Many who read the headline of this article might question the premise of a bankruptcy leading to the hottest selling car in the world. It would be a stretch if this was a fictional story. The amazing thing about this article is that it is absolutely true.
First of all, the Chevy Cruze is one of the hottest selling cars in any domestic car line. There are a lot of reasons. It is apparently a well-built car and it gets great gas mileage. The Cruze has sold over 700,000 units either under that name or the Daewoo or Holden names. The Cruze grew out of a former good seller, the Cobalt. The Cruze sales have tripled those of the best sales year for the Cobalt. The Cruze is overtaking even imports. More importantly for the future of GMC, the vast majority of Cruze buyers are purchasing the first Chevrolet they have ever owned. Not only is it a very popular car, it has better gas mileage than any gasoline powered car including the hybrids. Further, it is loaded with many safety features often found only on the more expensive imports.
How does bankruptcy lead to such a success? Prior to the bankruptcy of GMAC, the company was bogged down with lines of cars which had quit selling many years ago. They did not have the resources to develop new lines of automobiles or the flexibility to re-tool plants because so much of the monthly income was devoted to servicing too much debt. If ¾ of the income is debt service, then there is nothing left for investment by the time a company that size pays payroll and buys current materials.
GMAC filed what many call a pre-packaged bankruptcy. Realistically, it is not all that different than the type many individuals file. All pre-packaged meant is that the outcome of the case was fairly certain. A good consumer bankruptcy practitioner can predict how a case will be resolved. Just as in the GMAC bankruptcy, there are no guarantees but with the expertise of the law firm, results are somewhat predictable.
GMAC stripped off millions of dollars in Debt. They were able to take that freed-up capital and by the tooling and pay the engineers to come up with a radically different design for an automobile. That one car has led them to the profitability which had eluded them for all of these years.
Individuals often have a very similar result. It is not uncommon to have a client who has devoted 30 to 40% of their income to paying past debt. They have had to clean out savings and not buy the things needed to fix up the residence. By filing bankruptcy, the 30 to 40% of the income which was going for debt now can go for those capital improvements.
It is not uncommon for a client to let our firm know that, post bankruptcy, they are able to actually visualize a retirement or send a child to college. Prior to the filing of the case, they really believed they would have to work their entire lives just to get a chance to catch up. In reality, had they continued in the cycle they were in, the credit card debts would not have reduced in their lifetime. Most people are paying the minimums and can only maintain the level they are currently paying. You may be in the same situation, but you will not really know until you meet with a qualified bankruptcy attorney.
