Why GM Went Bankrupt?

Source Rediffnews
The GM building beside the Detriot River, Detroit, Michigan

The star spangled banners wave from near the GM logo in Detriot, Michigan

Cars on display inside the GM headquarters

The GM logo on a pick-up truck

General Motors Corp filed for bankruptcy on Monday 1st June 2009,
forcing the 100-year-old iconic car major which has been one of the
most visible symbols of American capitalism and economic might into
uncharted waters of nationalisation or government ownership.
This is the third-largest bankruptcy filing in American history and the largest-ever US bankruptcy in the manufacturing arena.
US Chapter 11 bankruptcy protection gives GM time to restructure its finances while being protected from its creditors.
The bankruptcy is likely to change GM drastically and 20,000 workers are likely to lose their jobs. GM has 92,000 employees in the United States and supports 500,000 retirees under the contract filed with the workers' union.
So why has the world's best known car company gone bankrupt? What led to the fall of the giant
and how will the developments unfolding in the US affect GM India?
In a nutshell, very high labour costs, rising competition from foreign car makers, a frightening
spike in fuel prices, freezing of credit, the collapse of the American economy, drop in sales caused by lack of purchasing power among Americans due to the recession, et cetera have formed a lethal
concoction leading to the bankruptcy of the iconic carmaker.
However, General Motors's problems run much deeper.Over the years, protesting workers' unions at GM managed to get the company to agree to contracts that provide lifetime benefits to the members. This excessive cost of lifetime benefits pushed labour costs through the roof.
These costs have now reached an unmanageable proportion and the automotive giant just does not have enough money to either make these payments or to keep the company afloat, given the decline in sales and plummeting profits. Expansion, upgrade, new investments were totally out of the question.
Reports suggest that GM is paying more than $1,500 per car that is built as just benefits to people who are not even working for the auto giant any more. An interesting bit of statistics says that the cost of steel used in a car made by GM is less than what it pays its retired union members in terms
of benefits. Added to this is the huge pay that GM workers draw even for low-level jobs at the company. The company does not have much cash and even if it adds receivables to this, it accounts payable and accrued expenses are many times higher than that figure. Even adding the company's current assets (inventories, equipment on lease, etc) to this, still leaves it way behind it current liabilities.
The United States government, mindful of the impending death of GM, gave it over $19 billion from taxpayer money to keep it alive. It also sacked its legendary chief executive Rick Wagoner and decided to monitor the company's restructuring itself.
However, that has not helped revive the fortunes of the world's second-largest car company, after Toyota.Once it goes into bankruptcy, the US government will infuse yet another tranche of about $30 billion to refinance and restructure GM.
The first signs of GM's gargantuan financial troubles began to surface in early 2008. When by
mid-2008, the prices of fuel touched a historic high, there was a stunning change in consumer behaviour with Americans deciding to keep off big fuel-guzzling cars and SUVs in favour or smaller,
fuel-efficient vehicles.
The sudden rise in the price of oil, the deepening recession and the falling sales led to Detroit's Big
Three - GM, Chrysler, and Ford Motor Co - almost throwing in the towel. Car loans too were difficult
to come by as banks, already reeling under the world's greatest financial crisis, decided to freeze credit. More and more people failed to qualify for loans, leading to a huge drop in car sales. Companies like GM found it almost impossible to raise funds or borrow from the market to keep from going belly up.
A study conducted by the car firms said that the historic spike in fuel prices was the '500-pound gorilla' that almost single-handedly kayoed GM and other carmakers. By the end of the year, car giants were begging for help and the then George W Bush-led US administration decided to extend
carmakers a lifeline and pumped in taxpayer money to keep the companies from collapsing.
Reports say that the US government may own 70 per cent stake in the restructured General
Motors, the ailing auto maker which is battling to avert a possible bankruptcy.
Under the GM restructuring plan, the United Automobile Workers union would hold up to 20 per cent through its retiree health care fund, and bondholders and other parties will get the remaining share. Shareholders would be virtually wiped out.
However, there are some questions on whether the new US government aid help revive the company's fortunes. There are a lot of uncertainties involved here too: no one is quite sure when will the US economy start turning around and when will consumer demand for new cars give GM any hope of coming out this mess.
The sales of new cars have plummeted by as much as 40 per cent since early 2009 and even Toyota, the world's biggest car maker, is suffering losses.
Amidst all this turmoil, General Motors India has kept a brave face. The company feel that there is
little reason for it to panic as the Indian automobile market, even during this slowdown, is still growing faster than in most other economies.
An Economic Times report, quoting a GM India source, said that the bankruptcy will not have any impact on Indian operations.
The bankruptcy proceedings are only for the reinvention of the US operations of GM. In the US, bankruptcy or Chapter 11 is used to make a brand stronger to suit the changing business environment. Therefore, it will only make GM stronger, the newspaper said.

