GM in Trouble
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Case Details:
Case Code : BSTR320
Case Length : 20 Pages
Period : 2008-2009
Pub Date : 2009
Teaching Note :Not Available
Organization : General Motors
Industry : Automobiles
Countries : US
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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GM Asks for Financial Aid Contd...
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Analysts opined that in addition to a poor business strategy,
GM was also burdened with high costs associated with the healthcare and pensions
benefits that it offered its employees. Between 1993 and 2007, GM had spent US$
103 billion in funding healthcare and pension benefits.
In 2008, like other automobile companies, GM faced problems including rising oil
prices and a global financial crisis and economic slowdown which adversely
affected its sales. The company sold 1.7 million vehicles worldwide in the
fourth quarter of 2008, a decline of 26 percent compared to the fourth quarter
of 2007. For the calendar year 2008, GM sold more than 8.35 million vehicles, a
decline of 11 percent compared to the vehicle sales in 2007.
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On December 19, 2008, George W. Bush (Bush), the then
President of the US, announced a financial package for GM. GM got the first US$
4 billion of a series of federal loans amounting to US$ 13.4 billion on December
31, 2008.
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By March 31, 2009, GM was required to fulfill some
'targets' including a two-thirds reduction in debt via a debt for equity
exchange with current bondholders, and a renegotiation of employee
contract terms with the United Auto Workers (UAW)4. In case it failed to
meet these targets by the stipulated time, GM had to repay the loan
amount with interest within 30 days.
GM submitted a 'Restructuring Plan' on February 17, 2009 (Refer to
Exhibit I for the highlights of GM's restructuring plan). The company
stated that it would require more financial assistance from the US
government to continue its operations after March 2009... |
Excerpts >>
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