Car Crisis in America, Essay Example

Introduction

The General Motors (GM) is a United State automaker that was been founded by William C. Durant in Michigan, Flint, which is currently based in Michigan, Detroit, and it is also the second largest automaker in the world’s, as it was been ranked by the global unit sales for the last year (2008).

Nonetheless, the General Motor automaker have beforehand led in global sales for seventy seven uninterrupted years, (that is from 1931 to 2007) which is been considered as the longest compared to other automaker. However, its undertaking is to manufacture trucks and cars in thirty four countries. The General Motors has employed more than two hundred and forty four thousand five hundred employees around the global, and serviced and sold vehicles in about one hundred and forty countries. (Beaver, K. M. 2008).

However, on July 10, 2009 the company gets itself into hot water due to bankruptcy. It is totally ironic for the company that seems to progress successfully but it turn out to be in a big trouble. The upcoming 2011 Chevy Volt has actually engendered with more excitement for the General Motors Company than any other manufactured goods in up to date memory. When comes to the cost side, the market has drastically slowdown and caused factories to be closed down, which has confiscated mainly if not all the industry’s overfilling of trucks and cars (Eadie, T. & Morley, R. 2006). On the other hand, when the new labor will embarked on, GM’s cost of producing the cars will reduce to a point whereby it can now be a profitable business. That will be good news but the big question is, will the General Motor Company be around so that it can benefit once the economy recuperates? The troubles at the General Motors Company are complex and vast. The below table shows the number of the most popular vehicles in the U.S sales

Causes of the Crisis

Demand shift and uncertain energy policy

According to Paul W. MacAvoy, Ira M & Millstein (2004)), the first cause was the rise of energy price in the past summer. This resulted to a rapid mix shift in automobiles and it also has a major impact on turnover or profitability. The General Motors, Chrysler and Ford have most likely relied on trucks and SUVs for most of their profits. For those vehicles that were been commanded with higher sticker prices and which lifted the market up to fifty percent of the United State of America car market in the late nineties, their demand falls rapidly as the customers went for the smaller vehicles that are less expensive and less lucrative cars. This forced the auto companies to have two major issues which were critical and they necessitated to be addressed; a backlog of unnecessary trucks and a loss of revenue. Also, according to the research that has been made by the researches, it clearly shows that the biggest factor was the lack of energy policy in U.S. Following is a graph showing the fuel price.

This graph isn’t appealing. It discloses with a total loss of $ 10.0 billion in 2005; $2.0 billion in the year 2006; $39.0 billion in the year 2007 and lastly $ 42.0 billion in the year 2008. In the history of America economic expansions, the GM has shown the greatest losses in America even before the financial crisis has taken its toll. This means that the GM is totally frustrating other auto companies around the world and necessary measures needs to be taken before the situation get worse. (Hirschi, Travis 2009),

The Financial Meltdown

As noted from Trachte, Robert J. S. Ross & Kent C. (2003), lack of finance has been another problem that has hit the General Motor Company. Wall Street’s predicaments have hit the General Motor Company in two immense ways: the credit squeeze has rapidly hindered car sales, and the company is unable to scrounge funds for ridding it out of the storm. The company lilies on credit as do its purchasers, so when they give out a car loan or lease is inadequate, sales falls abruptly. For the past years, the total number of vehicle that is been manufactured in the United State of America is around fifteen to sixteen million, but analysts believe that this number will reduce up to ten million if this issue is not considered. For example, the below graph shows the company’s growth over the eight years, the other one shows the sales and the last showing the profit

Legacy Costs

Each an every vehicle the GM makes usually carries “legacy costs”, this is the cost which provides healthcare and annuities to achieves of retired employees. Every GM employee has a number of ten dependants, which are usually been defined as the retired employees and their families. As noted from Paul W. MacAvoy, Ira M. & Millstein (2004), when other international auto companies from the world come to the U.S, they will have a huge disadvantage linked with legacy costs. But others like Toyota and Honda doesn’t have. This makes it difficult when competing with domestic automakers.  (Jefferys, 2008)

Sub-Par Quality and Uninspiring Cars

As noted from Barrie A. Wigmore. (2009), early back in ‘80s, while the president of GM Roger Smith fell in love with the scheme of automating employees out of car industrial unit, Toyota and other automating firm’s remains focused and refined their techniques of reproduction and came out with a higher quality products (vehicles). This was the period that the customers done away with GM’s products (Regester , M. & Larkin L. 2005). When looks at the company’s market share, it has drastically fallen from a higher lever of fifty percent in the year 1962 to around twenty three percent in the year 2007. Currently, the gap quality has narrowed significantly but sensitivity trails realism. To win those customers back, will be a tough time. For example, cars such as GM’s very first endeavor at a crossover, the sub-par 2001 Aztec-didn’t lend a hand. Such types of vehicles left the consumers with a lot of suspicious. Following is a current graph showing the decline of market share on GM’s auto sale in U.S.

