Group 2
Ryan White
Brittany Thomason
Mitchell Stack
Cory Gregory
Jacob Western
Heather McMahon
Scott DeVore
Introduction

GM
Once Profitable , Now Near Bankruptcy…
1.
2.
3.
4.
5.
6.
7.
GM Present Strategy & Current Performance
SWOT Analysis
GM’s Relative Competitive Strength
GM’s Relative Cost Position
GM’s Issue’s & Problems
Identify & Evaluate GM’s Options
Form a Strategy
1. GM Present Strategy & Current Performance
Timeline & Headlines
2005 - Plummeting Auto Sales began in 2005
 2006 - Fortune Magazine 1st to Mention GM was
headed for bankruptcy
 Nov 08 – CEO Rick Wagoner flew a private jet to
Washington to ask to bailout (lots of criticism)
 Dec 08 – Bush Admin gave GM $17.9 Billion in
government loans
 Feb 09 – GM asked for an additional $16.6 Billion
(or run out of Money)

1. GM Present Strategy & Current Performance
Timeline & Headlines
March 16, 2009 – GM stated they had a plan for
out of court reconstruction
 March 29, 2009 – CEO Rick Wagoner resigned
because of pressure from Obama’s Administration

(trying to make a clear signal that GM was making a big change)

March 29, 2009 – Wagoner was replaced by Vice
Chairman COO Fritz Henderson
(Note: Henderson will get $1.3 Million unlike Wagoner’s $1)
1. GM Present Strategy & Current Performance
Timeline & Headlines

March 30, 2009 – Government Released plans to
provide working capital over the next 60 days so
GM can restructure
(If not successful, they will file Chapter 11-bankruptcy)
1. GM Present Strategy & Current Performance
Current Strategy

GM will restructure during the 60 days allowed by
the government:
1. Profitability Sustainability
2. a Healthy Balance Sheet
3. a More Aggressive Operating Structure
4. Technology Leadership

This will make GM Stable & Competitive in Mkt
1. GM Present Strategy & Current Performance
Current Strategy

“When GM shut down for 54 days during
a 1998 labor action, it knocked a full
percentage point off the U.S. economic
growth rate that quarter. So what's bad
for General Motors is still, undeniably,
bad for America.”

So… We want GM to be successful with
their current strategy to reconstruct!
1. GM Present Strategy & Current Performance
Current Performance
Current Performance is the weakest in 27 years
 Under a New CEO who gets paid larger salary
 Only a SHORT 60 days to restructure!

1. GM Present Strategy & Current Performance
Current Performance : Financial
GM shares @ $2.70
 Down 89% from 52 wk high of $24.24 (April 30, 2008)

1. GM Present Strategy & Current Performance
Current Performance : Human Resources
2008 - Cut 15,000 Jobs
 2009 – Will cut 5,000 White Collar Employees in
the 1st round of layoffs to reconstruct

○ They hope they will be more profitable @ lower sales levels
with less employees!
1. GM Present Strategy & Current Performance
Current Performance : Accounting

Current Ratio on April 11, 2009:
0.55
 Can only pay $0.55 on every $1
of debt owed

Auditors (Deloitte) issued a
“going-concern warning”
 Not sure there is enough $ or
resources to stay afloat
1. GM Present Strategy & Current Performance
Current Performance : Accounting: Financial Statements
2007 – Operating Income was -$1.97 Billion
 2008 – Operating Income was -$24.62 Billion


Even with Government Aid, GM is still not able to
turn itself around!
1. GM Present Strategy & Current Performance
Current Performance : Marketing



Shrinking Market Share of 23.4%
Increasing Market Share = Increasing Financial Performance
Bankruptcy:
 allows for a new product lineup without debt issues
 Market share would increase
 Financial Performance would increase!
1. GM Present Strategy & Current Performance
Conclusion
 The fate of the company relies on how well they
restructure over the next 60 days!
 GM’s Current State:







