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General Motors

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General Motors is a vehicle manufacturing company based in the US with branches all over the world. It is one of the word’s largest automaker, tracing its roots back to 1908. It has its global headquarters in Detroit employing 204,000 people in major regions of the world and with business in some 140 countries. Together with its strategic partners, it produces cars and trucks in 34 countries, and sells and services them through the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Opel, Vauxhall and Wuling. It has the largest national market in the US, followed by China, Brazil, Germany, the United Kingdom, Canada, and Italy. It acquired its operations from General Motors Corporation on July 10, 2009 (about G.M. par 1).

The Glory Days. When General Motors was formed on September 16, 1908, William Crapo Durant filed its incorporation papers, the Buick, revitalized by then, was its foundation. The company revolutionized the automobile field by concentrating on meeting consumer demand under the leadership of Alfred p. Sloan Jr., its chief executive from 1923 to 1946. It had 46 percent of the American auto market with its brands of Chevrolet, Oldsmobile, Pontiac, Cadillac and Buick in the 1950’s (Constantin par 8)

Detroit was transformed into a silicon valley of its day by General Motors, a symbol of America’s talent for innovation. It builds celebrated cars, like Cadillacs that became synonymous with luxury. A General Motors plant was a ticket to prosperity for communities lucky enough to get one.  For instance, it put Spring Hill, Tenn., on the map when it picked the town outside Nashville for its Saturn plant in 1985. General Motors’ glory days continued into the 1960’s. it is this time that it owned half of the United States car and truck market, its shares rose to 51 percent in 1962 amid suggestions that it should be broken up under antitrust laws. It is at this time that General Motors started a long and slow process of undermining itself, its strengths, like the rigid structure that provided discipline in the initial years, became its weakness, and it lost its feel for reading the American car market it helped create. This was all because of foreign competition; Japanese automakers lured away even the G.M’s loyal buyers. These coupled with G.M.’s failures to provide trustworthy cars that Americans wanted, began to diminish its luster and its sales (Constantin par 11)

Failure. A series of strategic and cultural missteps starting in the 1960’s, made G.M. lose its vast number of loyal buyers. It only blurred its distinctiveness in an effort to cut costs by sharing the underpinnings of its cars across different brands in the 1980’s. Union demands in 1990 made G.M. to give in and created a program that paid workers even when plants were not running this only forced it to build cars and trucks it could not sale without big incentives. Arguments arose between the finance staff and product developers and marketers who pushed for aggressive spending on new cars and trucks. Forces to feed so many brands made G.M. to resort to a practice called “launch and leave” spending billions to bring vehicles to market, but failing to keep supporting them with sustained advertising (Constantin par 15)

General Motors’ market share had slipped to 33 percent by 1994. This made it impossible for General Motors to give its multiple brands and car models the individual attention that helped Honda attract customers to the accord and Toyota to its Camry. General motors also lost interest in vehicles that needed time to find their audience; this was evidenced when the company introduced the EV1 electric vehicle and then dropped it after only three years in 1999. It also lagged Chrysler’s Jeep and Ford by five years in the early 1990’s in bringing an S.U.V. to market with mass appeal. It was reluctant to move from big profitable vehicles to building small less profitable cars, even when the gas prices began rising (Constantin par 18)

General Motors was shocked by auto buyers’ dramatic shift toward the smaller, more fuel-efficient cars and away from the pickups and sport utility vehicles that had served as its mainstay in 2007 as the price of gasoline topped $4 a gallon. The company was forced to cut it fourth-quarter 2007 production by 10 percent, and by July 2008, overall United States sales had fallen 20 percent. Plans were announced by G.M. to idle plants to address the shrinking demand for pickups and S.U.V.’s. At the same time shifts were added to try and make enough small cars. Sales lagged by high gas prices ground to a near-halt as the Wall Street meltdown scared consumers and cut off many from credit. This made Rick Wagoner, G.M.’s chairman, and the heads of Ford and Chrysler to go to Washington in mid September 2008, to ask for $7.5 billion that would support $25 billion in loan guarantees that had been promised to help speed the switch to more efficient cars. The money was approved in October, in the wake of a dire new forecast for global vehicle sales that battered the shares of auto companies, especially G.M., whose stock fell more than 31 percent. These brought about urgent merger talks between G.M. and Chrysler but were set aside as it became clear that neither would survive long without an infusion of cash from the government (Constantin par. 22).