Comments by Yours Truly

Van McCoy an American pop instrumental group had a hit, "Change with the
times", which perhaps the hidebound GM honchos did not pay heed to, as
they were busy acquiring new jets, getting fatter pay cheques, perks and the whitest
dressed waiters on call, to flaunt their opulence and stature.The staid gas
guzzlers rolled out of the assembly line, landing in showrooms and then going
to deserving homes, only to frequent gas stations for the regular fills.
Even the GM retirees never had it so good!
And the result- The Goliath is Government Motors now and not General Motors as the press has proclaimed!

Oh my god! :affraid: . From first to last. Before this recession, GM was global number one for years(With Toyota gaining position in between). But it has come to a sudden death. This is also a biggest hit for US economy, i guess. But yeah, as you said GM did not change with the time. Cars with bigger engines, less mileage has been one of the reason for sales coming down, as fuel prices increased rocketing high. And also the trade unions got their reward, they deserve it, now they aren't going to receive anything in the future.
The giant of car industry has come to an unhappy end.

Interesting one. I hope Indian operations won't affect much.

No abhi, GM india confirmed this news stating that indian operations are healthy with their operations here and financial crisis in US wont affect its market here.Lets hope so.

The news says GM India is not affected by GM US bankruptcy. Lets see what happens. I'd like to see chevy beat here.

GM India seems positive!

Source - Economic Times

GM India assures it’s ‘there for you’

With the North American operations of car major General Motors (GM) filing for bankruptcy, its Indian subsidiary has been busy
fire-fighting to send out the message that all is well. The company has posted some of its key representatives across 35 cities to handle “any fear or apprehension” that the customers may have on the future of GM’s operations here in India.

To address concerns related to spare parts, investments, new launches and service networks in the country, the company is launching a new marketing campaign called “there for you, there for India”. “We are not cutting back on investments, or stopping production of any model,” said Ankush Arora, GM India V-P, marketing and sales. In fact the US auto maker is going ahead with its new launches in the country. In a few days, it will launch the LPG variant of the Spark followed by the Chevrolet Cruze in September and the mini car early next year.

“We are launching a print campaign which will talk about the uninterrupted supply of spare parts, new product launches, the expanded service network and the investments,” said a senior company official. Till date, GM India has invested over Rs 5,000 crore across its facilities in Halol, Talegaon and Gurgaon. With the slowdown in vehicle sales, GM India was on a single shift operation in Talegaon. It expects to go back to the double shift as and when demand picks up.

The company has started helping dealers stock up spare parts and has dedicated a complete stockyard of spare parts at its Talegaon unit. Spare parts are currently being imported from Thailand, Korea, Japan and Europe. GM’s India operations are independent of North America.

“Sourcing of components and investments are routed through the Asia Pacific region,” said company officials.

Currently GM’s Latin American and Asia-Pacific operations are profitable. “The Indian operations have been profitable for the past few years and is completely insulated from the bankruptcy that has affected the North American operations,” said an auto analyst at a Mumbai-based brokerage.

After discontinuing the Opel brand a few years ago, GM India currently retails only the Chevrolet brand which includes models like Tavera, Optra, Aveo, UV-A and Captiva in India.