Global Slowdown

The General Motor Company usually operates in forty one countries around the world, and if the U.S auto market have decline, this shows that other markets have been doing well, especially in Asia. But in general, the financial shock has sprit across the world and the sales have decline everywhere. The GM is the most facing a lot of challenges; it has center of attention of the medial spotlight, however Chrysler and ford are also facing the analogous quandary. Even the companies that have been doing well are also feeling the pain. The only advantages that other auto companies have over the GM’s company is that they have tried to maintain their customers. (Walklate, S 2005)

Currently, the overseas operations of the General Motors Company will now be undertaken by the largest bank in Russia as a stockholder. Moreover, this year, the manufacturer of Toyota from Japan has taken the leading of the world’s largest manufacturer from the General Motors Company. However, the United State of America government is trying its level best by pouring billion of dollars and become one of the major stockholder and hence, assisting the GM’s crisis that were caused by the capitalism’s model. Nevertheless, the homegrown crisis of the GM’s has also caused a big impact to the entire world; it has totally shaken the world economic system all over the globe (Walklate, S 2005). Now, the biggest question is, will the restructuring of the General Motor industry been re-established preeminence in the market of auto at broad and home?

Also, as noted from Barrie A. Wigmore (2009), the Canadian government will collaborate with the U.S government as a stakeholder by contributing $9 billion to the General Motors. President Barrack Obama government will chip in with $30 billion; this means that the federal government will take a control of sixty percent of the total shares while the Canadian government taking about twelve and a half percent. Moreover, twenty percent of the stock will be distributed to the UAW which is a controlled worker benefits subsidize, known as VEBA. According to the revealed that was stated by the White House on Monday, this subsidize will finance the healthcare and the retiree benefits for the members of the union’s. In general, the Canadian and the United State of America taxpayers and the autoworkers themselves will definitely owe the General Motors Company ninety two and a half percent of the total shares. (Trachte Robert J. S. Ross & Kent C., 2003)

In addition, the GM’s has also taken necessary measures by saying that it will trim down the size its operations so that it can be able to go through bankruptcy hence eliminating more than $27 billion dept that is been held by the bondholders. Also, it has decided to build up a new vehicle in idled UAW factories, hence increasing the shares of the US-based production from about sixty six percent to seventy seven percent. “I am extremely in no doubt that if well administered; the General Motors will come out from crisis and provide a new generation to Americans with a prospect of living out their dreams of America attaining back the world largest automakers, and this will be part of economy recovering,” said president Barrack Obama during his speech of agreement. (Eadie, T. & Morley, R. 2006).

However, for the last fifteen months, 400,000 employees have lost their job in the GM’s industry and it is also estimated that, about 21,000 will laid off as the recovering of the industry continues and addition of fourteen plants. President Barrack Obama government has assured compensation of the employees through the twenty percent stock. This is absolute good news to employees and Obama administration needs to be congratulated by its big effort of trying to recover the GM’s from bankruptcy. (Iacocca, L. & Whitney C. 2008)

Conclusion

The General Motors company is one of the best company that was doing well in previous years but due to poor management, it end up been a bankruptcy company and currently, it is been faced with a lot crisis which requires a critical measures or otherwise it will soon be a history. Not only the Gm’s that is been faced with the crisis, there are other companies which are also facing a lot of crisis and its only that their situation hasn’t become worse as GM’s is. Leaders should make a long term decision which will favor the present and futures survival of the business. If the president of GM’s would have focused strategies, then he could have been able to maintain the company’s customers and attracts more, hence the business would have grown more and it currently it wouldn’t been facing the situation that is experiencing. Good leadership for success but poor leadership for failure. (Walklate, 2005)

Reference

Beaver, K. M. (2008). “GM’s Company”, London: Oxford Press.

Barrie A. Wigmore. (2009). “The Crash and Its Aftermath”, Retrieved From < http://books.google.co.ke/books?id=HjeMj1DB6w8C&pg=PA374&dq=GM%E2%80%99s+Company+crisis&client=firefox-a#v=onepage&q=&f=false>

Eadie, T. & Morley, R. (2006) “Saving the General Motors” Oxford: Oxford University Press

Jefferys, S. (2008) “Management and managed”, Retrieved from < http://books.google.co.ke/books?id=iE49AAAAIAAJ&pg=PA58&dq=GM%E2%80%99s+Company&client=firefox-a#v=onepage&q=GM%E2%80%99s%20Company&f=false >

Paul W. MacAvoy, Ira M. Millstein, (2004), “Current Crisis in GM’s Company”, Retrieved from <http://books.google.co.ke/books?id=zcjbkeplKloC&pg=PA28&dq=GM%E2%80%99s+Company+crisis&client=firefox-a#v=onepage&q=&f=false>

Iacocca, L. & Whitney C. (2008) “Where are all the Leaders Gone”, Retrieved From <http://books.google.co.ke/books?id=EeOwQqqxEA0C&dq=GM+Car+Crisis+in+America&lr=&client=firefox-a>

Hirschi, Travis (2009), “Causes of GM’s Crisis”. Transaction Publishers.

Regester , M. & Larkin L. (2005) “Risk Issues and Crisis Management”, Retrieved From<http://books.google.co.ke/books?id=OYO7L902Wg8C&pg=PA56&dq=GM%E2%80%99s+Company+crisis&client=firefox-a#v=onepage&q=&f=false >

Trachte Robert J. S. Ross & Kent C., (2003) “Global Capitalism”, retrieved from < http://books.google.co.ke/books?id=FrFzvcrvOxMC&pg=PA117&dq=GM%E2%80%99s+Company+crisis&client=firefox-a#v=onepage&q=GM%E2%80%99s%20Company%20crisis&f=false>

Walklate, S (2005) “Understanding Bankruptcy – Current Theoretical Debates”, 2nd edition, Maidenhead: Open University Press.