Enterprise Risk management at General Motors
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Case Details:
Case Code : ERMT-027
Case Length : 09 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : General Motors
Industry : Auto and Ancillaries
Countries : Global
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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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Background Note
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In the early years of the auto industry, hundreds of car makers produced a few
models each. Sensing an opportunity for consolidation, William Durant formed the
General Motors Company in Flint, Michigan, in 1908. Durant bought 17 companies,
some of which included Oldsmobile, Cadillac, and Pontiac.
Then a bankers' syndicate forced him to step down. In 1915 he regained control
when he formed a company with racecar driver Louis Chevrolet. They soon formed
GMAC and bought businesses including Frigidaire (sold in 1979) and Hyatt Roller
Bearing.
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Overview of Risks
Changes in economic conditions, volatility in financial markets, significant
terrorist acts, or political instability in the major markets where GM procured
material, components, and supplied principal products might affect the company's
performance. Shortages of fuel or interruptions in transportation systems, labor
strikes, work stoppages, or other interruptions might adversely affect its
performance...
Legal Risks
Like most domestic and foreign automobile manufacturers, over the years GM had
been using some brake products incorporating small amounts of encapsulated
asbestos. These products, generally brake linings, were known as
asbestos-containing friction products. There was adequate scientific data
demonstrating that these asbestos-containing friction products were safe and did
not create an increased risk of asbestos-related disease...
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Market Risks
GM was exposed to fluctuations in foreign currency exchange rates, interest
rates, and certain commodity and equity prices. GM entered into a variety of
foreign exchange, interest rate, and commodity forward contracts and options, to
hedge these exposures. A risk management control system was utilized to monitor
foreign exchange, interest rate, commodity and equity price risks, and related
hedge positions. GM also measured the sensitivity of the fair value of financial
instruments. The analysis assumed instantaneous, parallel shifts in exchange
rates, interest rate yield curves and commodity and equity prices... |
Derivative Instruments: Accounting & Valuation
GM's financial exposures were managed in accordance with corporate policies and
procedures. All derivatives were recorded at fair value on the consolidated
balance sheet. Effective changes in fair value of derivatives designated as
cashflow hedges and hedges of a net investment in a foreign operation were
recorded in net unrealized gain/(loss) on derivatives, a separate component of
accumulated other comprehensive loss...
Exhibits
Exhibit I: General Motors: Financial Highlights
Exhibit II: General Motors: Sensitivity Analysis
Exhibit III: General Motors: Financing & Insurance Operations
Exhibit IV: General Motors: Fair Value of Financial Instruments
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