That's a good news. So we would be getting Chevy Beat in India. :jump: . Also if GM could provide spares to Opel and Daewoo cars, then its brand value will boost up. GM earlier said upon launching Spark, that it is considering providing service for Matiz customers, but till date no news about it.

but what i fear is when Dawoo went the same years back, same thing were said for indian operations and now we all knw what has happened, just dont want the same for GM to do same again saying same things to indian owners.

But Daewoo as a product failed, with less mileage, only Matiz sold. But Chevy now as a bigger product line-up, with Spark and Optra selling in decent numbers.

GM says bankruptcy not to affect India operations

US carmaker General Motors has clarified that its US Chapter 11 bankruptcy
filing would have no effect on its Indian operations and new model
plans. The company also confirmed that it would continue all its normal
operations and is not included in the court reinvention process of GM’s
American operations.



A statement issued by the company read: "All GM India dealers, warranty and customer support services
will remain unaffected and continue to function as normal. The
company's country-wide dealership network and service centres will
continue normal operations and customers can visit their local dealer
for service and warranty coverage, while [color:994f=#043764 ! important][color:994f=#043764 ! important]dealers will receive new vehicles and spare parts as usual."

The launch of the restructured GM, which will have substantially less
debt and operating cost, is expected to be completed within the next
two or three months. The move is aimed at creating a company that GM
claims will be "stronger, leaner and ready to move forward."


“We believe this step – which was taken with the support of the U.S.
government – is the most efficient and effective means for GM to
quickly achieve a competitive and profitable future. ,” said Nick
Reilly,GM Group Vice President and President of GM Asia Pacific.

GM Asia Pacific, of which GM India is a part, has been performing
strongly due, in large part, to the strong sales registered in China
over the past year.



”We have no intention to modify our product, brand or other business plans including new product launches, said Karl Slym, President and Managing Director, General Motors India. Our product programs and other plans for the future remain on track.”

In its 14 years of operations in India, GM has already invested over
Rs.5000 crore to create a total manufacturing capacity of 225,000
vehicles per annum at its Halol and Talegaon plants. Also it employs
over 4000 people at its plants, and the Engineering, R&D and Design
Centre in Bangalore as well as the corporate office in Gurgaon. "We are
not going anywhere and we are here to stay for the long term,” added
Slym.



[color:994f=#043764 ! important][color:994f=#043764 ! important]Chevrolet, the only GM brand sold in India, was not believed to be under threat following the bankruptcy
announcement. Given the investment made in GM India the model launches
planned for the next five years should go ahead as planned. GM India’s
long term prospects, however, would depend on the fortunes of the
restructured parent company.

GM plans to launch its
Cruze (pictured above) saloon in September this year in the entry
luxury segment of the market with an estimated price tag of Rs. 12
lakh. Later this year it will also launch a new small [color:994f=#043764 ! important][color:994f=#043764 ! important]car
(code M300) in an effort to boost sales volumes for the company.
Expected to be priced at Rs. 3-4 lakh, this new hatch is based on the
Chevrolet Beat concept (pictured below). In addition, the company plans
to launch [color:994f=#043764 ! important][color:994f=#043764 ! important]LPG and CNG versions of its current product line-up in the coming months.

http://www.autocarindia.com/new/Information.asp?id=3139

Check out their India website-new variant of U-VA launched,and Karl Slym talking about GM India.

GM India finds the going tough

NEW DELHI: General Motors India is having a tough time raising cash from local
financial institutions, which are wary of lending to a company
whose parent is in deep trouble, the head of the automaker’s Asia-Pacific operations said.

GM India is looking to raise $200 million to invest in an engine
manufacturing unit in Talegaon, Maharashtra, as well as working capital for
operational expenses, after funding from its embattled parent was cut off.

GM Corporation on Monday filed for protection in the US.

“We have found it difficult to attract interest from Indian
financial institutions but we haven’t given up yet. We are in advanced
talks with two other sources and are pursuing both Indian and non-Indian
financial institutions,” GM group vice-president and GM Asia-Pacific
president Nick Reilly said in a conference call with reporters.


