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Last Updated: August 8, 2015  109 views

Why General Motors became Bankrupt?

in: International Affairs

One more US giant has become Bankrupt. I am talking about United States number 1 car company, General Motors. General Motors was founded in 1908 with headquarters in Detroit, Michigan. It is the world’s second-largest automaker after Toyota. However, from 1931 to 2007, it was world’s lartest automaker. This company has around 250k employees around the world. Some of its famous auto products are Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Hummer, Opel, Pontiac, Saab, Saturn, Vauxhall and Wuling. Now the question arises that why GM became bankrupt? Actually record oil prices and fierce competition from other auto makers, GM’s higher labor costs compared to its competitors, resulting from its union agreements and pension costs, have contributed significantly to its bankruptcy. Other reasons are liquidity problems, poor status of American economy, drop in sales caused by lack of purchasing power among Americans after sub-prime crisis. General Motors filed for Chapter 11 bankruptcy protection on Monday, June 1, 2009, with a plan to re-emerge as a smaller and less debt-burdened organization in a couple of months.

The chapter 11 petition was filed in the federal court in Manhattan, New York. The filing reported US$82.29 billion in assets and US$172.81 billion in debt. The bankruptcy of General Motors is the fourth-largest bankruptcy in U.S. history, following Lehman Brothers Holdings Inc., Washington Mutual and WorldCom Inc. According to some experts 20,000 GM will lose their jobs in one or two weeks. This would be the immediate effect of GM’s Chapter 11 filing. Since the beginning of economic recession in US, General Motors started losing its cash balance and after rapid decrease in demand by 40% and increasing fuel prices. Now a few weeks a condition came when even adding the company’s current assets (inventories, equipment on lease, etc) to this still leaves it way behind it current liabilities. General Motors’ Bankruptcy may likely to affect the Indian IT industry also. What will happen to BSE sensex? What do you think on the downfall of General Motors and its reasons. Feel free to share your opinions.

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    The GM company was I think due to the bad and down grade performance of their management who were unable to address the issues properly after the advent of losses in 2005. Unable to tackle the union smartly and therefore; when the economic mess was appeared in 2008 and when the oil prices shoot up,the company revenues were further detriorated and put them at a vage of bankruptcy. However now the company has recoupe themselve as since 2004; now in 2010; the company declared profit of 4.15 Billion dollar.

    Sufyan on November 1st, 2011