Synopsis of Case
This case analyses the changes in GM’s strategy and structure of over time beginning with its “birth” and the business model Alfred Sloan developed for the company in the 1920s, through its attempt to compete with low-cost Japanese competitors, and then to its bankruptcy in June 2009. Sloan’s original strategy was one of differentiation that enabled GM to become the leading carmaker and the largest company in the world. However, its focus on differentiation over time blinded GM to the need to control costs, when confronted with the realities of low-cost Japanese competition in the 1980s and 1990s the company had no quick way to respond. Throughout this period GM invested over $100 billion to improve its technology to reduce costs and increase quality such as investments in automation, in its new Saturn division, and even in joint ventures with Toyota to learn that company’s lean manufacturing techniques.
GM also engaged in a massive downsizing process and in a structural reorganization to reduce costs and streamline its operations. This investment in new technology and change in organizational structure seemed to payoff in the 1990s as GM, and the Big Three US carmakers achieved some success and slowed the fall in their market share. However, the case documents how GM could never match the progress made by its Japanese competitors so that despite its improving performance it kept falling behind because its high cost structure made it almost impossible to compete against efficient global carmakers.
The Term Paper on Assignment: Leadership and Cost Company
COST Company tried their best to grasp the sophisticated technology, thus the COST Company used highly to training the professionals, like the geologists, geophysicists, and the engineers. The COST Company also trained the skilled and semiskilled labor that run the company’s field operations. On the other hand the professional labor and the skilled labor, the two groups always occurs the clashed. ...
Teaching Objectives
The main teaching objectives of this case are as follows:
1. To demonstrate the relationship between strategy and structure and to show how one affects the other. 2. To show the benefits of a successful differentiation strategy but also to show how a focus on differentiation can drive out a concern for low costs. 3. To show how increasing global competition in the environment from the emergence of efficient competitors can totally disrupt the strategy of a successful company. 4. To demonstrate the problems and expense involved in developing the distinctive competences that are necessary to regain competitive advantage in a more competitive industry environment. 5. To illustrate the dynamics of global competition and the problems associated with developing a global structure. 6. To show the importance of managing the relationship between product differentiation and a company’s cost structure in order to maintain profitability over time.
This case is best used in sequence after the Global Auto Industry and Toyota cases have been discussed. At this point, students will understand the dramatic changes that have taken place in competition in the domestic and global auto industries in the last few decades, and will understand the competitive issues involved. They will appreciate the problems that GM faced when its differentiation advantage disappeared and it was left as a high-cost carmaker competing against a set of more efficient and effective Japanese and global car companies. The GM case shows dramatically how changes in the environment can threaten the viability of a company’s business model and how regaining competitive advantage once it is lost is a difficult process that can take decades, assuming it can be done at all.
Strategic Issues and Discussion Questions
1. What strategy was developed by Henry Ford to compete in the car industry?
Henry Ford developed a low cost strategy for his company and pioneered the introduction of mass production to reduce manufacturing costs. To pursue a low cost strategy Ford made the appropriate product/market/distinctive competence choices: First, he developed a mass market for his car by offering only one model of car to the whole market. Second, he limited the level of product differentiation–all Model T’s were highly standardized. Third, Ford chose to develop a manufacturing distinctive competence and to perfect materials management techniques to try to standardize the quality of car components so that cars could be assembled easily and cheaply. These three choices allowed Ford to develop a successful cost leadership strategy and become the market leader.
The Term Paper on Identifying Segmentation Strategies Target Market
Abstract This report mainly focuses on the AHBAI website, promoting their Proud Lady hair care and beauty products and merchandise. Their main focus is on the large Black Community within the US, but they are also starting to go abroad as well. They provide job opportunities, scholarships and training within the desired industry and are a thriving association in representation of Black-owned ...
2. What was the strategy that Alfred Sloan developed to given GM a competitive advantage over Ford and why was it successful?
Sloan’s strategy for GM was one of broad differentiation. He took GM’s 25 independent car companies and organized them into five independent divisions. Each division became responsible for producing a range of cars aimed at a specific socio-economic segment: Chevrolet produced for the low end of the market, Pontiac, Oldsmobile, and Buick for progressively more expensive market segments, and Cadillac produced for the luxury segment of the car market. Sloan’s strategy was to give each division a unique image by decentralizing all engineering and design decisions to each division, and each division was also responsible for the marketing of its cars.
