1. What factors accounted for GM’s return to profitability? Explain and provide a rationale for the prospects of continuing this rise. The first thing GM did to help them return to profitability was the revamping of product development. GM had too much focus on the engineering process of development. This led to the difficulty of getting a bold design off the drawing board and through the lengthy development process. Under the lead of CTO John Lauckner, GM came up with a streamlined process that led to faster decision making.
In addition, meetings called “pride builders” were held to encourage staff to build better vehicles. Secondly, GM is trying to lure back customers by following the current trend of building smaller, more fuel efficient cars. Also, they are trying to overcome the perception of only having vehicles that fit older clientele by making over Buick and introducing new product lines with Chevy and Cadillac. Finally, GM acquired a new finance division to allow them greater flexibility in offering loans and financing to their customers. 2.
What factors did Wagoner have to deal with and how did he approach them. The first challenge Wagoner faced as head of GM were the divided geographical units that did not collaborate and in result failed to produce enough vehicles to turn a profit. He dealt with challenge by restructuring these units so that they worked together more efficiently. Secondly, GM had very high production costs that made their vehicles much more expensive to build than its foreign competitors. His solution was to downsize by shutting down plants and dealerships.
Wagoner also managed to negotiate with the powerful auto union to get employees to pay for a portion of the company’s health care costs. He set up a separate health-care trust that would handle this responsibility. In spite of these changes GM failed to turn a profit during his short tenure as CEO and he had to look to the federal government for cash. The government then seized control of GM and forced Wagoner out. 3. Do you think the government should have intervened in the GM bankruptcy?
Do you think this should have been their role — why/why not? The government should not have intervened in the GM bankruptcy. In a properly free market, as GM sales were down, GM should have had the flexibility to cut staff, lessen benefit expenditures, reduce hours, or whatever it took in order to ensure the solvency of their organization; something labor unions simply won’t allow. The idea that the united auto workers union wasn’t contributing to the problem is absurd. The
bailout reduced GM’s employment by 25 percent in its immediate aftermath. The UAW contract remained in place. Instead, major cost-savings came from expropriating GM’s creditors, leaving the company with no interest expenses, and freeing the “new” GM from corporate income taxes. GM’s 25 percent loss of employment was about the same as in the major airlines that went through normal bankruptcy. Hence, there is no evidence that the bailout saved GM jobs over a normal structured bankruptcy.
Furthermore, by violating the rights of individuals who had lent money to the automakers the government sent the message that, when political stakes are high, the federal government will run over investors’ rights. The predictable results are higher costs to businesses seeking investment and, should another economic crisis occur, flight to capital from industries that the government may consider worthy of its intervention, adding to the brittleness of the economy.