General Motors Company

By Author: Anthony W Bills
Total Articles: 158
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General Motors Company
Forecasting and Control Charts
Introduction
General Motors Company (GM) is a car manufacturer from the US. It has branches in 34 countries and carries out operations in 140 countries. For the last two decades, US based car manufacturers GM, Ford and Chrysler have been losing their share of the market steadily to. As a result, the three companies have been undergoing restructuring which was further emphasized by the recent economic recession. In particular, errors made by GM have made the company to lose billions of dollars. In 2008, GM made a loss of $9 billion. In the same year, the company sought to get $12 billion from the US government and also approached Ford and Chrysler for a merger. The two giants however declined and chose to remain independent. Experts blamed the sales decline of GM on poor management and inefficiency. The Saturn, Pontiac and Saab brands were especially losing terribly and have proved to be running very inefficiently. In June 2009, GM filed for bankruptcy under in order to reorganize. This was granted in July and the reorganization left the US Government ...
... owning the greatest share of the company. So far, GM claims to have paid back the government’s loan and has expressed plans to sell shares to the public in the stock market in order to buy the remaining equity. Among the errors that GM has made and has been struggling to correct are manufacturing poor quality vehicles, poor marketing strategies and outdated production methods. The company has also been spending heavily on employees’ salaries.
Under the new restructuring process, GM plans to unveil 12 new car brands before 2012. So far, it has released two brands which have been received very well in the market; both local and international. These are the 2010 Chevrolet Equinox and the GMC Terrain. The two cars have been awarded the Top Safety award. This award is given to vehicles which are considered to be very safe. For a long time, GM has been struggling to cut down its spending on salaries. This reached its peak in 2009 when a hefty portion of its workforce was laid off. Currently, GM has reduced the wages of more than 16,000 jobs from $ 51 per hour to $ 28, a drop of about 45%. Under this program, current employees will not get the cut but will be persuaded to retire. Plans are underway to bring in outsourced labor at the new rates. The table below shows the financial trend of GM since 2006.
Year 2006 2007 2008 Last Qtr
Assets (Bn. Dollars) 186,192.0 148,883.0 91,047.0 82,290.0
Source: S&P index data: S&P 500 Copyright © 2010
It is evident that the company has been going down the road through the span of this period. Even the 2009 bailout will not be enough to keep GM afloat. The chart below shows the scenario after getting the government loan and carrying out the proposed restructuring.

A critical look at the problems facing GM will reveal that the company has a lot to do in order to survive in the market. One important question that ought to be asked is the core source of GM’s problems. The fact is that GM’s sales have been dipping steadily. The reason for this is that people prefer to buy Toyota and other Japanese cars to GM brands. This is because these cars are cheaper and the consumers are comfortable with their fuel consumption. GM brands are known to be gasoline guzzlers and needless to say, with a contracting economy and rocketing prices, the consumer will go for the most cheaply maintained cars. A simple comparison is that of a Hummer and a Toyota Prado. First, the Hummer is many times more expensive to purchase than the Prado. Second, the fuel consumption of the Hummer is much more than that of the Prado, and third, Toyota parts are very cheap and readily available anywhere in the world. This is in deep contrast with Hummer parts which are very expensive and not so readily available in the market. Considering these facts, it’s obvious that the consumer will go for the Toyota and not the Hummer. Not many people will buy a Hummer just because it’s American. They will go for a serviceable car that they can comfortably afford. A good starting point for GM is therefore to start manufacturing low fuel consumption cars and trucks. People are economically squeezed and do not want to get deeper in the mess. Once the company starts manufacturing these cars, then it will be in a position to compete with the Japanese car manufacturers. The second step would be to produce cheaper car with cheaper parts. Instead of producing a few expensive elite cars, GM should aim at producing more cars which will cost less and will have cheap and readily available parts. This is the only way to beat the Japanese cars in the market. Nowadays, people do not buy a commodity simply because it's American. They want value for their money. The other strategy would be to close all non-performing brands like Pontiac. In fact GM should downsize to fewer performing brands in order to be viable.
GM’s sales projections for this year are 12 million units. This is the lowest in the recent past years. The projection for up to 2012 is as illustrated in the following table:
Year 2007 2008 2009 2011 2012
Sales (Million) 16.5 13.7 12 14.5 15
The 15 million estimate is far much lower than the industry’s average of the last 9 years which is 17 million. Below is a table showing the liquidity outlook of GM.

Global Liquidity of GM for 2008- 2012 – Baseline Scenario

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