One can really see the hard times in which G.M. was going through. This comes out clearly from the numerous efforts that it was making to see it back on its feet. The heads of the big three returned to congress in November to ask for $25 billion in direct aid, of which $10 billion to $15 billion would go to G.M. The bailout bill was blocked by the senate republicans, but President Bush announced an emergency bailout of G.M. and Chrysler. The plan saw $13.4 billion loan being pumped into Chrysler and G.M. from the fund that Congress authorized to rescue the financial industry. To secure the remaining loan, the two companies were called upon to produce a long term profitability plan, including concessions from unions, creditors, suppliers and dealers.

G.M. embarked on a restructuring plan, cutting jobs, closing plants and reducing their brand lineups. But these was still not enough, it said it needed $4.6 billion, from the $18 billion it had already requested and an additional $12 billion in financial support in order to stave off bankruptcy. General Motors announced on February. 26, 2009 that it cash reserves were down to $14 billion at the end of 2008. That it had lost $30.9 billion, or $53.32 a share, in 2008 and spent $19.2 billion of its cash reserves. This led to the meeting of Mr. Wagoner with President Obama’s task force, and the company admitted it could not survive much longer without additional government loans (Constantin par 25)

The auto task force chosen by the President delved into every aspect of the company’s downsizing plan, it looked into the estimate of how the car market will look when the recession ends, a market it projects at over 15 million cars annually, as well as its designs for new products, its financial controls and its management. The gauging of its viability was based on the probability of recovering the tax payer’s money used to help the company. The President’s task force concluded in their report that G.M. had made considerable progress and could survive if it cut its costs sharply. The chairman, Mr. Wagoner, resigned as one of the conditions from the government to continue extending financial aid. Bondholders were pressed to convert two-thirds of the $27 billion owed them into G.M. stock, whereas the United Automobile Worker’s union was asked to substitute stock for 50 percent of their health care benefits for retirees (Constantin par 29)

The effects continued to be felt, G.M. announced in mid may that it will eliminate 2,600 of its American dealers or 40 percent, by 2010.This was meant to thin bloat dealer ranks that were seen to be a holdover from the company’s better days. Laid-off workers were not spared; U.A.W. had eliminated a program that guarantees paychecks to laid-off workers, since G.M. appealed for government assistance. The financial problem escalated, until the government, on May 31, announced that G.M. would file for reorganization in a federal bankruptcy court, and begin to restructure its troubled operations under the control of the government. This made G.M. to follow its rival Chrysler into bankruptcy.

The magnitude of the problem came out in its petition; it said it had $82.3 billion in assets and $172.8 billion in debts. Its biggest creditors were the Wilmington Trust Company, representing a group of bondholders holding $22.8 billion in debts, and affiliates of the United Auto Workers union, representing about $20.6 billion in employee obligations. Several G.M. units felt the pinch, the company’s Saturn unit, which G.M. began in 1990 to compete with foreign- made cars, also filed for bankruptcy, and in fact, G.M. has said that it will face it out by 2012. G.M.’s Saab unit is already under bankruptcy protection in Sweden. Magna International, a Canadian car-parts maker, was picked by the Germany government to buy G.M.’s open unit based in Germany.

The President sees that a much smaller G.M. can make money even if new car sales remain at a sluggish 10 million a year in the U.S. and even if it drops below its current 20 percent market share. But to get there, a lot of cash is still needed from the tax payer. This is because the company is exhausting the cash as quickly as Washington could inject it. Doubts still linger in the minds of many whether this investment will ever be recovered. Recently, G.M. is selling half of its Indian operations and a small stake in its China business to its main joint-venture partner in China. In February 2010, it announced it would shut down Hummer, the brand of big sport utility vehicles that became synonymous with the term gas guzzler, after a deal to sell it to a Chinese manufacturer fell apart (Constantin par 32)

General Motors as an auto manufacturing company brought a lot of gains to the people especially the Americans in its initial years of operation. It was the people’s pride and hope. It was a show case of American’s talent of innovation. Its bankruptcy has impacted negatively not just to the American economy, but to the world economy as a whole. The new company has downsized, with the sale or closing of brands like Saturn, Hummer and Pontiac. Its network, having cut down thousands of dealers during reorganization is also down.  It will take some time for the company to be fully on its feet again.

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