GENERAL MOTORS: THE RISE, FALL, AND RESURRECTION

GENERAL MOTORS: THE RISE, FALL, AND RESURRECTION

GENERAL MOTORS: THE RISE, FALL, AND RESURRECTION

Prepared for
Jenell Barnard-Keller,
COM/BUS 338 Instructor

Prepared by
Chase Harvey, Jennifer Hertzberg-Weaver, Danielle Lundstrom,
Aaron Phillips, Seana Phillips, and Hannah Shorland
University of Michigan-Flint

November 6, 2016

Memo
TO:

Jenell Barnard-Keller

FROM:
Chase Harvey, Jennifer Hertzberg-Weaver, Danielle Lundstrom, Aaron Phillips,
Seana Phillips, and Hannah Shorland
DATE:

November 6, 2016

RE:

General Motors: The Rise, Fall, and Resurrection

_____________________________________________________________________________
Here is the report you requested regarding a Fortune 500 company. We have chosen General
Motors (GM), who is currently ranked eighth.
As we researched General Motors, our group found that this company has really started from the
bottom up and has worked through very tough times in the economy to be ranked so highly after
108 years.

Table of Contents
Introduction..................................................................................................................................... 1
History of GM ................................................................................................................................
Bankruptcy and Government Bail Out ...........................................................................................
Record Low Sales & Increasing Costs................................................................................
Government Assistance .....................................................................................................
Ignition Switch Recall ...................................................................................................................
Damages Resulting in Faulty Ignition Switch....................................................................
Record Sales Year .........................................................................................................................
Into the Future ................................................................................................................................
Conclusion & Recommendations....................................................................................................
References........................................................................................................................................

List of Illustrations
FIGURES
Figure 1: Ownership of New General Motors as of July 5, 2009
Figure 2: ( ... The Numbers Behind GMs Year of Recalls, White, 2014).

GM: THE RISE, FALL, AND RESURRECTION

INTRODUCTION
General Motors is a name that any American would instantly recognize. They have been around
for over one hundred years, and you still see cars produced by them all over the country. In this
paper we will explore many different aspects of the company, its ups and downs, and trials and
tribulations. First, let us take a look into the history of General Motors. How did it all start?
HISTORY OF GM
Maybe youve never heard of the name William Durant, but he is the man who started General
Motors back in September of 1908. During that time the auto industry was more or less in
shambles. Many companies would rip off the people by taking money, then going out of business
before their car was finished. Durant wanted to put a stop to this. He eventually teamed up with a
man named Benjamin Briscoe. Unlike the Ford Motor company, Durant and Briscoe made many
different styles of cars to appeal to the people. Together they bought many major companies
including Oldsmobile, Cadillac, and Oakland. Durant was eventually kicked out of his own
company. From there he started working with Chevrolet and bought GM stock to get back in
control. It wasnt long before he was making a mess of things again, and was permanently
removed from the company in 1920. (history.com)
During the time that Durant was still with the company, in 1918, a man named Alfred Sloan
became vice president of General Motors. Sloan eventually went on to become president of the
company in 1923. He was known as the father of the modern corporation, the master of
consumer mass marketing, and the most effective chief executive officer ever. (Pelfrey, 2006)
Employment and wages within the company had grown massively under his control, and the auto
industry was ranked in the top ten industries of the united states. (Pelfrey, 2006) Sloan also came
up with the concept of annual styling changes, which is changing the style of the vehicle from
year to year. Sloan had many more accomplishments, which made General Motors the great
business it is today. Even though General Motors is a great business, it is not without its flaws. We
will continue to look at General Motors more in depth, starting with its bankruptcy and
government buy outs.
BANKRUPTCY/GOVERNMENT BUY OUT
Record Low Sales & Increasing Costs
Following several years of record low sales, GM found themselves showing a $30 billion loss at
the end of 2008. The troubles started with the rise of imported cars starting in the 1970s. The big
three domestic automakers suffered greatly from the influx of automobiles being imported from
Europe and Japan. Market share fell for GM and other domestic companies. More trouble came in

