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General Motors has made a full recovery, more or less, from the unprecedented crisis which almost brought about the complete collapse of America's biggest car company in 2009. Until recently, the group was the undisputed global leader in the automobile market, with an extensive portfolio housing eight of America's most celebrated automobile marques as well as a large international footprint. As recently as 1980 almost one out of every two new cars sold in America were made by General Motors, and it enjoyed a similarly dominant position in other countries as well. Yet in the harsh automotive environment of the 21st century, GM struggled to maintain its lead in the face of brutal competition, especially in the US, from manufacturers offering more flexible, less gas-hungry cars. A catastrophic fall in sales across the whole market during 2008 left the group poised on the brink of bankruptcy and it was overtaken for the first time in its history as the global #1 by rival Toyota. The following year, GM finally accepted defeat and filed for Chapter 11 protection. A new and much smaller GM emerged from bankruptcy having shed the bulk of its huge debt burden as well as half of its car brands. Only one major problem remained: its long-struggling business in Europe. It finally found a solution to that dilemma too in 2017 with a deal to sell Opel and Vauxhall outright to French manufacturer PSA. It will also withdraw from India and South Africa.
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A leaner and more agile General Motors emerged from bankruptcy in July 2009 having cut loose a host of underperforming factories as well as its four weakest auto brands. The US Government had become its controlling shareholder, with a 61% stake, supported by the healthcare trust of the United Auto Workers union, with almost 18%, and the Canadian government with 12%. Over the following months GM was able to ride the wave of an upsurge in the economy and in car buyer confidence. As a result, after a series of improving quarterly results, the slimmed-down group went public once again in November 2010 in a better than expected IPO which raised a record $23bn from ordinary and preferred stock, a new corporate record. This allowed the US Treasury to offload much of its own stake (albeit at a loss). Following further sales, it reduced its holding to 19% by the end of 2012. The UAW also cashed in around a third of their shares.
Reflecting its revitalised portfolio and the stronger global car market, vehicle sales have risen steadily since 2009. For 2018, total sales by GM and its partners were 8.38m cars and light trucks. Until recently, the most impressive growth has come from China, where total sales including joint ventures topped 4m vehicles for the first time in 2017, setting another new record for any local manufacturer in that country. As a result, China was again GM's #1 market, and GM once again the local market leader, having overtaken Volkswagen as the country's biggest automaker in 2010. Gains in China have offset shrinking sales elsewhere. In 2018, however, sales slipped back slightly as a result of the slowing economy. Total sales from GM's Chinese operations slipped back to 3.65m vehicles. It remains GM's biggest flobal market.
In North America, there was another marginal decline in 2018 to volumes of 3,490,000 vehicles. (That figure is still only around two-thirds the 5.5m cars and light trucks GM sold in the region as recently as 2004.) US-only sales slipped back to 2.95m units. Other key territories are Brazil and Canada. Until now, the UK, Russia and Germany have also been important markets for GM, despite a slump in sales in recent years. Yet in late 2017, the group effectively quit Europe altogether with the sale of Opel and Vauxhall.
In terms of individual brands, the slimmed down portfolio is now dominated by Chevrolet, with combined worldwide sales of just under 3.0m vehicles in 2018. (That figure has been falling steadily since 2013 as a result of the decision to withdraw the brand from Western Europe). Again in second place was Buick with combined worldwide sales of 1.23m units. However, the largest proportion by far of that total came not from the US but China, which accounted for 83% of Buick brand sales. The Wuling joint venture in China was in 3rd place with 1.07m vehicles. Another China JV, Baojun, was next with 840k units, followed by GMC trucks with 556k. Sales of the Cadillac luxury brand reached 368k units, mainly as a result of continuing growth in China, which now accounts for over half of volumes.
