Extended Essay

General Motors Company has played a pivotal role in the global auto industry for more than 100 years. However in 2008, it was almost brought to its knees by a major recession and global credit crisis that drove car sales to near depression levels and dried up private sources of capital. This paper attempts to review what happened to General Motors while analyzing the macroeconomics of its corporate operations.

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

Founded in 1908, General Motors has been one of the largest corporation and the second largest automaker in the world coming after Toyota. For 77 consecutive years from 1931 to 1908, GM has been a leading automaker and marketer as ranked by the total number of units sold yearly. General motors have also been a leading employer not only in the United States but also in other parts of the world where it operates. However, the company has been seriously affected by the current economic crisis. The Detroit Three, led by General Motors have been a backbone of the United States economy and there eminent collapse in the current economy crisis is likely to have negative impacts on the United State’s

Ford’s F-Series experienced a 46% drop in sales for 2006 compared to 2007, making a once most wanted truck in the United States almost abandoned by the consumers. The second and the current recession that began in 2007 brought a new wave of impact on the auto industry. At the time banks were more flexible with approving loans and the interest rates were low which attracted a lot of consumers into the housing market. Since many of them were not able to afford it, eventually they turned to foreclosure leaving them with debt and no credit worthiness; thus, banks started raising the interest rates on auto loans. But foreign competition, higher oil prices, and higher interest rates were not enough to destabilize the auto industry on such a scale; it was the recession that shocked it the most.

This ended its $80 billion bailout with the U.S auto industry. With the stock market being at an all-time high, the Treasury made a 2.4 billion profit on its initial 17.2 billion investment. The Obama administration also required Chrysler to merge with Fiat through a combination of stock sales, partial loan repayments, dividends and interest payments. President Obama did not want the Big Three to look at the government as just a loan office, he wanted a return to profitability to be one of many objectives which called for him to put some regulations into place. His idea was that “if we’re going to help you, then you have also got to change your ways”

The American automotive industry began in the 1890’s. It evolved into the largest industry in the world as a result of the size of its domestic market and mass production.the American auto industry began with hundreds of manufacturers, but by the end of the 1920’s it was dominated by three large companies, General Motors, ford and Chrysler. By the end of the Great Depression and world war 2 these companies prospered making the U.S the country which provided three quarters of the worlds vehicle . They however did not remain number one, Japan overtook the market in the 1980s and China in 2008., making the U.S second in the world. The impact of the global market caused the American auto industry to suffer considerably. Japan and China were producing more vehicles at cheaper prices. Labor cost were cheaper therefore companies took their factories to these countries. In 2008 the American auto industry was on the brink of collapse . Access to credit for loans decreased and sales plunged by 40 percent. Chrysler and GM both sort

In the 1990s the auto industry made up 2.5 % of the GNP and employed about 850,000 people. At the time that was about 4.5-5 % of all manufacturing workers (wong, 1990). Then during the early 2000s labor productivity was increasing greatly, but the American auto-makers failed to produce energy-efficient cars for the energy crisis. When the recent recession hit the U.S. automakers had a major setback causing a cut in employment, production, and huge loss in revenue. After the government bailout the industry improved, by 2012 sales, exports, and employment rose to a new high. It’s now 2014 and we are still getting out of the recession but due to government decisions, deals made between companies, and increase in jobs, sales have increased dramatically.

The biggest economic factor that affected the automobile industry is the global recession of 2008-2009. During this timeframe, many homeowners purchased homes they could not afford thinking that house prices would raise and in reality the prices fell, which led to foreclosures across the nation. Thus, many banks lost money due to financing home loans, which further caused several banks to be bailed out by the government. Once the home market crashed, Americans stopped spending money on luxury items such as cars and focused more on necessity purchases.

In recent years, the global recession has made a huge impact on the company cash flows and its financial situation. To sustain as a global leader in the highly competitive automobile industry the GM needs to have its own strategic plan to produce the next generation of vehicles and it has got no time to delay. This is a crucial time for automobile industry with many threats, but opportunities as well. The company has to choose the best "opportunities" to overcome the "threats" and "weaknesses" using its "strengths". The next several years will redefine

In 2008 and 2009, a series of bailouts were provided to General Motors and Chrysler, due to slowing car sales and massive quarterly losses. Unions buckled due to the fact that they received much higher wages, and more luxurious benefits than their non-unionized counterparts. In 2006, Consumer Reports top ten car picks were Japanese (Noe). Parts makers were quick to move jobs overseas, where laborers were willing to work for much less money. In 2008, GM closed 14 factories, 2,000 dealers, and cut 47,000 employees. All of these factors, among numerous more, were responsible for the collapse of the economy on a national and global scale. Gasoline prices soared during the energy crisis which lasted from 2003-2008. Consumers moved from buying SUV's and trucks to more fuel-efficient cars, such as hybrids. This was especially disconcerting considering that these larger vehicles were the most profitable for the automakers (MSNBC). The market which was hardest hit was that of the parts-makers, which saw their cash flow cut in half, since automakers were rushing to cut production (Economist). GM filed for bankruptcy 32 days after Chrysler, effectively making GM the fourth-largest company ever to file for bankruptcy (Carty). According to Darwin Bible, "probably one of the worst things about it has been watching all the stress on workers' faces and their families' faces" (Carty). Overall mental health is rapidly

Overall, the Canadian government’s bailout of these automobile manufacturers was a mistake. Not only is it illogical to financially reward a company that reacted poorly to economic uncertainty, it also creates an immense moral hazard. Since the rescue package has done very little to protect Canadian jobs and goes against public and expert opinions, it only seems to be benefitting the executives that created a need for the bailout in the first place. As a result, automobile manufacturers as well as other corporations will begin to believe that no matter how many bad

GDP and interest rates dropped dramatically, inflation increased, and unemployment rates spiked. This was the year that Ford was most negatively impacted. Strategies and reorganization that had been put in place in the previous years were not enough to mitigate the losses. Sales volume dropped by 8% and Ford experienced record high losses. While several measures were implemented to stimulate economic activity, a deep recession continued throughout 2009. GDP had its biggest drop causing deflation. Additionally, interest rates had dropped to an all-time low. The automotive industry, along with other industries, had to scale back resulting in a huge spike in unemployment rate. Although Ford’s sales dropped enormously, the scale back contained their losses, allowing Ford to become profitable again since

These figures probably come as no surprise by current market standards and expectations; however, these figures also suggest and demonstrate an important shift in the US auto industry in general. No more are the days of the “Big Three” and their dominance of the market without foreign influence and challenge. The US auto industry is alive and thriving with an abundance of oversea firms and production that has captivated and elevated the consumer auto market domestically and will continue to do so for the foreseen future.

So in an attempt to save the economy the American government together with the Canadian government stepped in with the Trouble Asset Relief Program (TARP) a massive bailout of $85 billion to allow these companies to restructure and save themselves both General motors and Chrysler fied for this protection by 1 June. Both companies came out of the recession with new owners, General Motors was primarily owned by the United States Treasury and Chrysler by United Auto Workers and Fiat S.p.A an Italian automaker.

Also, Chrysler had asked US government for help. By the end of 2008, US government provided $4 billion to rescue this auto giant. Then the US government pressurized the creditors (the debt valued $6.9 billion) made significant concessions. And four main loan institution with 70% liability agreed settle these debts with $2 billion, which paved the way for a radical