Sample Case Study on General Motors Bankruptcy

General Motors Bankruptcy


General Motors filed for bankruptcy on 10th July 2009. This firm is a US auto manufacturing company that was founded by Billy Durant in 1908. Its headquarters are in Detroit, Michigan. Over the years, this company has introduced remarkable innovations in the U.S which enabled it to dominate the economy of the U.S in the 20th Century. It also dominated the auto industry in the 1950s. In 1954, this company had a market share of 54%. However, this was the highest mark of this company.

Domestic market share of General Motors has been declining steadily over the past years. This combined with global financial crisis necessitated restructuring of this company. Nevertheless, several challenges forced this firm to eventually enter the bankruptcy court and file for bankruptcy ending the long and at some point a proud, iconic history.

The downfall

Worsening market and economic conditions such as those affecting equity and real estate values, tight credit markets, increasing unemployment, high fuel prices, weakening housing markets and decreasing consumer confidence have caused a decline in vehicle sales.

U.S alone had a 44.7% decrease in vehicle sales annually by September 2007. Globally, annual vehicle sales decreased by 13.2%. Being a company that is highly sensitive to the sales volume, the financial and business results of General Motors were affected negatively and significantly.

Seeking Congress assistance

The chairman of General Motors, Rick Wagoner, heads of Chrysler and Ford sought assistance from Washington during mid-September 2008. According to The New York Times, $7.5 billion was approved as of October. In the same year in November, the three heads of the auto manufacturing firms went to congress again seeking for a direct aid amounting to $25 billion.

However, Congress approved $13.4 billion only to General Motors and Chrysler. Congress also requested that the companies be restructured to secure the loans. As of February 2009, General Motors was cutting jobs, reducing its brand line-ups and closing plants.

To avoid bankruptcy, the firm announced that it needed a loan worth $4.6 billion of the $18 billion that it had requested within weeks. In addition, the company announced that it needed $12billion financial support.

Filling for bankruptcy

General Motors announced that it had lost $30.9 billion in 2008 or $53.32 per share. The firm also announced that it was spending $19.2 billion of the cash reserves it had at that time. This implied that the cash reserves of this company were as low as $14 billion when it made the announcement on February 26th 2009.

The auto task force of President Obama met Mr. Wagoner and at that time he confirmed that General Motors could no longer survive without more loans from the government. On July 10th 2009, General Motors filed for bankruptcy after which a new and government-owned firm purchased its assets. In the bankruptcy petition, the firm stated that it has debts worth 172.8 billion and assets worth $82.3 billion.

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