GM in Trouble


GM in Trouble
Case Code: BSTR320
Case Length: 20 Pages
Period: 2008-2009
Pub Date: 2009
Teaching Note: Not Available
 Price: Rs.400
Organization: General Motors
Industry: Automobiles
Countries: US
Themes: Managing in Tough Times, Slowdown in Global Automobile Industry
GM in Trouble
Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

The case examines the problems faced by GM, the second largest automaker in the world. These problems have brought the company at the verge of bankruptcy. The major reasons for the crisis at GM were its inability to bring out new vehicles that suit the needs of the customers, poor business strategy, and high costs associated with employee healthcare and pension benefits. These problems, coupled with global financial crisis and recession in the economies of several developed and developing countries adversely impacted the revenues of GM, which fell by 11% in 2008 as compared to 2007. In order to solve its liquidity crisis, GM approached the US Government for financial aid.

The company was granted US$ 13.4 billion through a series of federal loans. In December 2008, GM got a loan of US$ 4 billion. The company was required to fulfill specific targets that included reduction in debt, renegotiation of employee contract terms with the unions etc, before a stipulated time as a part of the loan package. If GM failed to meet these targets by the predetermined time, it had to repay the loan amount with interest within 30 days. On February 17, 2009, while submitting the 'Restructuring Plan,' GM asked for additional financial aid from the US government to carry on its operations after March 2009. The case concludes with a note on the challenges GM is likely to face in the near future if it is not able to meet the targets specified. It also debates on whether the US Government should have offered any financial aid to GM at all and let the company file bankruptcy.

Issues

The case is structured to achieve the following teaching objectives

  • Examine the flaws in GM's business strategy that led the company face major problems
  • Understand the reasons behind GM's financial crisis
  • Debate whether the US government was right in bailing out GM
  • Analyze the challenges faced by GM in the near future

Contents

Keywords

GM Corporation, Rick Wagoner, United Autoworkers Union, Pension Liabilities, Healthcare Costs, Global Financial Crisis, Financial Aid, Restructuring Plan, Delphi, US Bankruptcy Code, Market Share, Special Attrition Program, Reorganization, Auto Task Force, Financial Performance, Restructuring Targets, VEBA, Secured Term Loan Facility

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