Following the sale of its Europe operations, the GM Automotive business is now divided into two divisions. North America is GM's biggest regional market by far, comprising the US, Canada and Mexico. Traditionally, the portfolio has always housed multiple competing brands, but the number of different brands was cut by half in the 2000s. Four brands were consigned to the dustbin: the iconic Pontiac muscle car marque, family brand Saturn, all-terrain vehicle Hummer (a consumer version of Humvee military vehicles, made by AM General Corp) and Swedish manufacturer Saab. Pontiac was phased out straightaway, with some models absorbed into the four surviving brand families. Attempts were made to sell family car Saturn and all-terrain Hummer, but negotiations eventually collapsed and they too were shuttered. Saab's lifeline lasted a little longer but with the same end result. An initial deal to sell the business to Swedish company Koenigsegg fell apart in 2009, and the business was on the verge of closure before being rescued by Dutch manufacturer Spyker with support from the Swedish government. However, there was never any real prospect of that business surviving, and it too was finally shuttered at the end of 2011.
GM's other surviving business in North America is GM Service Parts Operations, which markets automotive replacement parts and accessories under the GM and AC Delco brand names. Onstar offers in-vehicle interactive mobile information and telecommunications systems, available in virtually all GM models in North America and many in China. It has around 6.5m subscribers globally. GM Powertrain is one of the world's largest automotive engine suppliers with annual sales of approximately $12bn. In 2009, GM agreed to acquire five plants from its former subsidiary Delphi, allowing the latter to exit its own bankruptcy restructuring.
Reflecting the general recovery in the US economy, GM North America, which had been the group's weakest business by far in 2008 and 2009, has also demonstrated the strongest recovery. On an adjusted EBIT basis, operating profits for 2018 were $10.77bn, on regional revenues of $113.79bn. That doesn't include the costs of the GM Cruise autonomous vehicle division which reported start-up losses of $723m and no revenues.
Performance has remained strong despite a shameful and embarrassing recall to fix faulty vehicle ignition switches, which led to the accidental disabling of cars' air bag safety systems. At least 13 people died as a result of this fault, which took over 11 years to be fixed. Around 2.6m vehicles were recalled; litigation and damages relating to the case cost GM $2.5bn between 2014 and 2016.
In 2016, the group launched its own hourly car-hire service in the US, under the name Maven, offering a range of vehicles from the Chevrolet Volt to Cadillac Escalade at rates starting at $8 per hour. It operates along similar lines to the Zipcar business now owned by Avis Budget.
Though large in their own individual markets, General Motors' international car-making divisions are small by comparison with North America. Until 2017, there were three regional divisions: GM Europe, GM South America and GM International Operations (for everywhere else). These are now combined as a single GM International division.
Europe has long been the most troubled by far, reflecting a dramatic collapse of auto sales across the region. At the start of 2009, GM Europe had manufacturing plants in 10 countries and sales companies in 27 countries. However, that business had already wrestled for years with poor performance and chronic operating losses, not just at Saab in Sweden which it had owned from several years, but also at its main continental European base of Opel in Germany, and to a lesser extent at UK subsidiary Vauxhall Motors. As GM wrestled with impending bankruptcy in 2009, a plan was agreed to cut loose most of this region, by selling majority control of Opel/Vauxhall to Canadian car parts manufacturer Magna and Russia's state-controlled Sberbank. Yet in a surprise last minute turnaround, GM's board cancelled the sale altogether shortly before completion and announced its intention to hold onto the business.
Yet there was little improvement in performance. The continuing difficulty in Europe prompted the creation in early 2012 of a potentially significant alliance with local manufacturer PSA Peugeot Citroen, also struggling with poor sales. GM injected $335m into PSA in return for a 7% equity stake, and the two companies agreed to cooperate on parts purchasing, engine development, and the design of small cars on a shared platform. However little progress was made here either. A decision was made to withdraw Chevrolet from Europe to avoid cannibalising sales of its main Opel business, and at the same time GM partially withdrew from the PSA partnership. Despite years of further cost-cutting, the region continued to report large losses, which averaged $1bn a year for several years.
