- Relevant to P3 Business Analysis (ACCA)
For all of 2007, GM lost $38.7 billion, the biggest loss ever for an automaker. The loss, equal to $68.45 a share, is about the same amount as a non-cash charge of $38.3 billion that the company took to write down deferred tax assets, meaning that GM almost broke even otherwise after losing $2 billion in 2006.
Uncomfortably high cash position
Wagoner, CEO of General Motors have to force a radical restructuring on his workers and the rest of the entrenched GM system, or have it forced on him by outsiders or a bankruptcy court. The only question is whether that reckoning comes in the next year, if models developed by Vice-Chairman Robert A. Lutz fall flat; in 2007, when the union contract comes up for negotiation; or perhaps in five years, when GM may have burned through its substantial cash cushion.Why is it so hard for those inside GM to see the inevitable? Take a step into the Detroit mindset. No active employee was even alive in 1930, the last time a rival sold more cars in the U.S. than GM. The idea of being No. 1 is etched into the company's DNA -- which makes it all but impossible for execs to embrace a strategy of getting smaller. And union leaders have never seen a problem that couldn't be ironed out at the bargaining table. "I think GM and the American auto industry are facing a lot of competition," says United Auto Workers President Ronald Gettelfinger. "But we've always had difficult times."Still comfortable financial position Increasingly the business solutions will slip from GM's control. GM is at the mercy of global forces. It simply cannot compete in a global economy with the enormous burden it now carries in legacy costs. It certainly cannot meet those costs for long off a shrinking sales base and negative cash flow. And distracted by those woes, it can't begin to make the investments necessary to match the Koreans on price, the Japanese on quality, and the Europeans on performance.
Let's be clear: GM is not in danger of going bankrupt while it still has a cash hoard. It has a ton of liquidity -- $19.8 billion in cash, marketable securities, and money it can tap from a pre-funded retiree benefits fund. That doesn't count $8.3 billion available from bank lines and probably $5 billion GM could draw on from its profitable General Motors Acceptance Corp. finance subsidiary. Several analysts already expect GM might have to cancel its $1.1 billion-a-year shareholder dividend; it could also raise $10 billion to $15 billion by selling GMAC's mortgage and insurance businesses.
Car segments overlapped and cannibalization
Remember the old ad slogan, "This is not your father's Oldsmobile"? Well, this is no longer your father's auto industry -- but GM is still run as if it were. Fifteen years ago management struck a deal with unions that made it all but impossible to close auto plants or lay off workers without incurring massive costs. GM also agreed to cushy retiree benefits that put it at a severe disadvantage. Much of what ails GM today flows from that accounting reality and its inability to increase the business at home. The need to keep those plants running, to generate cash, and to feed a sprawling web of aging auto brands compromises car design and results in too many models that sit for years without an update. The bedrock principle upon which GM was built -- offering a car to feed every market segment -- has degraded into a series of contrived brands, most with little identity, and bland, overlapping product lines.
Critics acknowledge that GM's new models are light years ahead of those they replace. But more often, GM's bold forecasts never pan out. Executives wrongly predicted a comeback in family sedans in the '80s, '90s, and as recently as last year.
Trade Union Powers
There might be loopholes Wagoner could exploit. Read one way, the labor contract does not guarantee benefits to retirees -- who account for two-thirds of GM's health-care costs -- and only covers active workers, says Sanford C. Bernstein's Johnson. But one GM insider says that interpreting the contract that way would spark a "nuclear war." The UAW could find any number of ways to strike key supply factories and gum up the company. Wagoner knows that firsthand. While president of GM North America in 1998, he played hardball with the UAW over a dispute involving two union locals in Flint, Mich. Those workers, who made parts needed by every GM assembly plant, struck for 54 days over what they said were local issues. That shut down the entire company, costing it $2 billion and nine percentage points of market share, though GM recovered all but a point of that by year end.
GM's pension plans are fully funded for now, but if GM's finances worsen or its pension investments sink in the coming years they might still be dumped on the federal Pension Benefit Guaranty Corp. GM also could shed its union contracts, firing anyone who didn't want to take lower wages or benefits. Ending health-care obligations to retirees alone could save $4 billion to $5 billion a year.Imagine the uproar, though, if that happened. Even if GM could demonstrate to a judge that it had negotiated for the cuts in good faith, the UAW would certainly respond with a strike. That would burn up in a few months much of the cash that any raider coveted. And pensioners could still sue for their benefits.
Discursive Questions:
a) Strategically diagnose GM current strategy as to why it fails. You may ignore external threats. [10 marks]
b) Why the company actual position makes it difficult to respond to changes and restructure itself to align to globalization? You are only to focus on its organisational culture context. Marks will be awarded for using a suitable model. [15 marks]
SOURCES FROM :
Wagoner, CEO of General Motors have to force a radical restructuring on his workers and the rest of the entrenched GM system, or have it forced on him by outsiders or a bankruptcy court. The only question is whether that reckoning comes in the next year, if models developed by Vice-Chairman Robert A. Lutz fall flat; in 2007, when the union contract comes up for negotiation; or perhaps in five years, when GM may have burned through its substantial cash cushion.Why is it so hard for those inside GM to see the inevitable? Take a step into the Detroit mindset. No active employee was even alive in 1930, the last time a rival sold more cars in the U.S. than GM. The idea of being No. 1 is etched into the company's DNA -- which makes it all but impossible for execs to embrace a strategy of getting smaller. And union leaders have never seen a problem that couldn't be ironed out at the bargaining table. "I think GM and the American auto industry are facing a lot of competition," says United Auto Workers President Ronald Gettelfinger. "But we've always had difficult times."Still comfortable financial position Increasingly the business solutions will slip from GM's control. GM is at the mercy of global forces. It simply cannot compete in a global economy with the enormous burden it now carries in legacy costs. It certainly cannot meet those costs for long off a shrinking sales base and negative cash flow. And distracted by those woes, it can't begin to make the investments necessary to match the Koreans on price, the Japanese on quality, and the Europeans on performance.