Huge Operating Losses
Shrinking Market Share
Small Current Ratio
Huge Layoff Rates
Falling Stock Prices
Not only will the accountants be issuing a “going-concern”
for GM but they will be faced with bankruptcy and possible
closing down all together.
Their current performance is very poor and is in dire
need of reconstruction which is exactly the stage
they are at currently.
GM SWOT Analysis
STRENGHTS
•Asia Pacific and Latin American
Countries
•Large Scale Operations
•Strong Brand
OPPORTUNITY
•New Emerging Markets
•Increase in demand for Hybrids
WEAKNESSES
•Recalls
•Declining Market Share
•Decline in Financial
Performance
THREATS
•Declining demand for light
vehicles
•Increasing price of raw
materials
•Bankruptcy
GM Strengths
Asia, Latin America, Middle East, Africa
Markets
• 2007 GM increase its sales in Asian market from 1.3
million to 1.4 million sold, increasing revenue from
11.2 billion in 06 to 15.6 billion in 07.
GM Strengths
cont.
Large scale operations
○ Approx. 228 locations in US, 36 states, 151
cities
○ 22 locations in Canada along with 50 other
countries
○ Approx. 6776 US dealerships, 729 Canada, 330
Mexico, and 14,050 outlets around the world.
Strong Brand Portfolio
• Brands like Chevrolet, GMC and Cadillac are known
worldwide
Weaknesses
Recalls
• 2007 in China 7,057 Buick recalls for brakes.
• December 2007 313,000 fluid leak from power
steering.
o 276,000 in US
o 38,000 rest of the world
Declining Financial Performance
• In 2007 revenues declined 11.9%
• 2007 net loss 39 billion compared to 2006 net loss of 1.9
billion.
Weaknesses
cont.
Declining Market Share
• Big 3 all have declining market share from direct
competition with Japanese.
○ US market share in 2006 – 53.9%
○ US market share in 2007 – 51.7%
• New passenger car registrations remained flat
from 2006 to 2007.
Opportunities
New Emerging Markets
• China and India - These two countries are
expected to drive global demand for
automobiles by 2010 due to their
exponential population growths and
increased wealth within the countries.
Increasing demand for hybrid vehicles
○ 2013 estimates demand for 2 million units within
US
○ Within 2009 23% of consumers will be in the
market for a hybrid vehicle.
Threats
Weakening US economy
• According to the International Monetary
Fund World Economy outlook, the IMF
projects that the U.S. GDP growth will slow
to 1.5% in 08, down from 2.2% in 07.
• Lack of consumer funding - A four-year,
$20,000 loan at 7% costs the buyer about
$880 more than the same loan at 5%.
Threats
cont.
Increasing prices for raw materials
• Worldwide the prices of raw aluminum increased
$3,000 per ton by the end of March 2008 which
was an increase of 1.8% over 07 prices.
• Cold steel also had an increase of $530 a ton in
March 07 to $805 a ton in March 08
• Hot Steel prices increased from $508 a ton in
February 07 to $663 a ton in February 08.
Bankruptcy
GM’s Competitive Strengths

100,000 mile / 5yr Power train Warranty
 This extended coverage protects their consumers in
the event of problems with major drive-line
components, including the engine, transmission,
transfer case, and axles. The warranty also provides
5 years of full roadside protection. Not only does it
protect the initial purchaser, but any and all future
owners.
 The closest warranty the competition offers is
Hyundai, Kia, and Mitsubishi’s 100,000mile/10yr.
None of which are transferable, provide roadside
assistance to their customers for the full duration of
the warranty, or provide courtesy transportation in
the event of any vehicle repairs.
GM’s Competitive Strengths

OnStar
 All General Motors vehicles are now
equipped with OnStar capabilities. OnStar
is an optional service that can alert
emergency responders in the event of a
crash, provide navigational assistance,
remote satellite unlock vehicle doors, or use
GPS locators in case it were stolen. To date,
General Motors is the only company to
employ this feature.
GM’s Competitive Strengths


