The paper “ Impact of Financial Crisis on General Motors and Actions Taken by the Company” is an inspiring example of a case study on management. The global financial crisis of 2008 is considered to be the most perilous crisis since the Great Depression that happened in the 1930s. The crisis started in 2007 when exorbitant home prices in the U. S. begun dropping rapidly, first affecting the whole U. S. financial sector before spreading to the overseas’ financial markets. It resulted in numerous causalities such as the whole investment banking industry, mortgage lenders, insurance companies, and financial institutions.
The crisis did not only affect the financial sector but also companies that relied on credit. For instance, the automakers in the U. S, especially those that we're asking for a bailout for the federal government such as General Motors, were caught in the mess (Havemann). The situation was exacerbated when banks stopped providing loans, which businesses needed so as to regulate their cash flows. Currently, General Motors (GM) is one of the largest and most successful automakers in the world, but the global financial crisis affected the company enormously.
The financial crisis resulted in a major banking crisis, which ensued after financial institutions implemented tough guidelines for lenders, both personal consumers, and business. In consequence, this largely affected General Motors since the company together with other automakers depended heavily on short-term returns so as to fund its complex value chain as well as large brands portfolio. The essay focuses on the actions taken by General Motor in the face of the global financial crisis since 2007.2.0 Impact of Financial Crisis on GMAccording to Crotty (563), the 2007 financial crisis is the worst since the Great Depression.
The crisis happened during the latest evolution phase of the financial markets under the deregulation process which was initiated in the 1970s. The evolution according to Crotty (563) took the form of cycles wherein powerful financial booms are stimulated by deregulation together with rapid financial innovation, which normally ends in crises. Crises are normally responded by governments’ bailouts bailout, which normally facilitates the start of new expansions. This has consequently made financial markets larger and the society is continually being threatened by financial crises; therefore, governments have been forced to enact larger bailouts.
Before the bailouts, the Big Three automakers in the US (General Motors, Ford, and Chrysler) were performing poorly. The companies were making big losses; for instance, General Motors has made a loss of $40 billion in 2007 and an additional $31 billion the following year. The global financial crisis has a catastrophic impact on General Motors as cited by Goolsbee and Krueger (4). The company’ s sales started plummeting in 2007 and this was attributed mainly to the enduring market share decline and the decrease in aggregate demand.
The crisis impact on the automotive industry was exceedingly severe as compared to other industry except for finance and housing. This was attributed to the fact that the automakers’ value chains led was in a calamitous state, and companies like General Motors were already in life-support. The situation was worsened when the credit markets were frozen since orders and supplier invoices were canceled. This was further exacerbated by high labor costs and fixed-capital costs, enormous debt loads as well as immense health care and pension commitments to the retirees (Bai 59).
Furthermore, the sales of vehicles plunged; therefore, General Motors and the automotive industry were pushed into a severe crisis (Sturgeon and Biesebroeck 6). The figure below shows the drop in sales during the crisis and the progressive increase after the bailout.