March 12, 2012
Objective: This case study is to analyze the auto industry (General Motors) and the purpose behind helping the ailing company. One of the reasons that the government should have to bail out a business like General Motor is to preserve jobs, and to create a new generation of fuel-efficient cars, which has been accomplished. The only practical purpose for the bail-out is to slow the decline of GM giving enough time for its workers, suppliers, dealers and communities to adjust to its eventual demise. General Motors, also known as GM, was founded by William C. Durant in 1908 in Flint, Michigan. Durant used $2,000 of his own money, and immediately offered stock that raised $12-million in less than two weeks. With these funds GM purchased Buick and, a month and a half later, the Olds Corporation. GM continued its buying spree, taking over more than two dozen competitors and suppliers. Durant also provided financial backing for Albert Champion's Champion Ignition Company (now ACDelco). This aggressive management strategy resulted in the company acquiring a large amount of debt, due to GM’s acquisitions, leaving the company overextended seeking a five-year financing agreement with a group of Boston banks. A few years later under Durant’s second management now teamed with new shareholders, John Raskob and Pierre S. Du Pont, in 1919 creating General Motors Acceptance Corporation (GMAC), a provider of financing to automotive customers. By now GM had become an unwieldy giant that exceeded Durant's management skills, and the company survived only with further cash infusions from Pierre Samuel Du Pont III, who became President of GM with Durant's departure. GM now under new direction, Raskob and DuPont, is re-structured and modernized. The $25 million GM stock purchase by DuPont stabilizes the company, and the “executive bonus plan” is created by Raskob as an incentive in securing the loyalty of senior...