GM finally decided to call it quits in early 2017. In a dramatic new development, it finalised a deal to sell Opel and Vauxhall to PSA. The agreed price was €1.3bn for the auto business and another €900m for its financial services division. However, taking into account a separate €3bn payment from GM to PSA to settle part of the European group's pension shortfall, the US company effectively paid PSA €800m to take Opel off its hands. A few months after that sale was agreed, GM also announced plans to withdrawn from South Africa as well as the local retail market in India. The group's facilities in South Africa are being sold to local commercial vehicles partner Isuzu. The plant in India will be retained to produce vehicles for export only.
Even as it struggled with problems in Western markets, GM's operations in Asia, and especially in China, had continued to grow profitably. Asia Pacific is the area where GM had worked hardest to develop its presence during the 1990s, expanding its influence through strategic alliances with local manufacturers. Initially, this involved the purchase of minority shareholdings in Japanese companies including Suzuki, Subaru and Isuzu. However, as the recession began to bite, the group was forced to sell off its Japanese investments in order to raise cash. The 20% holding in Subaru was divested in 2005; its remaining shares in Isuzu in 2006; and its stake in Suzuki in 2008. At the same time, the group had established a solid base in South Korea, with the acquisition in 2002 of a controlling stake in what was then Daewoo Motors. That business, now GM Korea, became the platform for the introduction of the Chevrolet brand in Europe and Asia though a rebranding of the already established Daewoo car business. It also now produces a separate luxury sedan under the Alpheon name.
However, the real motor for growth here was undoubtedly China. GM has several cornerstone businesses here. While GM's heritage Buick brand still struggles in the domestic market, it has achieved enormous success in China. That brand was selected by GM's joint venture partner Shanghai Automotive Industry Corp (SAIC) to be its lead product in China, and the group now produces a range of seven Buick models, including sedans, hatchbacks, a small car and an SUV. Buick China's sales overtook those in the US in 2006, and have continued to climb ever since, topping 1.2m vehicles in 2016. The brand's best-selling model in China is the Excelle family sedan, accounting for almost 40% of unit sales. The Shanghai GM joint venture also makes Cadillac passenger cars in China, and GM and SAIC are also partners in Wuling Motors, along with another local company, to make minivans and pick-up trucks. In 2011, Wuling launched a new low-cost passenger car brand exclusive to China, under the Baojun brand name. This overtook Chevrolet in local sales in 2016 and is likely to top Buick as well in around 2020. There is a third joint venture with FAW for light trucks, marketed under the Jiefang name. Combined volumes rose 7% to 3.87m vehicles in 2016. GM and SAIC began producing small cars in India as well from 2011. GMIO also serves as the parent for another heritage business, its longest established in this part of the world: Holden in Australia and New Zealand. It also covers the group's operation in Russia and Uzbekistan. However, growth in China has been offset by steady declines in the rest of the region. The old GMIO reporting division, which had included Asia and other global markets except South America and Europe, reported revenues of $12.31bn in 2017 and an operating profit of $1.3bn.
The group's third regional unit was GM South America (GMSA). However currency fluctuations and that region's economic problems caused revenues to plunge from highs of over $13bn in 2014 to a low of $7.2bn in 2016. Volumes plummeted by almost a third in 2015 and by another 10% in 2016 to 583k units. However, GM remains the leading carmaker in that region. Its biggest brand here is Chevrolet, which accounts for more or less all sales, and the key territory is Brazil, where GM became the #1 car manufacturer in 2004. This has long been a mercurial region for profits. For 2017 it reported a small operating loss, its fourth consecutive deficit and fifth in seven years. However, revenues jumped by a third to $9.6bn.
Combined revenues from what is now GM International were $19.15bn in 2018, with operating profit of $423m.
