Gm Case Study

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Joe Yaun
Fin 798
Case Study 1

GM Case Study

The story of the downfall (or down-turn at the very least) of GM began long before the recent recession in which the U.S. has succumb. GM sunk their resources heavily into larger vehicles like trucks and S.U.Vs. In doing so, they neglected an emerging trend towards smaller, more fuel-efficient cars that was occurring around the globe. Additionally, the quality of their products continually lagged behind that of Japanese automakers as outlined by studies of initial quality[1], resale value, and overall customer satisfaction. Another growing concern for GM was the financial commitments contractually required by their labor agreement with the United Auto Workers, notably pension funding and healthcare. With all of these internal issues, GM continued to focus on external factors such as lobbying Congress for tariffs on imported vehicles[2]. When gas prices increased dramatically in 2007, GM had few products to meet the demand in the marketplace for fuel-efficient vehicles. Around the same time, the world was entering a global recession which was further fueled by risky lending by banks. As a result, disposable income decreased, requirements for securing a loan became much more stringent, and demand for automobiles plummeted. GM started burning through their free cash to sustain working capital, debt payments, etc. which put them in a very difficult financial position.

The result of their financial distress left them with two options, file for bankruptcy or raise cash from another source. Since their situation was dire as far as bordering on insolvency, no one in their right mind would actually extend a loan to GM. That left the government as their only alternative for raising funds quickly. GM received $13.4 billion in emergency funding from the U.S. government. As a condition of accepting funding from the U.S. government, GM was to present a plan as to how they were going to address their financial...
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