“GM Continuous Safety: Protection before,
during, and after a crash.”
Before
 StabiliTrak: Using sensors, StabiliTrak detects the
difference between the steering wheel angle and the
direction you're actually turning in low-traction
conditions like ice, snow, gravel, wet pavement, and
uneven road surfaces.
 What it does is it applies quick, precise force to the
appropriate brakes to help the driver control the
vehicle's direction to help keep it on course.
Preventing lock-up helps you maintain steering
control during hard braking conditions. No other
company employs this technology.
GM’s Competitive Strengths
• During
• Dual-Depth Air Bag: The dual-depth passenger-
side frontal air bag customizes restraint levels by
deploying in different sizes and at different
pressures, depending on seat position, safety belt
usage, and crash severity.
 They also use Safety Cage structures that are
designed to absorb and channel crash energy in
order to help preserve occupant space in a crash,
as well as Crush Zones at the front and rear are
designed to collapse on impact, allowing them to
absorb energy and keep the safety cage intact.
GM’s Competitive Strengths


After
OnStar
 In a crash, built-in crash sensors around the vehicle
automatically send an alert to OnStar. An Advisor is
immediately connected into the vehicle to see if
passengers are okay. Even if passengers are unable
to respond, the Advisor knows the vehicles exact
location through Global Positioning Satellite
technology and requests emergency help be sent
right away - no matter how remote the location.
 The Advisor can also relay critical crash information
to emergency responders such as the severity and
type of crash so responders are better equipped to
treat passengers at the scene.
GM’s Competitive Strengths
The Chevy Volt is the first car powered by electricity that
can travel up to 40 miles before using a drop of gasoline.
This car runs by using GM’s Voltec Electric Propulsion
System. This consists of an electric drive train that can
run on various sources of energy. It consists of a 53 kW
direct engine-mounted generator and non-turbo variant 4cylinder 1.4L engine that allows the car to keep driving
when the electric battery needs to be recharged.
 The system is recharged using a standard 110-volt home
electric outlet. During long drives you can drive
approximately 40 miles before the system kicks over to
regular gasoline fuel or E85 thus giving you an average
50 mpg efficiency.
 78% of commuters drive less than 40 miles per day
allowing them to drive to and from work exclusively using
electricity.

GM’s Competitive Strengths


General Motors is heavily invested in flex-fuel,
E-Flex, bio-fuel, battery, hydrogen fuel cell,
and hybrid propulsion solutions.
GM is the leader in E85 FlexFuel vehicles with
18 different models and over 3 million vehicles
already on the road in the U.S.
 E85 ethanol, a blend of 85% ethanol and 15%
gasoline, is a mostly renewable fuel that can be
made from biodegradable wastes and several
plants, such as switch grass, willow, and corn.
 With the employment of this technology General
Motors is well on their way to meeting their goal of
having half of annual vehicle production be E85 or
bio-diesel capable by 2012.
•According to www.gminsidenews.com,
•“Reports are correct that, if bankruptcy is filed, General Motors
will seek a “363” deal in court.
• Such a deal has the company split into two portions;
•one comprised of the “good” assets (let’s call it GoodGM
for ease)
•and one filled with the “bad” assets (call it BadGM).
What GM might do



During the proceedings,
BadGM would be given over to the holders of GM’s debt to
be liquidated to raise money to pay off former GM’s debt.
Note that GM has approximately $29 Billion in debt;
○ $7 Billion of which is secured by Saturn assets
(including Spring Hill, TN plant).
○ The government’s $13.4 Billion loan to GM is also
considered secured debt,
with a vast amount
of assets up as collateral.
What Will Happen

GoodGM would reemerge fairly quickly from the bankruptcy process (if everything
goes to plan).

