General Motors Case

6463 Words Jun 22nd, 2008 26 Pages
EXECUTIVE SUMMARY

General Motors is primarily engaged in automotive production and marketing and financing and insurance operations. GM designs, manufactures, and markets vehicles worldwide, have its largest operating presence in North America. The core competence of General Motors is innovation. This is the driving force behind its $190 above turnover. General Motors has been utilizing innovation in service ad technology to secure itself a dominant position in the automobile industry, since 1908.

The main problems faced by General motors are declining U.S. automobile market share, high pension costs, rising fuel prices, lack of differentiated products, inability to generate revenues from its core activity (manufacture of cars), over
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2. General Motors pension fund obligations and health care obligations appear to threaten the future of the company. Majority of General Motors’ U.S. employees are members of the United Auto Worker (UAW) Union, which ensures health insurance for its members by entering into contractual agreements with employers. The United Auto Workers’ officers and GM’s senior managers decided decades ago to agree to high pension and health benefits in exchange for reduced increases in wages. Health care benefits are tax-free income for workers. Even retired workers are covered. It seemed like a low-risk deal for GM. Nobody thought about the price effects on health care of Medicare.
The health care market (15% of the U.S. GDP), like all markets, is a giant auction. If bidders get their hands on more money, they will bid up prices. All over America, workers are bidding health care prices. So are retirees.

General Motors is therefore required to incur heavy expenditure on health insurance for its U.S. employees. Healthcare costs have increased by double digit in the past decade and now represent approximately $1,500 of the cost of each vehicle produced, there is more health care than steel in a GM vehicle’s price tag .This is one of the main reasons it lost $1 billion in the first quarter of 2005. Then there are GM’s retirees: Health care for retirees and their families – there are 2.6 of them for every active worker – is 69 percent of GM’s

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