The Financial Woes of General Motors

Paper Summary:

This paper examines the fiscal analysis and various facets of General Motors, including the sale of the General Motors Acceptance Corporation (GMAC) and the Delphi situation. This paper also reviews the new long term General Motors strategy which involves shifting production to locations outside America, to China in particular.

From the Paper:

"Consumer fears regarding GM are nothing new. Consumers are not blind to the losses that GM has been taking, totaling 10.6 billion for last year alone. Though recently dealerships have been taking the hit as well. An internal GM sales record for the area of Chicago shows that in October of 2005, the total sales made up only 12% of the companies monthly goal. The report also showed almost no sales for the Pontiac, Buick, and GMC dealers, Chevrolet making up almost all of the dismal 12%. Many dealers are having a hard time getting by at all, like Allan Gilmour, a Ford-Chrysler dealer. "The dealership would normally sell fifty vehicles a month, but could only manage seven vehicles this month" says Gilmour. Dennis Doerge of Loren Buick-Pontiac states that it's "the worst I've seen in thirty years" and that consumers "are scared to death to buy".
Potential investors have similar feelings on buying stock with GM. Fitch ratings has lowered GM into "Below-investment" status, and Moody's Investors Service also lowered GM's investment rating. Dropping credit ratings and falling stock prices are making stock and bond holders uneasy with the thought of not being paid on time and in full. One reason for the lower ratings of GM's credit is the companies dependence on Delphi, it's main supplier of parts. Delphi itself declared bankruptcy in October of 2005, and many investors feel that GM's dependence on a struggling supplier of vital parts can do no good for the consumers view of GM.
Delphi broke off from GM in 1999, but it still has the power to drive GM into the ground, and many fear this is how GM will enter bankruptcy. Delphi has very recently showed interest in eliminating it's union contract with the UAW through a bankruptcy judge. Once the contracts are voided, Delphi would proceed to cut workers hourly wages by 40%. On top of the huge wage slash, a reorganization plan would shut down 21 of its 29 American factories and lay off 8,500 salary paid workers. If Delphi drops the contracts, the UAW has already agreed to strike against all Delphi plants."

Sample of Sources Used:

• Freeman, Sholnn. "GM's Disclosures Give Pause; Analyst Sees Automaker Heading Toward Bankruptcy". The Washington Post. D 02.
• "GM's Disclosures Give Pause; Analyst Sees Automaker Heading Toward Bankruptcy". The Washington Post. D 02.
• Hawkins, Lee Junior. "GM May Close at Least 3 Plants, Placing Further Pressure on UAW". Wall Street Journal. A 3.
• HybridCars.com, "Chevy Silverado and GMC Sierra Hybrid Pickup Trucks". <http://www.hybridcars.com/silverado-sierra.html>
• Jenkins, Holman W. Jr. "GM Shareholders Walk the Plank". Wall Street Journal. A 17.

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