order this weekend in preparation for its expected declaration of bankruptcy Monday.

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On Saturday, a majority of the bondholders agreed to trade in their share of GM debt for stock in the firm as part of a restructuring plan backed by the US government.

Support from these bondholders is vital, since both GM and the White House want to reconfigure the company quickly and not get mired in litigation among various creditors.

Even so, with the largest maker of cars in the US probably heading into bankruptcy court Monday, the effects will ripple across the nation – and in unexpected ways.

Yes, one result could be once-in-a-lifetime bargains on some brand new General Motors cars. But this is no ordinary bankruptcy, and it's certainly not a GM-wide liquidation sale, analysts say.

What's happening, rather, is a carefully orchestrated restructuring with a big financial assist from the US Treasury.

It will be a mammoth project, and it’s all supposed to happen between now and when Americans put away their beach gear on Labor Day.

Here's a question-by-question look at what the GM bankruptcy could mean for ordinary Americans:

Should I go bargain hunting at a Chevy or Saturn dealership?

When Chrysler recently entered bankruptcy, the biggest bargains came at dealerships that were told to close – and were given just a few weeks to shut their doors. Those showrooms had a big incentive to slash prices in order to unload their inventory.

So far, GM's plans for downsizing its dealer network are on a slower track. It's possible that will change once GM enters bankruptcy, says Jeremy Anwyl, chief executive of the auto information company Edmunds.com. Shoppers might find some steals on wheels, but that isn't known yet.

What is clear is that the recession has made all car companies very hungry for customers.

"It's a great time for buying just about any car," Mr. Anwyl says.

Yet it's risky just to assume that a bankrupt car company must be offering great deals. Research by Edmunds.com found that Chrysler's profit margin actually went up in May – after a court filing on April 30.

Why?

Analysts at Edmunds.com figure consumers negotiated less aggressively because they thought bargains were already in the sticker price.