GM’s lack of foresight – result bankruptacy

General Motors reached the stage of bankruptcy due to various reasons which we are trying to give some here:
* Lack of anticipation in business changes in the long term
* Loose credit policy
* Not innovative in replacing older models by fuel efficient new models
* Accumulation of too many non-performing assets.
* Not Rationalizing Human Resource requirements.
* Not anticipating cash flow projections over next 10 years and reviewing the same year after year
* High compensation to top managers (may be applicable in a very few cases)

General Motors, once the largest company in the world, was expected to file for bankruptcy in a New York court during last week of May 2009. Executives and politicians on both sides of the Atlantic are spending the weekend finalizing details of the historic capitulation that comes after months of talks and billions of dollars of government investment. The filling will come on the heels of an eleventh hour deal this weekend under which Magna International, the Canadian motor-parts group, agreed to rescue its European operations, which include two British plants employing 5,500 workers.

Lord Mandelson, the business secretary, pledged to have a meeting with Magna soon, in search of a cast iron guarantee that no jobs at either of the company’s two British plants at Luton and Ellesmere Port would be lost, Tony Woodley, head of the Unite union said: Lord Mandelson has got to do what he says he will do and negotiate for Britain. They need to protect both of their plants. Any more job losses would be unacceptable.

Car analysts believe Vauxhall’s Luton plant, which employs 1,500 is the most vulnerable to closure. The likely plan for the American operation is for the US government to take a 72.5% holding and a health trust held by the United Auto Workers to take 17.5%, leaving GM’s bond holders with control of 10%. The firm’s poorly performing assets would then be sold off, plants closed and a new, smaller form created to emerge from bankruptcy. Chief executive Fritz Henderson is planning a mid day news conference on Monday. GM’s brands include the iconic Cadillac, Chevrolet, and Buick marquees. The European arm owns Vauxhall and Opel.

Last week of May 2009, the German government signed a deal with Magna aimed at shielding the European group from the expected insolvency. The German government pledged €1.5 billion (£1.3 billion) in credit guarantees to keep the business afloat. Magna, in conjunction with Russia’s Sber-bank and carmaker GAZ group, is offering € 700 million for 55% of Opel and has agreed to come up with € 300 million of emergency funding which the Detriot car maker says it needs immediately. Without the deal, GM Europe would have run out of cash. GM has been driven to bankruptcy by high production costs and the collapse of credit markets and consumer spending.

Wheels of Misfortune:

1) GM’s poorly performing assets will be sold off, many plants be closed & a smaller firm will be created to emerge from bankruptcy.
2) GM’s brands include iconic Cadillac, Chevrolet, & Buick marguees, European arm owns Vauxhall & Opel. A few days ago in May 2009 German govt signed a deal with Magna to rescue Opel by pledging £ 1.3 bn in credit guarantees. Magna will offer €700 million for 55% of Opel.
3) Indian business is making operational profit, is self sufficient & insulated from US bankruptcy, says GM India, adding, the protection will only make GM stronger
4) However, GM’s dealers in India say that foot falls in showrooms have declined as people are not confident about the brand & they have to do a lot of convincing before realizing sales.
5) Banks in India say they have no problems in financing GM’s cars as of now.
6) GM shares fell below $1, lowest since 1933.