The pricing of the cars from the divisions was set so that customers were always confronted with the temptation of upgrading to a more expensive model of car, or to a car from the next most expensive division. In this way, Sloan sought to keep customers by having them switch between GM divisions rather than to the cars to of a rival like Ford.
Thus, in terms of product/market/distinctive competence choices, Sloan first decided to pursue a high degree of product differentiation and compete according to the uniqueness or distinctiveness of GM’s product range. Second, Sloan carefully segmented the market and pursued a pricing policy tailored to each market segment. Third, he imitated Henry Ford’s mass production techniques to reduce GM’s manufacturing costs. GM’s costs were higher because of the extra costs associated with producing a broad range of models. However, GM’s differentiated pricing policy allowed the company to recoup these costs, and the philosophy that “big cars mean big profits” was developed at this time because cars from the more expensive divisions such as Cadillac and Buick also had the highest profit margins. In 1990, the profit margin on a Cadillac was over $5000, but the profit margin on a small GM car was only a few hundred dollars.
The Term Paper on Strategies to reduce E-waste
Produced by over consumption of electric and electronic devices As the population of the world increases rapidly, the rate of consumption of different materials is also increasing; therefore there is an associated increase in the production of waste. This over consumption of materials can be seen in many areas: waste of energy, natural resources and the trees used for the production of paper. One ...
Sloan’s strategy of broad differentiation was immediately successful. Consumers were willing to pay more for the differentiated appeal of GM’s cars, and soon the sales of the Model T plummeted and Ford was forced to close down his production line while he retooled to produce a wide range of models that could be differentiated to suit different customers tastes. However, it was too late, sales of GM’s cars leaped because of Sloan’s differentiation strategy and GM became the largest car company in the world.
3. What structure did Sloan adopt for GM and how did its structure support its strategy?
To ensure that each division did develop a product that had a unique appeal, and yet at the same time to retain control of GM’s far flung operations Sloan adopted the multidivisional structure that he copied from Du Pont, the first company to develop it. Each car division had its own set of support functions–most importantly its own engineering and design–and was treated as an independent profit center. Sloan developed a strong corporate staff to monitor and evaluate the performance of the divisions which were in a competitive relationship with one other because their performance could be directly compared by ROIC, for example.
Sloan also increased efficiency by establishing equitable transfer prices for component parts between divisions and established financial controls so that the corporate center could best allocate capital among divisions. Over time, GM increasingly pursued vertical integration as the internal purchasing needs of the divisions grew so much between 1925 and 1965 that eventually more than 60% of GM’s inputs came from suppliers that it owned. GM had over 500 supplier divisions that worked with its five car divisions; controlling interdivisional relationships became a time consuming task for GM’s corporate managers and the size of the corporate staff increased dramatically.
The Research paper on Flavored Mineral Water Strategy Japanese Market
South Beach Company (So Be) Flavored Mineral Water Strategy - Japanese Market INTRODUCTION: South Beach Beverage Company, So Be, makes and markets herbal enhanced beverages. These beverages, called "healthy refreshments" have been designed to market to active persons concerned with their health. Other products that So Be sells online are hats, shirts, limited collectibles, children's clothing, ...
4. In what ways did changes in the competitive environment of the car industry affect GM’s strategy in the 1980s?
The oil crisis and the emergence of low cost, high quality Japanese competition caused major problems for GM. The oil crisis led consumers to demand small, fuel efficient cars, the opposite of the large, gas guzzling cars that GM made. Japanese producers like Toyota and Honda, and European producers like Volkswagen manufactured the small cars that consumers wanted. Increasingly consumers switched to their low priced vehicles that the increasing price of GM’s models (due to its high costs) had also made very attractive. GM was left with little that it could do in the short run to answer the Japanese challenge. Its US division had not developed skills in small car production and although its European division had these skills it proved difficult to transfer them to the U.S. GM began to lay off hundreds of thousands of workers as the demand for its cars plummeted. It was forced to search for ways to fight back.
5. What functional-, business-, and corporate-level strategies did GM adopt to regain its competitive advantage in the 1980-1990s?
Reeling under the attack from more efficient competitors, GM used its huge resources to fight back on several different fronts in order to increase efficiency, quality, and customer responsiveness. Under its new CEO, Roger Smith, GM began a number of different programs at all levels of strategy to increase quality and reduce costs.
Functional Level-Strategy GM spent $50 billion to improve and update its technology and learn lean manufacturing techniques (See Toyota case).