2008 during the period economics dubbed The Great Recession, when the housing market
crashed and Americans were forced to cut spending.
Another downfall for the company was the rising costs of pensions and healthcare. Costs for
retiree healthcare and pension benefits were estimated at $1,600 per vehicle in 2005. (Welch,
2005) GM fully funded their $15 billion underfunded pension fund in 2003, and began selling off
units of business to stay afloat.
Government Assistance
GM requested on more than one occasion for government assistance to revive the auto industry
and save the company, but were denied any assistance. In November 2008, the CEO of GM, Rick
Wagoner, along with the CEOs of Ford and Chrysler spoke before the House Financial Services
Committee to apply for a government bridge loan. Wagoner then testified before the Senate in
December, with a grave report that the company would be out of business unless the government
helped immediately. GM was given $13.4 billion in loans from the Troubled Assets Relief
Program. It was too late, as GM was burning through cash reserves at the rate of $5 billion a
month. They asked for an additional $16.6 billion only two months later. The request was refused
and Washington asked for the Wagoners resignation. Obama had taken office in January of that
year, and the new administration was pushing to reorganize the company in order to save it from
going under. In late March, the U.S. Treasury committed a fund to provide a government
guarantee of General Motors warranty liabilities. GM began working on a plan to reorganize, cut
costs, and keep the company running, all focused around the central point of filing for Chapter 11
bankruptcy. (Taylor, 2011)
As a part of filing for bankruptcy in June 2009, GM reorganized their business into "New GM"
and "Motors Liquidation Company". The United States Treasury invested $30.1 billion to create
New GM, and the Governments of Canada and Ontario provided an additional $9.1 billion. This
restructuring allowed them to keep the major, better selling brands in the new company, and those
they were willing to liquidate into the other. Ownership of New GM after the restructuring and
sale of Old GM is shown in the figure below. (Bosco, 2013)
Figure 1: Ownership of New General Motors as of July 5, 2009

As a result of the bailout from the US Government, GM closed hundreds of dealerships, reduced
employees by thousands, and closed several plants, all in an effort to before a more efficient
organization. Only Buick, GMC, Chevrolet, and Cadillac were retained, its four most profitable
brands. The other brands, Saturn, Pontiac, Saab, and Hummer, were either sold or discontinued.
Its workforce was reduced by 20% between 2008 and 2009. Plans involved reducing plants from
47 to 33 by the end of 2012. Dealerships in North America were to be reduced from over 6,000 t
4,100. These changes reduced the breakeven point for new cars sales from 16 million new cars to
10 million new cars. These reductions in cost allowed GM to earn $4.2 billion in the nine months
following the sale and restructuring of the company.
In November 2010 New GM held its initial public offering, selling 478 million shares of common
stock. The Treasury sold nearly half of its common stock investment, dropping from almost 61%
ownership to almost 33%. GM was no longer under government control by the end of December
2013, when the Treasury sold its remaining shares of GM stock. The sale cost U.S. taxpayers $10
billion. U.S. President Barack Obama said the government investment was well worth it, saving
an industry that provides millions of jobs.
IGNITION SWITCH RECALL
The beginning of GMs fall in the last decade was in part because of a huge safety hazard and one
of the largest mass recalls. Over the course of several years, General Motors produced and sold
thousands of cars with a faulty ignition switch. Between 2003 and 2007, they sold over 2.6
million vehicles that all acquired that particular safety hazard (Darmstadter, 2016, pg. 1). This

particular ignition switch could easily slip into a different position and cause the vehicle to lose
power. The first issue was the minimal torque required to maneuver the switch from the off,
accessory, and running position. The slightest jolt, from uneven pavement to the drivers leg
grazing it, could bounce it into the wrong position (Darmstadter, 2016, pg. 3). The second concern
was that when the key clicked into the wrong key position, the car would stall or completely lose
power right then and there. When stalled, they also found that the airbags would not deploy
(Darmstadter, 2016, pg. 3). This created an extreme life threat to the purchasers of the vehicle and
their families. Unfortunately, many General Motors customers were harmed due to the faulty
switch because this error was overlooked for many years.
Figure 2: $2.4 Billion, 29 Million Cars: The Numbers Behind GMs Year of Recalls,
White, 2014).