The U.S. government would release GM, GoodGM and BadGM of the $13.4 Billion
in debt,


but as a trade-off take a 100% ownership in GoodGM upon reemergence.
Shortly after the new company emerges from bankruptcy:



the U.S. government (currently the owner of GoodGM) would issue an initial public offering (IPO)
it would become a public company much like the current General Motors
though the current GM stock would be canceled in bankruptcy

Most of the money raised from the investment of the new company would likely go
to the

VEBA (Voluntary Employees' Beneficiary Association) fund for the UAW (United
Auto Workers).”
Good Vs. Bad GM

When or if the dividing of the GoodGM and
BadGM takes place certain assets and
liabilities:
 such as retiree health care and nearly $28 billion
in bond debt
 could stay in bankruptcy for an extended period
 be liquidated or haggled over by creditors.

This could create a huge uproar if not
managed in the proper manner.
What to do about Bondholders

There is talk about GM planning to
unveil a new offer to bondholders than it
proposed originally.
 In the new offer there would be as little as 20
percent of GM's equity, versus the previous
offer of 8 cents on the dollar
 16 cents of new debt
 and up to 90 percent of GM's equity
 This development makes us think that a
bankruptcy is more likely
In Regards to the United Auto
Workers

Expecting there to be stricter terms for the
UAW as well

GM had reportedly proposed last month that
the UAW would accept:
 $10 billion in preferred stock, this would have a 9
percent interest rate
 $10 billion in cash received over the next 20 years,
considered to be payments towards a union run
retiree health care trust

GM has a tough road ahead of them
GM’s Issues & Problems that Need to be
Addressed
HUMMER
 High price of the truck
 Low MPGs
 Low sales

Saturn
Was a unique car company.
 Turn into a Chevy with different badges.
 “As of February 17, 2009 that Saturn will
remain in operation through the end of the
planned lifecycle for all Saturn products
(2010-11). In the interim, should Saturn
retailers as a group or other investors
present a plan that would allow a spin off or
sale of Saturn Distribution Corporation, GM
would be open to any such possibilities.”
CEO Rick Wagoner.

Volt
The volt is a new kind of car for GM, it is
a hybrid car that you can plug in and
charge the batteries. With the batteries
charge the car can drive for 40 miles
without using any fuel.
 Price too high
 Can see the savings

Can see the savings

For example the Chevrolet Tahoe has a
hybrid option and the sticker price for
that truck is over $51,000 and the non
hybrid starts at $37,000.That’s 7,000
gallons of fuel (at $2 per gallon) you will
have to save to cover the added cost of
the hybrid model. If you get 20 miles per
gallon of gasoline you have to drive
140,000 miles to use up the 7,000
gallons of gasoline.
Hydrogen Cars
Very expensive
 No where to refuel the car.
 Spent over a billion dollars so far.

UAW

GM is reportedly pays their employees
on average $28 an hour that’s $58,240
yearly with no overtime, and doesn’t
include health care and retirement. To
put that into prospective a business
college graduate can make on average
$47,000 a year. That is over $11,000
less than an assembler on the assembly
line at GM, and those jobs don’t need a
college degree.
Health Care

Another problem that GM faces is that
their cost of the current and retired
employees. They spent about 5.4 billion
dollars on health care. 30 out 50 states
did not pay over 5 billion dollars in
Medicare costs to compare the dollars.
They have setup a fund to pay for the
health care cost and as of February15,
2009 they owed that fund 20.4
Key Issues and Options

Bankruptcy
 GM might be forced to file Chapter 11
bankruptcy
 This is due to increasing government
pressure to fix the problem
 Have 60 days in which to complete the
changes required to fix General Motors
Bankruptcy
On April 15, 2009, a bondholders meeting
was held to decide if the new proposed
bonds would go through
 Fate of GM rides on the success of the
bonds being passed
 If accepted an out of court restructure plan
may still be available
 If rejected, the filing of Chapter 11 will
follow shortly

 Bondholders have refused proposed bonds 3
times in the last year
Government Control

If GM is unsuccessful in the restructuring of
the company then the government will seize
control temporarily
 Allows for total focus on fixing the major problems