Massive investments were made in automation and robotics and in developing advanced manufacturing techniques. Critics, however, claim that GM never realized the importance of upgrading the skills of its workforce and of adopting a team approach to assemble cars. As a result, the potential gains from the new technology were only achieved slowly. To learn new manufacturing techniques GM also entered into a joint venture with Toyota (NUMMI) and then started the Saturn project. Saturn was an attempt to build a distinctive competence in lean manufacturing from the ground up which would then be transferred to all of GM’s plants. These ventures were successful in increasing GM’s vehicle quality, but they did little to reduce costs and GM has never been able to reach the low costs obtained by Japanese.
The Business plan on J & G Garden Center: Lawn Care Services Division
This combination of land acquisition and building construction resulted in very low overhead for the business, which contributed to their start-up success. An addition to the building completed in 1991 included several new and related product lines such as garden tools, soils and mulch products, gifts, seeds, and related accessories. Gloria had earned a horticulture degree at the local community ...
Business-Level Strategy The major thrust in GM’s strategy was to find ways to reduce its high cost structure, while still making vehicles US customers wanted to buy. GM was still pursuing the broad differentiation strategy from its old days, it made over 80 different models using over 15 different platforms in the 1980s and each platform used a different set of components.
However, GM could no longer afford to do this, it had to find ways to reduce manufacturing costs. So, GM imitated the Japanese and reduced the number of different platforms it used to manufacture its cars from 14 to 6 by 2000. Second, it created its Saturn division in the attempt to find new ways to reduce costs across all its small and medium sized car operations. However, while its Saturn division was able to produce a higher quality car, it never provided GM with an opportunity to gain a low cost advantage because GM’s cost structure was simply too high. Third, to reduce costs and achieve economies of scale GM consolidated many of its functional activities, for example, engineering, R&D and purchasing at the corporate level to reduce costs.
One unfortunate result of GM’s attempt to reduce costs was that its differentiation advantage disappeared in the 1990s as different brands of its cars used the same design specifications and components so that many of the cars made by its different divisions started to look alike. The similarity between a Buick and Cadillac, for example, led to a huge decline in the sales of the Cadillac Division. GM’s thrust to reduce costs had led it to become stuck in the middle–its costs were not low enough to compete with its Japanese rivals, and its cars had lost their differentiated appeal to its established US customer base. GM began to experience huge losses and to correct its mistakes GM decided to give more control over design and engineering to its vehicle divisions so they could develop unique and distinctive images for their cars. However, GM kept R&D and purchasing centralized to reduce costs and it insisted that each division’s design activities had to be compatible with its overall strategy to reduce the number of platforms and components necessary to build its vehicles to a minimum.
The Research paper on Care Usa Marketinganalysis Relief Brand One
Care USA Case Analysis Executive Summary: Care USA has been suffering from a lack of a brand identity amongst its primary donor group, this has lead to Care USA to restructure its marketing communications to increase support from the private sector. Reduction of Care USA's humanitarian relief projects, merging of all Care International groups, and collaboration with other relief organizations are ...
Corporate-Level Strategy At the corporate level GM attempted to reduce its level of vertical integration and to increasingly outsource purchases of inputs whenever possible and to try to improve the efficiency of both its internal and external suppliers. GM worked to standardize inputs across divisions to reduce costs and to reduce the number of inputs that go into its cars to reduce costs. GM announce that it would spin off large supply divisions like Delco into independent companies that could supply the needs of GM and its competitors to try to increase each supply division’s efficiency. In 1994, however, GM’s inputs costs were still around $500 per car higher than its rivals.
Global Strategy As the case relates, GM formed a series of alliances with other global carmakers during the 1990s and 2000s in the attempt to offer its customers a wide range of premium differentiated vehicles. In part this was driven by the merger between Daimler Benz and Chrysler, and Ford’s acquisition of Jaguar and Volvo. GM formed various alliances with Japanese carmakers to learn lean manufacturing techniques and in Europe it bought Saab Motors, and took a 20% stake in Fiat with the option to buy the remainder of the company. The problem for all the Big Three U.S. carmakers was they were forced to pay a high price for companies that did not possess state of the art technology, and GM, Ford, and Daimler, had to pump hundreds of millions of dollars into upgrading their new global divisions to make the competitive with Japanese carmakers which by now had opened many new manufacturing plants inside the US and the European Union.
