III. Case Analysis: GENERAL MOTORS General Motors (GM), which was once the leadi
ID: 326566 • Letter: I
Question
III. Case Analysis: GENERAL MOTORS General Motors (GM), which was once the leading auto manufacturing company in the world, was on the verge of bankruptcy in 2008. Besides receiving a multi-billion dollar government subsidy ($13.4 Billion PLUS), GM has also adopted various steps and strategies to recover and has now become competitive again in the automobile industry. In this essay, identify and explain why GM faced the decline in sales and competitiveness and what and how it was able to regain its position. In general, derive some general conclusions and lessons, which can be drawn from this experience in other sectors of the American economy.Explanation / Answer
Background:
General motors is an American multinational automobile company head quartered in Detroit. General motors manufacture cars and truck in 35 countries. The company was found by William C Durant in 1908. The company was largest automobile company from 1931 through 2007, in 2007 it lost its position to Toyota.
Case:
General motor is US largest car maker which is head quartered in Detroit. During 1930s company produced innovative cars and marketed them throughout the world, which lead to increase in sales and companies profitability. As company grew it established more manufacturing units and hired large number of employees. In late 1990s company saw large decrease in sales because of number of reasons like uncompetitive cars, Bad financials, neglecting competition and bureaucracy.
Uncompetitive cars: General motors sold most of its profitable car models to its competitors and retained poor performing models. This resulted in company producing uncompetitive cars which lead to decrease in sales. Company was also not able to adopt latest innovation in automobile industry which lead to production of bad quality products.
Bad financial policy: even through sales decreased GM’s fixed cost did not come down, this is primarily because of bad financial policies. When sales decreased company closed manufacturing units, but this did not solve problems as it had to pay pension and health care insurance to its employees. This ensured that fixed cost did not come down which resulted in huge loss to company.
Neglecting competition: GM did not pay attention to competition, it just behaved as public company founded by government. It believed that people would buy whatever it produced. It did not adopt to new technology and innovation in automobile industry which ultimately resulted in its failure.
Bureaucracy: Bureaucracy in GM was high because of its size and policy. This resulted in inertia to change. Company did not adopt to changing environment rapidly which resulted in its failure.
Conclusion:
GM is one of the largest car maker in USA. As time changed it failed to adopt to present scenario which resulted in its failure. GM’s top management was poorly placed to adopt to developing bubble which resulted in its ultimate bankruptcy.
Rebirth:
GM failed for Chapter 11 bankruptcy in New York bankruptcy court under a plan that would assemble all of their viable assets, including some US brands and international operations, into a new company called Motors liquidation company. US government granted US$ 13.4 billion as federal loan to GM with specific targets like reduction in debt, renegotiation of employees contract terms with union within stipulated time to avail financial package.
Company succeeded in negotiating contract and successfully came back to normalcy.