The Effect of a Struggling Economy on the Auto Industry Essay

Then, on June 1, 2009, General Motors filed for Chapter 11 bankruptcy after failing to successfully negotiate deals with bond holders (Start Fresh Today 2012).

In late 2008, General Motors was in financial distress due to some major financial liabilities. These included

The automotive industry was the most adversely affected in the crisis. The effects of the Great Depression also set the stage for another huge moment in the American automotive industry. During the depression, automobile companies had to make financial sacrifices to stay in business, and the working conditions of their employees worsened. Hours got longer, pay cuts were rampant, and strikes and walkouts became worse. This would lead to eventual unionization of the automotive workers in the late 30s and early 40s. The formation of the UAW in 1935 and its huge growth in subsequent decades drastically changed the landscape of the industry for both auto companies and their workers. When the depression ended, there was a large increase in replacement demand. More families could afford to purchase cars, and those who already had them were looking to upgrade to newer models.

The sign of GM’s impending financial distress is first seen in 2005. GM reported a net loss of more than $10 billion and has continued to post annual losses since that time with losses reaching almost $31 billion in 2008. GM's cash flow from operations in 2005 was a negative $16.8 billion.

In the hyper competitive world of today’s mega corporations controlled by the sway of the stock market, giant old industrial era companies rule over the automobile market in the United States as well as large parts of the global automobile market. Companies such as General Motors, Chrysler, and Ford were at the center of it until the economic crisis now known as the Great Recession of the late 2000s. The whole market was declining in sales with General Motors and Chrysler taking the biggest hits while Ford only suffered decline comparable to foreign automakers’, Honda and Toyota, levels due to restructuring in prior years. However, the tipping point was edging closer to bankruptcy with General Motors and Chrysler that ultimately

1. Reviewing GM’s financial information in GM Exhibit 1 and its stock price in GM Exhibit

Think of it this way, all of the debt, problems, and poor choices made by the notoriously distinguished old GM were put on a boat (Motors Liquidation, Inc.) and given a viking burial (code 363 liquidated (sold in parts for as much profit as possible)) while every asset went to a new company convolutedly called General Motors. Basically, New GM made out like a bandit.

In the latter part of 2008, the United States’ economy was rapidly plummeting - the stock market crashed, the housing bubble burst and gas prices skyrocketed. The majority of U.S. based firms faced the reality that they would not be able to survive during such desperate economic times. The U.S. automobile industry, in particular, began to buckle under the depressed economy. The government stepped in proposing a multi-billion dollar bailout to stimulate the economy and restore economic balance. The possibility of this unprecedented government intervention was condemned by many economists. If the government helped the ailing automotive industry, this industry would have to tighten their expenditures and plan for the future to prove to

1. The sign of GM’s impending financial distress is first seen in 2005. GM reported a net loss of more than $10 billion and has continued to post annual losses since that time with losses reaching almost $31 billion in 2008. GM's cash flow from operations in 2005 was a negative $16.8 billion. Reviewing GM’s stock price, we can see that the stock price also decreased dramatically started in 2004 to 2008. In 2005, GM’s stock traded around $19 per share and reached the lowest of $1.45 per share on March 2009.

The 2008 financial crisis was a difficult time for all participants of the automobile industry. Jackson Automotive System’s reluctance to carry debt coupled with a strong working capital position and a conservative financial policy helped bring the company through the financial crisis. After the

challenges, however, are the most difficult ones to face and overcome. Some environmental issues that

General Motors is one of the world's most dominant automakers from 1931. After 1980s economic recession the main goal for automobile companies was cost reduction. Customers became more price-sensitive. Also Japanese competitors came into market with the new effective system of production. So market was highly competitive and directed toward price reduction. The case states that in 1991 GM suffered $ 4.5 billion losses and most part of the costs of manufacturing was due to purchased components. GM NA hired Lopez in order to find the way from "extraordinary" situation and reduce costs.

Forwarded here with a term paper report on “General Motors Bankruptcy” submitted by Siddharth Dixit Enrollment No A7004611108 student of

The financial crisis starting in 2008 and the following recession hit hard the US auto sector. Traditional car makers had to realise that substantial changes were needed in order to maintain their strong position in the

Global competition is an important factor for many industries including the auto industry because a breakdown to it 's simplest form, personal accomplishment and group camaraderie is achieved in the process. What is something if it doesn 't mean something to someone else? To illustrate this, I look at the most innosent form of competition between my two dogs. One was whining because the other had the ball. I threw out two balls and they fought over the newest one. The essential point is the same with people. We find value in what other people want, especially if it is popular or new. It makes it seem more valuable. We also find value in knowing that we have others wanting to beat us at what we do. Look at American football for instance. Everyone wants their team to be the top team and we pay a lot of money, and spend a lot of energy to watch the fight and engage in the rivalry. Competition is good because it creates something to out-perform. It creates a sense of worth that what we are doing is making a difference even for a short time. "Americans dominated the industry in the first half of the twentieth century" (Bland, n.d.) However, " By 2000 Japan became the largest car producing nation in the world." (Bland, n.d.) When a country finds a product that they can manufacture well, we find global customers that will pay for exports. This helps our economy flourish because it creates jobs. When that same company has global pressure to