Saving General Motors

Perhaps one of America’s oldest businesses, General Motors is celebrating its 100th anniversary. However, it may be close to extinct within the following year without help from the government. Some argue that this is the first time that GM has asked the government for help in its 100-year history. Over the last few years GM’s market share has declined steadily. There is evidence that the CEO’s have repetitively lied, by saying that “things are going to get better.” Yet they almost always failed to keep their promises. In order for GM to survive another 100 years it needs to restructure its business plan, and to diversify their investments. Instead of only focusing on production of larger vehicles (SUVS), and many model options. This hurt them the last few years when oil prices were very volatile. They should follow the business models of its competitors, which have been more successful.

CNBC described GM as a house of cards, since it seems like they are all full of talk and don’t address issues to fix their business problems. For the last few years Honda and Toyota have been ahead of GM by introducing better technology to consumers faster. Over the last few years everyone had an electric car in the making, and Chevy has yet to introduce one that is better than its competitors. In 1993 they had an electric car in the making, but cut its development without reason.

Part of GM’s problem lies within its retirement plan. They have so much fixed cost tied up in retirement money, that they cannot achieve an adequate profit margin. They sometimes had to make a loss on a car to produce them. Then they would rely on the services that the dealership offered to make up on this loss. This might have worked if they had the most cars on the road in North America. This wasn’t the case, and they had produced negative earnings for a while. They have even bought out experienced workers, in efforts to reduce cost and hire less experienced workers. I feel that this will reduce the quality of their product, and cause them further problems.

Even though GM has its share of problems, some of its suppliers have directly depended on the success of this giant. If GM goes down, so do most of its suppliers. CNBC found that one small business provides a percentage of their work to GM, and the rest goes to other suppliers of GM. So if GM fails then it may affect hundreds of firms that supply GM with all of their parts.


Links:
CNBC Saving GM inside the crisis
http://www.nytimes.com/2008/11/12/business/12auto.html?_r=1&scp=5&sq=general%20motors%20bailout&st=cse
http://www.bloggingstocks.com/2007/07/31/general-motors-profits-again/