Damages Resulting in Faulty Ignition Switch

Motors..., 2015). If the company had corrected the problem back between 2003 and 2007, they
would have saved themselves a lot of financial trouble in the long run. According to the
Associated Press of Fox News, these ignition switches were responsible for one hundred and
twenty-four deaths and two hundred and seventy-five total injuries (2015). Unfortunately,
whether or not the faulty switch was truly the cause of all of those deaths and injuries, there is no
way to prove any differently when something faulty was mass produced. Attorney Kenneth
Feinberg was in charge of

GMs compensation fund, which stated that each family of the deceased would receive one
million dollars each and the company set aside six hundred and twenty-five million for
compensation (Key Events in General Motors..., 2015). This fortune 500 company could have
investigated and prevented these damages much smoother and easier when someone first noticed
the problem. Instead they possible ruined their reputation, allowed customers to get hurt, and lost
a lot of financial stability.
RECORD SALES YEAR

Despite General Motors struggles, GM has just about completed a record breaking three years
stride. To put that into perspective, lets take into account their sales in 2012. In 2012 alone, GM
sold a record 231,183 vehicles just to China. The United states was only slightly above this count
with 245,256 sold. This increase was 11 percent higher than the previous year. Some people
believe selling overseas is a poor choice for the United States economy; for General Motors,
however, it has proved to be highly beneficial to their companies incoming sales. (factcheck).
In 2015 General Motors reigned in 9.8 billion dollars in sales. When taking a look at the break
down China has now created more income for GM than the United States, over $500,000 more.
What once was unheard of method of sales is now bringing in more money than their capt
income. If GM would have continued to sell solely to the United States, their company would
have lost out on $4,575,648.00 in sales in 2015 alone. Needless to say, General Motors absolutely
made the correct fiscal choice for growing their brand. GM is now the leading vehicle
manufacturer in North America, South America and China. (media.gm)
Where are General Motors sales coming from? In 2015 Chevrolet was the leading money maker
in Canada, The United States and Mexico. Buick helped global record sales for three consecutive
years largely due to China and the United States; total sales passed 2014s record breaking sales
of $2.1 million in just one year. Cadillac also grew by eight percent thanks to their addition of
SRX and Escalade deliveries in the United States. However, that was nothing compared to GMCs
continued growth and its 6th consecutive year with increase in sales.(media.gm)
In conclusion, General Motors drastic sales increase appears to be largely attributed to their
international sales and their new additions to their product lines. While there is undoubtedly
plenty of educated business men and woman behind this company branching out from just the
United States has proven to be a success for this fortune 500 company. I look forward to seeing
what the future years bring for General Motors and what other expansions they may come up with
to further grow this company.
INTO THE FUTURE
General Motors has had its fair share of successes as well as failures. In today's day and age in
order to remain on top and continue to grow remaining status quo is no longer an option for this
company. Looking into the future and coming out of the darkness, General Motors has a plan and
knows what it needs to do in order to rise up and remain on top of all other vehicle manufacturers.
It is no surprise that the recent failure the company faced, it has no choice but to consider how its
brand would demand the utmost respect for its integrity and quality. In order to grow beyond the
limits that GM has already reached they have made the choice to expand their name into other
countries. This is going to end up being one of the most exciting and smartest choices this
company could have made.
General Motors has moved in and is now the leading car sales not only in North America but also
in China, India, and Eastern Europe. With the buying and selling power in the hands of these large
countries GM has only one choice but to rebuild and strengthen its appeal and efficiency. With
General Motors being so diversified in other countries they are now becoming the largest foreign
auto maker by sales. The new GM has proved their overseas success. GM has continued that

overseas success by selling a whopping 231,183 vehicles in China in May of 2016 which is up 21
percent from the year before. Those numbers compared to sales in the US being 245,256 which is
still up 11 percent being the highest it has been in 33 months. (factcheck.)
With all of this exciting news that General Motors has now found its way out of the darkness, the
future has many focuses for this multibillion dollar company. The company plans to do brand
reconstructing. What this means is over the next five years this giant company will be putting
more focus towards it core products which include Chevrolet, Cadillac, and Buick. In order to
keep up with these demands GM will be working on expanding its manufacturing facilities
providing more jobs for individuals through the countries. General Motors is not blind to the fact
that there target market age has been rapidly increasing to over 3 billion people that will be
looking to buy their product. The ages range from 15-44 and by the year 2020 their vehicles will
need to cater to this group of individuals. (General Motors Company SWOT analysis ,2016.)
General Motors also wants to focus on fuel efficiency. With the average price of oil spiking over
the last few years GM realizes that it has no choice but to learn how to make a competitive
vehicle that can not only provide the luxury that consumers are looking for but also be reasonable
on the pocket book on a weekly basis as well (myweb.)
It is no surprise that General Motors number one priority has always been customer service.
General Motors is working with a strong product design. Now considering that they are also
working with leverage in other countries it will be very exciting to sit back and watch this
amazing fortune 500 company overtake the motor vehicle world one country at a time.

References
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