The Indian unit is part of the list of subsidiaries included in the so-called new
GM, consisting of the automaker’s best assets and brands. The Asia-Pacific
operations, including India, will have “to fund its own growth,” Mr
Reilly said.

While GM India’s nearly $800-million investment
in India is “largely parent equity”, post-restructuring, the
“parent will not be in a position to invest overseas because of its
substantial borrowing from the US government, which is American taxpayers’
money,” he added.

Currently, GM India’s operations
“are profitable but not wildly so and they can’t finance a large
investment,” Mr Reilly observed.


GM India sold close to 70,000 cars in 2008 and is the fourth-largest carmaker after Maruti, Hyundai and Tata
Motors. It commands 5% share of the Indian car market. But since February, it
has seen sales fall rapidly.

GM India will also need to raise working
capital locally but that effort too is running into the hurdle of scepticism
among Indian financial institutions.

“Typically those loans are easy to come by because of inventory and receivables as collateral but
Indian financial institutions have been wary because of what’s happening
to GM in the US. Hopefully now that the (bankruptcy) filing is complete, Indian
financial institutions will be more open,” he said.

GM India will be integrated closely with the GM Asia-Pacific structure for raising.
“India won’t be on its own. We are looking at the funding
requirements for Asia and how to raise it,” he said.

Already, GM Korea has raised $200 million for itself from the Korea Development Bank andother units are expected to follow the example.

The new GM will also look to develop China and India as export hubs. “Although not in the next 12 months, the future will have significant exports from India when the new
small car (Beat concept) debuts by December,” Mr Reilly said.

The small car, which will also be sold in several markets worldwide,
will be a big global sourcing opportunity for GM India’s suppliers. Also,
as small cars become important for GM globally, including in the US, good
volumes in India will be crucial because it will help GM source parts locally at
competitive prices.

GM India needs high local content to drive down
costs and be competitive globally. This, he said, will happen when the engine
plant is up and running.

“GM is suffering in India because it
can’t match the scale and costs of entrenched players like Maruti and
Hyundai, which have been aggressive with incentives,” Mr Reilly said. With
the engine plant and more locally-made vehicles, GM India will be less dependent
on knocked down kits from GM Korea and be more cost competitive in India.


http://economictimes.indiatimes.com/News/News-By-Industry/Auto/GM-India-finds-the-going-tough/articleshow/4610686.cms

This is really very sad to know, Check this -

GM Sells HUMMER Brand To Chinese Comapany!

The potential Hummer buyer has been revealed as China-based machinery firm Sichuan Tengzhong Heavy Industrial Machinery Company.

It is reported to be bidding between $150 million and $250 million to buy Hummer from GM.

GM, which filed for Chapter 11 bankruptcy protection on Monday, has so far refused to name the prospective buyer, but sources close to the deal have confirmed it is Sichuan Tengzhong.

As part of the deal Sichuan Tengzhong will, according to GM, make Hummers in the United States "during a defined transitional time period", saving up to 3000 jobs at factories and dealerships.

The Chinese company, which is owned by a group of private equity investors, is not expected to give any guarantees on its future manufacturing plans beyond that period, however.

GM sold 27,485 in America last year, down 51 per cent on 2007. It is developing cleaner fuel technology and a Hummer hybrid and Tengzhong is expected to continue that work.


(source:ACI)

I was expecting M&M to lay hands on it, with Tata owning jLR. So soon we coud expect Hummer at the price of a Scorpio :lol!:

Same here, I too thought that M&M will buy the Hummer Brand and brins it to India but sadly, Hummer is now in the hands of a Chinese car maker.

VT

Yeah with Chinese manufacturer, we could expect a new Hummer model at the price of Scorpio. :lol!:

Crazy cat wrote:Yeah with Chinese manufacturer, we could expect a new Hummer model at the price of Scorpio. :lol!:

Phew!Atleast, Chinese will now not copy the hummer!

VT