Although General Motors is best-known for making automobiles, its most profitable business for several years was consumer finance. By the mid 2000s, General Motors Acceptance Corporation or GMAC had become one of the world's largest financial services companies with almost $140bn in owned and serviced assets. It offered a broad range of financial services beyond vehicle financing and leasing, including residential and commercial mortgages, vehicle and homeowner insurance, and business services such as factoring. For the first few years of the 21st century, GMAC's financial contribution to the group was invaluable. Revenues for 2005 hit a record $34.0bn, while operating income was close to $3bn. However, growing concerns over the health of the main automotive business prompted the group to sell off parts of GMAC to raise cash and bolster its credit rating. The real estate brokerage division GMAC Real Estate was sold to an investor group led by Kohlberg Kravis Roberts for $8.8bn. Subsequently, the group sold a 51% stake in the rest of GMAC to a private investor group led by Cerberus Capital Management - also then the owners of Chrysler - for around $8bn.
The partial sale proved to be a far more astute decision than even GM had anticipated. When the crisis materialised in US consumer credit during 2007, GM had already reduced its exposure. This protected the group from the full force of write-downs pushed through the following year as a result of the crisis in the mortgage, housing and capital markets. Yet GM still took a $1.2bn hit from its share of GMAC's losses in 2007 and another $6.2bn in 2008. GMAC itself was bailed out by the US government with $17bn of emergency funding. That rescue, added to GM's own bankruptcy and restructuring, reduced the auto giant's stake in GMAC to less than 7%, with the US Treasury Department becoming the lender's majority owner. Reflecting the change in its controlling shareholder, GMAC adopted a new name in May 2010, becoming Ally Financial.
A few months later GM - which had by then become the only major carmaker without its own inhouse finance unit - jumped back into the consumer credit market with a deal to acquire independent auto finance house AmeriCredit for $3.5bn. At the time of the deal in July 2010, AmeriCredit managed a portfolio of around 800,000 borrowers, around a third of them already GM customers, with $9bn in outstanding loans. AmeriCredit now trades primarily as GM Financial. In an ironic development, GM agreed towards the end of 2012 to reacquire Ally's operations in Europe, Latin America and China for $4.2bn to expand its worldwide lending.
Revenues from financial services have soared by two-thirds since 2015 to $14.02bn in 2018, with an operating profit of $1.9bn.
In 2006, General Motors reported a net loss of just under $2.0bn (a marked improvement over 2005's staggering $10.6bn loss). However the figure for 2007 was a veritable record-breaker. As a result of a decision to write-off accrued tax credits of more than $37bn, the group ended up with a full year net loss of $38.7bn, the biggest corporate deficit ever recorded by a carmaker. The following year painted an even grimmer picture. Although the reported net loss of $30.9bn was less on paper than the previous year's figure, it was very much worse in terms of actual performance. Physical operating losses quintupled to more than $21bn. While the largest proportion of the losses reported in previous years had been generated mainly by non-cash write-offs, the damage during 2008 hit GM in its cash reserves. The group burned its way through more than $19bn of cash during the year, compared to $2.4bn in the previous period. Total revenues fell from $180bn in 2007 to $149bn. Comparable figures for 2009 are not meaningful because of the group's restructuring under Chapter 11.
GM has undoubtedly emerged from its recent crisis as a much stronger company, helped by a marked recovery in the general economy. For 2010, its first full-year post-bankruptcy it enjoyed four profitable quarters. For the year as a whole, revenues were $135.6bn, and the company reported net income of $4.7bn. The following year was even better, despite the continuing problems in Europe. Combined revenues rose 11% to $150.3bn, while net attributable income leapt by 62% to a record $7.6bn. Another, but less marked, increase in 2012 took the total to $152.3bn. However, net income slipped back sharply to $4.9bn as massive additional impairment charges (totalling more than $27bn) and other expenses were only partly offset by a big ($36bn) gain from tax accounting valuations.
For 2013, revenues rose by a further 2% to $155.43bn, but profits were dented by charges relating to the planned withdrawal of Chevrolet from Europe and the closure of the group's remaining manufacturing operations in Australia. Net attributable income slipped a further 13% to $5.35bn, the lowest figure since the emergence from Chapter 11.
