General Motors (GM) is among the leading car and truck manufacturing companies in the world. The company’s history, which revolves around motorized transportation and car manufacturing dates back more than a century. GM was founded as a holding company for Buick on 16 September, 1908 in Flint, Michigan. The company was first headed by William Durant, who was by then the owner of Buick. Under his leadership, GM acquired Oldsmobile in 1908, and Ewing, Oakland, Cadillac and Elmore in 1909. That same year, GM acquired Rapid Motor Vehicle Company and the Reliance Motor Track Company. As of 2012, the company had employed over 200,000 people in 35 countries where it manufactures its cars and trucks. The company manufactures and sales a variety of automotive brands such as Cadillac, Daewoo, GMC, Chevrolet, Opel, Holden, Wuling, Buick and Opel. Former automotive brands of this company include Hummers, Oakland, Saab, Oldsmobile, Saturn and Pontiac. It is asserted that GM has sold over 17 million cars and trucks in 140 countries all over the world.
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Reasons of the GM’s bankruptcy
On June 1, 2009, GM made history by becoming the first industrial company to file for bankruptcy protection (Pelfrey & Lane, 2010). This is because GM was relying on $20 billion aid from the government to operate. One reason that analysts cite as the cause of the bankruptcy is GM’s mishandling of the Fiat deal. When the company acquired Fiat for $2.4 billion, many people thought that this deal was good. Unfortunately, Fiat’s CEO suddenly died and problems for GM increased. In the end, GM decided to pay Fiat $2.5 billion in 2005 so that it could get out the deal. This move affected GM’s operations and profits, hence the bankruptcy.
Analysts argue that GM became bankrupt because it overacted to the truck boom of 1990. During this period, SUVs were selling very fast and GM wanted to capitalize on this. Therefore, the company diverted its attention to the massive production of SUVs at the expense of other car brands. But things changed in 2000 because the SUV market was shrinking fast. This situation became worse when fuel prices hit record highs in 2008. This wounded the finances of GM, hence the bankruptcy.
Another reason that led GM into bankruptcy is the 2001 terrorist attack. After September 11, the company quickly and decisively offered 0% financing on loans of up to 5 years for its customers. Unfortunately, this deal failed and GM recorded a $3,000 rebate in the following year. Since the deal was so advantageous to consumers, they kept coming and the company was stuck in low-rate financing and cash-back deals for years (Carty, 2009). This increased the company’s rebates to as much as $8,000 to afford this rebates, the company was compelled to keep sticker prices high. It took GM over 4 years to realize that it was impacting its operations negatively with the non-stop deals. In the end, the company’s focus shifted from selling cars to marketing promotions, and this strategy backfired leading to bankruptcy.
Loosing control of GMAC also contributed to GM’s bankruptcy. GM had earned the tag of a bank because the company’s financing arm, GMAC, registered huge profits as compared to its automotive operations. But when GM faced a financial crunch in 2006, it was forced to sell off 51 percent of GMAC to Cerberus for $66 billion in staggered payments and another $7.4 billon in hard cash (Carty, 2009). Analysts argue that this was the biggest mistake that GM made because GMAC was its cash cow. Thus, when GM lost control of their cash cow, it also lost its flexibility, hence bankruptcy. Lastly, GM became bankrupt because it failed to heed to Jerry York’s advice. In a 2006 speech, John York spelled out what GM had to do right in order to remain competitive and profitable. In his opinion, GM had to be more realistic on revenue expectations and market share by cutting down excessive brands and products, and close down or close units that were not making profits for the company. GM failed to heed to York’s advice and things did not go well for the company.