All global carmakers have spent the last decade building flexible assembly plants to create the most cost-effective global supply chain that will allow them to make cars that can be tailored to the needs of customers in different countries and world regions. Model design, as well as price, that is, differentiation and low cost has become the most profitable way to compete on a global level as more sophisticated customers demand a better mix of features, styling, fuel economy, and price. Nevertheless, GM did not make good use of its retained capital during the last decade, it failed to pursue an asset reduction strategy that would have shrunk the company at a much faster rate in order to reduce the huge losses it was now experiencing.
GM’s managers continued to believe they could fight back and regain their company’s former competitive position –despite the fact that competition in most major global markets was now increasingly dominated by efficient Japanese companies. Similarly, GM’s sale of its component divisions such as Delco was pushed by low-cost global competition and the development of specialized efficient global suppliers. Since GM was the most vertically integrated US company it has had the most difficult job to reduce component costs–but Delco has also struggled to reduce costs because it inherited GM’s pension and benefits obligations to its UAW employees, as discussed below.
6. What were some of GM’s biggest competitive challenges in 2000s; why was it unable to meet them? Problem models and brands A main problem facing GM for the last decade has been to find the right way to brand and market its cars inside the US, the biggest and most profitable market in the world. For example, although it achieved some success with its Cadillac brand, its Oldsmobile division had lost its customer base and so was closed down. Similarly, its Pontiac and Saturn divisions had lost customer support by the 2000s because their models were aging and unattractive compared to the constant flow of new models being introduced by its Japanese and European rivals. To fight back GM focused on its Chevrolet division in order to launch its new models of SUVs and trucks that were in strong demand through the 2000s until oil hit $4 a gallon in 2008 To promote its SUV sales GM acquired the Hummer brand from AM General Corp in 2000.
However, GM’s small and mid-sized car business was stuck in the middle, it had failed to develop models that could compete with global competitors and unprofitable models and brands were closed down. In 2002 it ended production of its Chevrolet Camaro and Pontiac Firebird because it had lost this market niche for sporty cars to Ford, Nissan, and Toyota. In 2003 it started to reduce its entire range of midsize US car models and focus on a few strong brand names; GM’s strategy was to introduce 10 new or restyled mid-size vehicles by 2006 to regain market share—despite its high cost structure. However, these vehicles simply could not compete with the ever advancing styling and fuel efficiency of its Japanese competitors, hundreds of millions of dollars were lost.
A High Cost Structure GM spent hundreds of billions of dollars since 1980 to update and revamp its factories and improve its car-assembly skills, to redesign its vehicles to appeal to modern customer needs, and to improve customer service. But GM’s profitability did not increase because none of its CEOs confronted and solved the huge problems that resulted from the legacies of its prosperous past: from its past union contracts, its huge car dealer network, and its high-cost internal suppliers. GM’s CEOs only dealt with its problems in a “piecemeal’ fashion. Little by little they worked to spin off its internal high-cost component suppliers and reduce its value-chain costs as discussed above, but they never caught up with their competitors. One reason it took GM so long to take major corrective actions is because of its complex long-term agreements with the United Auto Workers (UAW) Union. Until the 1980s, GM’s high profitability and dominance of the US vehicle market meant that it was hard to resist the UAW’s demands for higher pay and benefits, especially pensions and health care benefits.
When Japanese carmakers ended this fortunate situation GM, like Ford and Chrysler, found itself saddled with strict union rules that prevented it from retraining and moving its workers from job to job or from laying off employees or closing down facilities except at a high cost. If employees were laid off, one rule GM had agreed to was that they would be paid 60% of their salaries. Also, rising healthcare costs, which had not been considered an important factor, became hugely significant in the 1990s, as did GM’s pension liabilities to its former and current employees. In 2002, it was estimated that GM had over $45 billion in unfunded liabilities. And, GM still paid its workforce much more than its competitors in benefits, for example, GM paid an average of $35 for each employee’s pension and medical costs compared to the $11 Toyota pays for the same benefits.
It has been estimated that the costs of paying these high pensions and benefits gives Toyota and Honda a cost advantage of about $1500 a car—which is a major reason for their higher profitability. In 2004, although Toyota’s revenues were 33% lower than GM’s, its net earnings were 60% higher; Toyota’s ROIC was almost 6% in 2004, while GM’s was 1% and Ford’s 0.6%. And one major reason for this was that although GM had made major reductions to its corporate, divisional, and functional staff, it still employed tens of thousands of managers it could not afford given its weak competitive condition. So, at the input (component) and throughput (design and production) stages of the value chain GM’s cost structure was strangling its profitability; and at the distribution stage its contracts with its 5600 car dealerships also were draining its profitability. Each of GM’s brands were distributed by different car dealerships, and all these dealerships had contracts that guaranteed them a supply of cars and favorable financing from GM’s financial division, GMAC.