Let's be clear: GM is not in danger of going bankrupt while it still has a cash hoard. It has a ton of liquidity -- $19.8 billion in cash, marketable securities, and money it can tap from a pre-funded retiree benefits fund. That doesn't count $8.3 billion available from bank lines and probably $5 billion GM could draw on from its profitable General Motors Acceptance Corp. finance subsidiary. Several analysts already expect GM might have to cancel its $1.1 billion-a-year shareholder dividend; it could also raise $10 billion to $15 billion by selling GMAC's mortgage and insurance businesses.
Car segments overlapped and cannibalization
Remember the old ad slogan, "This is not your father's Oldsmobile"? Well, this is no longer your father's auto industry -- but GM is still run as if it were. Fifteen years ago management struck a deal with unions that made it all but impossible to close auto plants or lay off workers without incurring massive costs. GM also agreed to cushy retiree benefits that put it at a severe disadvantage. Much of what ails GM today flows from that accounting reality and its inability to increase the business at home. The need to keep those plants running, to generate cash, and to feed a sprawling web of aging auto brands compromises car design and results in too many models that sit for years without an update. The bedrock principle upon which GM was built -- offering a car to feed every market segment -- has degraded into a series of contrived brands, most with little identity, and bland, overlapping product lines.
Critics acknowledge that GM's new models are light years ahead of those they replace. But more often, GM's bold forecasts never pan out. Executives wrongly predicted a comeback in family sedans in the '80s, '90s, and as recently as last year.
Trade Union Powers
There might be loopholes Wagoner could exploit. Read one way, the labor contract does not guarantee benefits to retirees -- who account for two-thirds of GM's health-care costs -- and only covers active workers, says Sanford C. Bernstein's Johnson. But one GM insider says that interpreting the contract that way would spark a "nuclear war." The UAW could find any number of ways to strike key supply factories and gum up the company. Wagoner knows that firsthand. While president of GM North America in 1998, he played hardball with the UAW over a dispute involving two union locals in Flint, Mich. Those workers, who made parts needed by every GM assembly plant, struck for 54 days over what they said were local issues. That shut down the entire company, costing it $2 billion and nine percentage points of market share, though GM recovered all but a point of that by year end.
GM's pension plans are fully funded for now, but if GM's finances worsen or its pension investments sink in the coming years they might still be dumped on the federal Pension Benefit Guaranty Corp. GM also could shed its union contracts, firing anyone who didn't want to take lower wages or benefits. Ending health-care obligations to retirees alone could save $4 billion to $5 billion a year.Imagine the uproar, though, if that happened. Even if GM could demonstrate to a judge that it had negotiated for the cuts in good faith, the UAW would certainly respond with a strike. That would burn up in a few months much of the cash that any raider coveted. And pensioners could still sue for their benefits.
Discursive Questions:
a) Strategically diagnose GM current strategy as to why it fails. You may ignore external threats. [10 marks]
b) Why the company actual position makes it difficult to respond to changes and restructure itself to align to globalization? You are only to focus on its organisational culture context. Marks will be awarded for using a suitable model. [15 marks]
SOURCES FROM :
· David Welch and Dan Beucke, 2005, Why GM's Plan Won't Work http://www.businessweek.com/magazine/content/05_19/b3932001_mz001.htm, May 9
· Nick Bunkley , 2008, GM posts record loss of $38.7 billion for 2007, http://www.iht.com/articles/2008/02/12/business/12gm.php , February 12
· RTTNews, 2008, GM posts Q2 loss of $15.5 Bln on charges, weak North American operations, http://www.rttnews.com/Content/TopStories.aspx?Node=B1&Id=672177&Category=Top%20Stories, August 1
9 comments:
Sir, remember me ? Put a chatbox le... easier to spam...
Anyway all the best in 'surviving' in this virtual world. Don't let the giants (us students) eat you up.
is part b answer bout inersia? or mission analysis cultural web?
LOL.
you must attempt questions first, not counter my questions with more questions. wait for answers to compare to yours.
LOL anonymous, I think its barriers to change but I could be wrong...
Mr Marcus i like ur lecture alot!!Giv more story telling next time...Very interesting story...
Thank you for your kind words. Do relate the case studies to the concepts. For Questions. Practice!Practice!Practice!That is our primary purpose. When you pass, Lets have cuppa of coffee, then I promise you I give you interesting stories.
Then sir what about my cuppa coffee ?
Sui Yuan
Wah lau eh sir...its really hard to come out with an answer like yours... when i check my answer, its like we are looking at different story. (refering to other Qs) Sob-sob...XO
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