In 2014, revenues edged up marginally to $155.9bn, but earnings took another fall. Partly this was the result of lower profitability in North America and increased losses in South America and Europe, but there were also multiple exceptional charges, including costs associated with the the group's massive recall program, for currency valuation in Venezuela, for impairments, for share buybacks and various other one-off items. As a result, attributable net income slumped by 26% to $2.8bn.
Profits rebounded in 2015, with the company reporting record EBIT of $10.8bn, and net income which more than tripled to $9.7bn. The bulk of those profits were generated in North America, with a solid additional contribution from Asia & Africa. Revenues slipped 2% to $152.4bn as a result of exchange rates.
For 2016, revenues rose 9% to $166.38bn, including automotive revenues of $156.85bn, up 7%. Pretax income actually jumped by more than 50% to $9.27bn, but the group was hit by a large tax charge for the year, compared to a gain the year before. As a result of this, net income actually slipped 3% to $9.43bn.
GM swallowed exceptional charges of over $13bn in 4Q 2017 in connection with tax reform, as well as the 3Q write-off against the sale of Opel Vauxhall. For the year, revenues slipped back by a little over 2% to $145.6bn, reflecting the sale of GM Europe, while bottom line slipped into the red on the back of those one-off charges, with a net loss of $3.9bn. On an adjusted basis, excluding exceptionals, operating profit was more or less unchanged year-on-year, despite the fall in revenues.
For 2018, revenues edged up by 1% to $147.0bn. Without the one-off losses from tax reforms, net income soared to $8.1bn.
Dan Akerson, chairman & CEO of GM since its 2010 IPO, announced plans to step down in January 2014, earlier than expected (for family reasons). His successor as CEO was Mary Barra, a GM lifer who has worked for the company since she was a teenager in the 1980s, previously as SVP, global product development. She became the automobile industry's first female CEO. Akerson's role as chairman passed at the same time to Theodore Solso, already a board director, until Jan 2016 when Barra took over that role also. Former group vice chairman Stephen Girsky left the company in Spring 2014 following Barra's appointment. Mark Reuss - previously Barra's successor as EVP, global product development - was named as group president at the beginning of 2019. Barry Engle succeeded Alan Batey as EVP & president, North America. Former CFO and group president Dan Ammann now heads the GM Cruise autonomous vehicle division. Dhivya Suryadevara is CFO. Daniel Berce is CEO of GM Financial.
See Account Assignments for General Motors marketing decisionmakers.
The bankruptcy of General Motors in 2009 brought to a close just over 100 years of prominence as an icon of American business. Indeed, at its peak in the post-war period, the company was in effect a symbol of America itself, a leader in technology, design, innovation and consumer choice. As GM's president in the early 1950s, Charles E Wilson, was reported to have said: "What's good for General Motors is good for the country". Yet by the 1990s, and even occasionally in the two decades before then, the company had increasingly became an emblem of everything that was wrong about the country. Inflexible, tied to inflated ideas of its past glory, unwilling to accept new ideas, and unable to integrate its multiple competing brands.
Sitting right at the heart of the General Motors monolith is Buick, founded in 1903, and the first company to manufacture automobiles in quantity. In the early years of the century, numerous manufacturers set up to cash in on the public's fascination with horseless vehicles, but most businesses struggled to stay afloat. William Durant, who had taken control of the small Buick car company in 1904, realised that the best way for manufacturers to ensure survival was to band together. He formed General Motors in 1908 in order to acquire the best of his competitors, starting with Oldsmobile, Pontiac (then known as Oakland) and Cadillac. Over the next two years he bought 17 other brands. But while a few of these purchases have become legendary brands, others were of no value at all, and Durant brought the company close to collapse through his reckless expansion. In 1909, with GM already $7m in debt, Durant's bankers refused to loan him a further $9.5m to buy Ford. Soon afterwards he was unceremoniously ousted from the company, although he was allowed to remain a director.
