Bankruptcy May Actually Hurt Auto Manufacturers if They File
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Bankruptcy May Shrink Auto Sales

A new survey by Directions Research, Inc. in Cincinnati, Ohio discovered that most people in the market to buy a new car would avoid buying a vehicle manufactured by a company that has decided to file bankruptcy.

The firm polled 1,063 adults during the three weeks ending December 14. According to the study, only 26 percent of new car buyers would consider buying a car made by a company that is in bankruptcy.

The survey did not collect data to reveal the reasons that consumers would not buy a vehicle from a manufacturer in bankruptcy, but it did note that more affluent consumers were more likely to take a risk and buy from a bankrupt company.

Approximately 32 percent of people earning more than $100,000 per year would buy a vehicle from a manufacturer in bankruptcy, while only 20 percent of people earning under $25,000 per year would even consider such a purchase.

The results of the survey may be bad news for General Motors, a company that many say may be headed for bankruptcy. However, this research may actually steer the GM executives away from filingbankruptcy, since doing so may drive customers away.

Consumer Affairs reported that the last major auto manufacturer to file bankruptcy was the Korean company, Daewoo. The company could not find a way out of bankruptcy and was eventually liquidated. Customers who bought Daewoo vehicles were then stuck with the cars, with no one around to honor the warranty, find parts or take for servicing.

Consumers who were burned by Daewoo show how risky it can be to buy a vehicle from a company that may be headed for bankruptcy.

When Daewoo went under, its physical assets including its plants, machinery and spare parts were auctioned off but the brand name vanished. GM bought most of Daewoo's assets and started building cars in the plants under the GM name. Now GM may be headed for bankruptcy too and that could cause temporary disruptions, changes in its dealer network and of course sinking sales of new vehicles.

During the first three quarters of 2005, GM lost nearly $5 billion from its North American operations. The company executives deny any plans to file bankruptcy, but there is growing evidence that the company may have to seek the protections of bankruptcy court.

GM has recently had mass layoffs and has announced that it will close 12 plants in North America. While company management says that this is not a signal that they are headed towards filing bankruptcy, there is much speculation otherwise.

While the recent survey showed that when an auto manufacturer files bankruptcy, they are shunned by many consumers, the same does not seem to be true when airlines file bankruptcy. United, Delta and Northwest are some of the major airlines that are currently in bankruptcy. None of the airlines have noticed any effects on ticket sales.


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