General Motors has filed for bankruptcy protection and is now undergoing a restructuring process the make it leaner and more competitive. It is shedding excess weight by selling off several of its car brands on the brink of extinction - Saab, Opel, Hummer, and Saturn. Pontiac will most probably be shut down completely. The shift of General Motors from being an epitome of capitalism to ending up as a government controlled organization is interesting.
Auto analysts in United States believe a lethal combination of several factors led to the downfall of the iconic American car manufacturer. On the surface, factors like rising competition from foreign car manufacturers, skyrocketing fuel prices, freezing of credit, economic meltdown, and lack of buyers due to massive unemployment can definitely be blamed. But the problem runs deeper.
The real problems started way back in GM’s history when the company was making huge profits. Worker unions held strikes and protests to the company to provide lifetime benefits to employees. With the passing of decades, the lifetime benefits fund has consumed a major portion of GM’s profits. This pushed the labour costs through the roof.
When costs became unmanageable, the company had to decide between making these payments and keeping itself alive. The problem was so serious that the cost of steel for cars was less than what went into the workers fund. With this on hand, expansion, upgrade, and new investments became nearly impossible. To top it, workers’ salaries were so high that they became things of envy to those who worked the same jobs with other car manufacturers. General Motors never recovered from these liabilities and these eventually forced the company to file for bankruptcy. The collapse of the U.S. car manufacturing giant will enter management textbooks as a case study.
Labels: General-Motors
3 Comments:
The blog was very informative about GMs troubles with the labours. GM suffered bankruptcy due to its own mistakes and not due to the fault of markets. I winder what were the CEO and chairmans' of GM thinking when sanctioning such huge benefits for retired employees.
The mighty General Motors has gone bust and the corporate giant is now selling off its renowned brands. It's learnt that they plan to sell their Hummer brand to a less known Chinese manufacturer. They have almost clinched a deal with Penske, the No. 2 U.S. auto dealership group to sell Saturn brand. Now we have to wait and watch to know how far the Chinese company would ahere to the quality aspect which the GM motors were particular about with their brands.
The blog about GM is very informative, and it is scary too. I think the Indian market is not affected by this, as I find Chevrolet launching more cars and new variants to already existing models.
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