It didn't curb his enthusiasm for automobiles. In 1915, Durant set up a new manufacturing company, Chevrolet, followed by United Motors Service to make industrial components and car parts. Chevrolet became so successful that investors soon began to sell off their shares in General Motors to buy the new competitor instead. Durant bought the GM shares, and in 1916 he found himself back in control of the business he had founded eight years earlier. In 1919 he bolted on fridge maker Frigidaire (sold in 1979), and began to pick up enormously valuable government defence contracts when America entered the First World War in 1917. A year later Durant mounted one deal too many. Having merged Chevrolet and United Motors Service into GM in 1918, he then attempted to take the business private, buying up all of the huge new group's stock. The deal was unsuccessful, and Durant was again ousted by GM's shareholders, and replaced with new president Alfred Sloan. (As a result of subsequent reckless speculations, Durant was bankrupted in the Great Depression of the 1930s. Later granted a modest pension by General Motors, he spent his remaining years as the manager of a bowling alley until his death in 1947).
Durant may have been the visionary who conceived GM, but it was Alfred Sloan who made it great. His biggest challenge initially was to make sense of the jumble of different brands under his control. As a result he introduced a program of brand differentiation, primarily through pricing, promising "a car for every purse and purpose". He also laid down a policy of what he called "continuous improvement" (designer Harley Earl later called it "dynamic obsolescence"), changing the designs of the company's cars on a regular basis to avoid inertia, and to persuade customers to trade up to new models. In 1924, GM ventured abroad, building its first overseas assembly plant in Denmark. To grow its presence, the company adopted the same acquisitive strategy that had worked so well in the US, buying up the UK's Vauxhall Motors in 1925 (although the business operated more or less independently until the late 1980s), and Germany's Opel in 1929. Two years later the fledgling General Motors Australia operation merged with local business Holden's to form General Motors Holden's, (now Holden) makers of the first all-Australian car.
At the time, the group concentrated all of its marketing through one advertising agency, Campbell-Ewald. However, the Depression caused car sales to plummet, and GM struggled to protect its business. One way was to establish very distinct identities for each brand. As a result, in 1933, GM decentralised all of its advertising. Campbell-Ewald kept Chevrolet as well as the various non-car manufacturing businesses such as GMAC and Delco. Oldsmobile was placed with offshoot agency DP Brother. (The account was later inherited by Leo Burnett, when it acquired Bother in 1967). Pontiac and Cadillac went to MacManus, John & Adams. Meanwhile, General Motors also expanded into other fields of engineering, establishing substantial interests in aerospace, and developing weapons systems for the government during World War II. In the 1960s and 1970s it played a significant role in America's Apollo space program, and acquired IT services company EDS, as well as Howard Hughes' aerospace and defence business in 1985 to form Hughes Electronics. (Both were later sold).
In the 1980s and 1990s, GM developed a reputation for industrial labour problems. These began with a massive restructuring programme initiated in 1984, when thousands of workers were laid off and several factories closed down. (Roger & Me was Michael Moore's memorable 1989 documentary about his attempt to secure an interview with then-CEO Roger Smith to protest against the devastating effects of GM's closure of a factory in Flint, Michigan factory where 40,000 people lost their jobs.) Disputes have rumbled on ever since, reaching a new climax in 1998 when a national strike brought production in North America to a halt for eight weeks, at a cost of almost $3bn.
During the 1990s, the company increased its focus on automobiles by spinning off subsidiary businesses. National Car Rental was sold off in 1995; EDS in 1996; automotive parts maker Delphi Systems in 1999. In 2001, the group agreed to sell what was then its third-biggest division, Hughes Electronics, to rival broadcaster EchoStar. However this deal was later blocked by regulators. It was acquired by News Corporation instead in 2003. GM Defence, which made light armoured vehicles and turret systems, was sold to larger rival General Dynamics in 2002 for $1.1bn.
In the mean time GM also expanded its portfolio of brands. Perhaps the most ambitious attempt was through the creation of a brand new car designed to deflect intense competition from Japanese imports. Saturn Corporation was founded in 1985 as a separate operating unit, working outside the main GM structure, and a different working contract was agreed with its workforce to allow greater input from them into the decision-making process. The first S-series subcompact sedans, stationwagons and coupes went on sale towards the end of 1990, supported by a quirky, folksy campaign from ad agency Hal Riney & Publicis which placed particular emphasis on customer service, promising friendly dealers and transparent no-haggle pricing. The initial response from customers was positive, and sales peaked at 284,000 units in 1994, but sales gradually declined over the next few years as GM turned its attention elsewhere.