Some dislike the idea
 Argue that the innovative processes and operational
procedures will be inhibited
 May not be a bad thing if this occurs

Government promises to uphold all of the
good things that stood GM in front of the
competiton
 Warranties
Government Cont’d

Government Auto Task Force suggested
new programs to instill customer
confidence again
 Total Confidence Program
○ the consumer can judge whether or not you
buy a GM car or truck solely on its merits
○ GM has said that it is going to work on being
there for the customer more
Brand Focusing

GM has stated that they are going to cut
down on its affiliated brands
 Focusing on 4 core brands
GM has already cut Saturn, Saab, and
Hummer car companies
 GM calls this theory Dealer Network
Restructuring

Cut Down Costs

The biggest expense cut GM is talking
about deals with the UAW.
 Wish to cut benefit costs
 Reduce wages slightly
 Reduce retired worker benefits
Must sacrifice as a group in order to rebuild
GM back to a major power in the auto
industry
 By doing this GM can maintain its safety
features in the factories

 Major draw for employees
Steps to Sustaining Competitive
Advantage

Go back to innovative thinking
 GM is one of the leaders in Hydrogen Fuel
Cell Technology
 However has made no effort to put in its cars
or trucks
 Cost GM over 2 billion dollars
Look for new blue oceans
 Get the jobs done that need to get done
by implementing good to great thinking

What Should GM Do?

Given GM’s financial standings and the
inability for the UAW and GM to redo
out-of-date contracts, there is only one
viable, long term option for GM…
Bankruptcy
This would be the most massive Chapter
11 Bankruptcy ever filed in the world.
 The Midwest would be hit the hardest,
suffering massive job and retiree benefit
losses

HOWEVER
Bankruptcy

GM can use chapter 11 Bankruptcy to
rewrite all of its labor contracts with the
UAW
 Would be able to close plants and cut benefits
Could get rid of excess brands
 Close down dealerships


GM is able to do this because it will receive
lawsuit protection
Labor Contracts
The biggest supporting reason for Chapter
11 bankruptcy is the ability to completely
reorganize and redo all of its labor
contracts with the UAW
 GM could either redo or completely
eliminate all of its 30 year old labor
contracts with the unwavering UAW without
the threat of lawsuits from its employees.
 Allow GM to renegotiate with all of its
suppliers

Dealerships and Plants
Another major source of debt comes
from GM’s dealership network
 There are over 7,500 dealerships in
America (whereas Toyota has 1,500)
that carry 7 brands (whereas Toyota
only has 2)

Dealerships and Plants
GM would also face lawsuits from its
current workers for breaking labor
contracts for closing plants
 GM is forced, under UAW contract, to
provide its employees full pay and
benefits EVEN IF the plant has been
closed and those workers have no work
to do

Dealerships and Plants

In Chapter 11, GM can sit down and get
rid of any dealership if chooses without
the threat of penalties and to close
plants and/or destroy brands without any
lawsuits being filed against them. This
would allow GM to redo all of its labor
negotiations to correct this problem.
Keep on Truckin’
Another argument for the filing of Chapter
11 bankruptcy is that the company will NOT
stop making cars or nor will it fail to not
support its award winning warranties
 During this time of bankruptcy, GM can
significantly reduce its operating costs
while simultaneously generating revenue
from its automotive sales
 Bankruptcy will also, under federal
protection promised by President Obama,
not affect GM vehicle warranties or service
parts

Finally
Most viable option for GM is to declare
Chapter 11 bankruptcy
 GM is under way too many obligations
that were put in place over 30 years ago
and is faced with way too much debt
and costs in healthcare, benefits, and
pension plans that need to be
addressed and reassessed

Finally

The future of GM has the potential to be
very strong if its new leadership can take
charge and jump from a level 2 or 3 leader
to a Level 5 Leadership. This level 5
leadership is vital for the future of GM and
its continual presence in America.