When GM’s vehicles were market leaders, its many thousands of dealerships were a competitive advantage. But once it was forced to reduce the number of models of cars it produced, and when it was forced to shut down divisions such as Oldsmobile, these dealerships became a major liability—and it was locked into contracts with them. The greater the number of dealerships, the higher GM’s distribution, financing, and operating costs and when GM’s sales plunged in the 2000s its excessive number of dealerships cost GM billions of dollars a year. Indeed, in the 2000s the main reason that GM remained profitable at all was because of the profits made by its financing division, GMAC. This division earned the company the billions of dollars it needed to offset the losses made by its vehicle production operations. The bottom line was that GM made most of its profit by financing the sale of its vehicles to customers, rather than by actually making the vehicle itself.
7. What factors caused a crisis for GM in 2008 that led to its bankruptcy in 2009?
First , in 2008 gas prices had risen to over $4 a gallon and GM was struggling with a vehicle lineup composed of gas guzzling SUV’s and trucks that no longer matched customer demand for smaller, more fuel-efficient cars. Second, despite GM’s claims that it intended to reduce the range of its different models to lower its cost structure, its managers still continued its old strategy of diluting brands and brand cannibalism. For example, in 2008 Chevrolet introduced the Traverse, a crossover vehicle that was based on a ‘lambda platform.’ But Buick and GMC had already released crossover vehicles under their brand names based on exactly the same platform–and Saturn’s crossover looked exactly the same. Why would GM produce four different versions of the same car if its goal is to reduce its cost structure? Finally, GM also decided its Pontiac brand should be downsized and decided to eliminate all but two of its models by 2010, but why the wait (it announced it was closing the division in 2009)?
Clearly, the overhead fixed costs of maintaining the Pontiac brand are enormous, and one reason was its contracts with Pontiac car dealerships and the UAW. Once again, a major change in strategy to eliminate a major drain on its profitability could not be pursued; exit costs were just too high Similarly, its large, gas-guzzling Hummer brand has also become a major liability since 2008. The Hummer brand used to have status as a “macho” exclusive SUV but by 2008 it too was seen as a gas-guzzling dinosaur out of synch with customer tastes for new, greener vehicles. GM put its Hummer brand up for sale in late 2008. GM also shut down 3 plants in the fall of 2008 that produce its large expensive Cadillacs, Hummers, and GMC cars and trucks because their sales plummeted. In an unusual move to strengthen its business model in October 2008 GM and Chrysler managers met to consider a merger to unite their vehicles lines, a move that would once again raise GM’s US market share to over 33%. But, would this merger also increase profitability?
Chrysler’s vehicle brands are in worse shape than GM’s, they are aging, unreliable and have no competitive advantage that would stop overseas carmakers from continuing to takeaway US carmakers market share. Talks ended after growing public criticism of a merger that was seen as designed mainly to help GM’s managers avoid bankruptcy. The economic recession that started in 2008 was the precipitating factor to GM’s bankruptcy. By the end of 2008 the recession led to a meltdown of vehicles sales, in the US sales fell by over 40% and GM’s top managers had to confront the fact that their strategy of offering global customers a broad line of premium to low-cost branded vehicles had been a total disaster. Not only had this prevented them from bringing their supply chain management costs under control, it had diluted the company’s resources by forcing it to make too many investments in too many companies in too many countries around the world.
8. What kinds of strategies did GM adopt to in response to the economic meltdown in 2008-9? GM had to find ways to reduce its costs structure by billions of dollars to avoid bankruptcy and even to stay in business it had to borrow $19 billion from the US government. One main way it could reduce its costs structure and liabilities was to dismantle a large part of its unprofitable global car empire and GM began to spinoff, sell, or divest many of its global assets. In November 2008 GM sold its entire stake in Suzuki Motors back to Suzuki and used the proceeds to bolster its cash flow. Then, in February 2009 after it failed to find a buyer for Saab GM announced that it was essentially abandoning or “cutting loose” this division after the Swedish Government refused to give GM any loans to help keep this troubled division going.