It had acquired an initial 50% share in Swedish carmaker Saab in 1989, and purchased the remaining shares a decade later, as well as holdings in a variety of Japanese manufacturers. Later came long-running negotiations with failing Korean group Daewoo over some sort of rescue package for its Daewoo Motors subsidiary. In 2000, GM announced a wide-ranging strategic alliance with Italian carmaker Fiat after almost a year in secret negotiations. The two groups established the framework for the creation of several jointly owned production and development facilities in Europe and swapped shareholdings, with GM getting a 20% stake in Fiat in return for 5% of its own shares. In addition GM negotiated the right of first refusal to buy the rest of Fiat, but in return conceded a "put" option which would allow the Italian group to force GM to acquire all its shares at a future date. This was later to prove an expensive mistake on GM's part.
At the end of 2000, GM added to the growing pessimism in global industry, saying it would cut around 10,000 jobs in North America and Europe in response to increasingly difficult market conditions, especially in Europe. The carmaker also said it would gradually phase out its oldest brand, the Oldsmobile. It was obliged to spend more than $1bn to compensate Oldsmobile dealers for their loss of future earnings. Reacting to a poor record for reliability, the company also began a high-profile campaign to improve quality across all its models by introducing new systems for control and monitoring during the production process. GM's finances took another hit in 2002 when it wrote off $2.2bn of value relating to its stake in the now struggling Fiat. Soon after the cementing of their alliance in 2000, performance had slumped dramatically at Fiat's car manufacturing business, making GM increasingly unhappy about the prospect of being forced to buy out the business. GM's 20% shareholding in Fiat was reduced to 10% in 2003 when it declined to take part in Fiat's recapitalization. Also that year GM was able to persuade Fiat to postpone the potentially devastating "put" option by a year to January 2005. But in December 2004, with that deadline now looming, the two sides went to court after GM attempted to argue that the original deal had been invalidated by contract violations. Finally in 2005, GM agreed to pay Fiat €1.55bn to be released its obligations. The two companies' joint ventures were subsequently unwound.
In the mean time, GM launched an aggressive marketing push in the US which helped the company build market share at the expense of traditional domestic rivals Ford and Chrysler, both now wrestling with production problems and disappointing sales. But in early 2004 GM's long-running campaign to publicize the improved quality of its own vehicles suffered a blow when the group was forced to recall 1.8m vehicles in North America as a result of a potential safety defect that could cause fires. A dramatic fall in sales for many of its brands towards the end of 2004 and in the first months of 2005 led to a major restructuring in May and June. The group announced plans to cut around 14% of its North American workforce over three years. It also ramped up promotional marketing in the US, offering substantial discounts on all models, equivalent to those offered to its own staff. The Employee Discounts for Everyone campaign was introduced in June 2005, and led to sharp rise in sales, although the scheme created substantial dents in profitability. The scheme was quickly copied in July by Ford and DaimlerChrysler.
Despite its best attempts, comparatively little progress was made over the following months by GM, although it did secure a landmark agreement with US unions to increase job cuts to 35,000 workers, and bring forward the timing of those cuts by two years to the end of 2006. The sharp rise in fuel costs in 2006 kicked off a steep decline in sales of these models, just as it had in the original oil crisis of the 1980s which first gave Japanese manufacturers a toehold in the US. GM countered by slashing prices of all its cars, but although this served to shift inventory it also eviscerated profits. In summer 2006, the company was presented with an even more daring proposal by its biggest shareholder, activist investor Kirk Kerkorian, to become part of the global manufacturing alliance between Renault and Nissan. Kerkorian was convinced that Renault-Nissan chief Carlos Ghosn could work the same magic he employed at Nissan to rescue GM. The US group agreed reluctantly to consider the plan, and several discussions took place with Renault. Talks eventually ended in October 2006 when it became clear that no satisfactory agreement could be reached.
In September 2007, negotiations with the main United Auto Workers union over a restructuring of GM's healthcare and pension liabilities broke down, leading to a strike by around 74,000 workers. It was the first such action at GM since 1998. Ironically the strike was caused not by the main topic of healthcare payments, but a side issue of job security for UAW workers in future restructurings. The walk-out successfully focused both sides' attention, and a truce and agreement was reached after two days.
By 2008, the worsening economy replaced oil prices as the principal negative factor affecting new car sales. GM announced plans to cut several factories where it mad trucks and SUVs and also said it would attempt to sell the Hummer business. The latter brand, a poster child for the gas guzzler segment, has been the hardest hit of the group's brands since 2006, with sales halving in just two years. By the end of the year the group warned that it would be forced to file for bankruptcy unless it was granted emergency funding by the government. At the 11th hour, GM and Chrysler, which was experiencing the same woes, were granted assistance in the form of a $17bn short- term loan. Both companies were given until the end of March 2009 to come up with a plan which would justify furher investment. In December the company also announced that it would sell or close Saturn, Pontiac and Saab.
A deal was agreed to sell family brand Saturn to US dealership group Penske Automotive for an undisclosed sum. However, that arrangement collapsed in October 2009 and Saturn was shut down. A similar arrangement was struck to transfer Hummer to a Chinese company which specialises in construction equipment, Sichuan Tengzhong Heavy Industrial Machinery Co. That too collapsed in February 2010. Saab was a little more fortunate, though it too came close to liquidation. GM initially struck a deal to sell that business to Swedish company Koenigsegg, which specialises in ultra-luxury supercars priced at around €1m per vehicle. However that deal fell through at the end of November 2009. One of the Chinese backers, Beijing Automotive, acquired some of Saab's technology and vehicle designs, but not the brand name. At the very last minute, however, the Saab name and factory in Sweden were finally sold in January 2010 to Dutch manufacturer Spyker for around €74m. The Swedish government agreed to underwrite a €400m loan from the European Investment Bank to support the business. That deal closed in February 2010.
Yet at the same time, GM's restructuring outline to the government was deemed insufficient and as a result, chairman & CEO Rick Wagoner and most of the board were ordered to step down. Wagoner was replaced as CEO by Fritz Henderson, previously COO, and before that president of GM Europe. The company was then granted enough cash to hold out until the end of May, by which time the revamped senior team was charged with delivering a more rigorous plan or begin a "quick and surgical" bankruptcy.
Yet the complexities of GM's huge mountain of debt made any non-bankruptcy plan virtually impossible, and the giant finally filed for Chapter 11 at the beginning of June. In a lightning restructuring lasting just 40 days, the group shed 12 factories in the US, and thousands of jobs, as well as several international subsidiaries. This allowed a much leaner company to emerge from bankruptcy in mid-July 2009, with the US and Canadian Governments as its dominant shareholders. The US Government had almost 61% of equity in return for providing a further $30bn of funding in loan and equity. The government of Canada injected a further $9.5bn in exchange for almost 12%. The healthcare trust for GM's main labour union, the UAW, held a 17.5% stake, while secured bondholders took the remaining 10%. Ordinary shareholders were more or less wiped out.
The group's entire management structure began a rolling overhaul in July 2009 following emergence from Chapter 11. A key goal of the slimmed-down company was to reduce senior manager numbers. As a result, several posts were eliminated or combined. At the end of the summer, GM's new board asked Henderson to step down, feeling he was too closely associated with the company's old ways. Chairman Ed Whitacre stepped in, initially as interim CEO. That title was made "permanent" in early 2010, but only a few months later Whitacre himself announced plans to step down in preparation for GM's IPO. He was replaced as CEO by Daniel Akerson, who took on the role of chairman as well to Akerson at the end of the year.
Last full revision 20th November 2017
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