So Saab entered bankruptcy proceedings in Sweden and laid off 750 of its 4,100 employees while it tried to reorganize to find a buyer that could provide the capital needed to rejuvenate its brand image. Similarly, in March 2009 GM announced that wanted to sell its German Opel and UK Vauxhall divisions and was looking for buyers. The jobs of 50,000 European workers were at stake and in May 2009 Italian company, Fiat, emerged as a potential buyer and both the German and UK governments were negotiating over loan guarantees to protect the future of Opel and Vauxhall workers. At the end of May, however, Canadian component parts maker, Magna, beat Fiat to acquire GM’s Opel and Vauxhall divisions in order to provide a market for its components and to use GM’s Opel technology as a platform to enter the Russian car market. GM sold off its global car assets off at rock-bottom prices and in the process destroyed tens of billions of shareholder wealth.
While it was selling off or closing down its US and European divisions, GM still had to deal with the problems of lowering its cost structure by reducing its US workforce. By the end of 2008, however, even though GM’s total workforce was now less than half what it was in 1988 there was no choice. After a 40% fall in sales in December 2008 GM announced it would temporarily idle 30% of its assembly plants during the first quarter of 2009 and reduce vehicle production by 250,000 units. In Feb 2009, GM announced it would cut its global salaried workforce by 10,000 to 63,000 and cut the pay of its remaining salaried workforce. Higher-level employees would have their base pay cut by 10%, lower-level employees by 7% to 3%. GM also aimed to cut an additional 37,000 hourly jobs worldwide by the end of 2009 by offering workers generous severance packages.
One executive employee terminated by the US government was CEO Rick Wagoner. He was replaced as CEO by Fritz Henderson, GM’s COO, a highly respected GM executive. Under increasing pressure from the US government to reduce its cost structure to avoid a bankruptcy that was becoming more likely every day, in March 2009 GM’s new CEO announced further business and job reductions. After cutting production in the spring by 250,000 units, GM announced that it was scheduling multiple down weeks at 13 assembly plants to remove another 200,000 vehicles from its 2009 production schedule, and more would come in the fall of 2009 unless the economy turned around. As a result, GM is scheduled to produce 1 million fewer cars in 2009 than in 2008. In April 2009 GM then said it would close at least six additional production plants, and phase out its Pontiac brand and that the number of its North American production facilities would fall to 27 by 2012 from the 47 operating in 2008.
This was truly the end of the old GM; this would effectively eliminate its ability to make the excess one million vehicles that it was no longer able to sell. Also in May 2009, GM announced that a number of potential buyers had expressed interest in buying the Saturn brand and dealer network that it had previously announced was for sale, and that there was a prospective buyer for the Hummer brand, a Chinese parts manufacturer. GM’s top managers had been forced to pursue these drastic strategies because of the need to secure government financing to avoid bankruptcy. By April 2009 GM had received over $19 billion to keep it going. Still trying to avoid bankruptcy, in May 2009 GM and the UAW began negotiating a major new labor agreement to reduce labor costs and pensions by billions of dollars a year—something also demanded by the US government in return for billions in future loans.
Only at the last minute, on May 29th 2009 did GM and the UAW reach agreement on a major cost-saving deal. Three-quarters of UAW members voted to accept a freeze on pay and an end to bonuses that will cut labor costs by $2 billion a year. The UAW also agreed to cut health benefits to retired employees and instead of the company funding health care costs for former workers, a UAW health trust will receive 17.5% of shares in the “new GM” to fund this. The UAW also agreed not to strike until 2015. Beyond its new agreement with the UAW, GM also announced plans to eliminate over 2600 of its 6000 US dealerships and close 250 Canadian dealerships to reduce its cost structure.
However, these strategies were not enough to keep GM out of bankruptcy, US government advisors decided that they could only restructure GM’s debt and allow it to end its contracts with car dealerships in a bankruptcy court, that could also ratify its new agreements with the UAW and put the new GM on a stronger footing to meet the future. In return for the $19 billion in loans it has already received, plus additional US government aid of $30 and Canadian government aid of $ 9 billion, the US will own 60% of the shares in the new GM and the Canadian government will own 12.5% once restructuring is complete.
The UAW health trust will own 17.5%, and GM’s bondholders swapped their ownership of $27 billion of GM’s debt for the remaining 10% of shares. The government plan envisions the slimmed-down new GM with $17 billion in long-term debt and $9 billion in debt-like preferred shares. Only $8 billion of US government loans would remain on GM’s books, the rest of the $50 billion in loans has been Hopefully, a leaner, stronger, and better managed company will emerge that can develop a competitive advantage, retain its market share and make cars profitably. If GM returns to profitability and its stock rises then this would allow the government to sell its GM stock and regain some percentage of the money loaned to GM.
