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GM Financial Analysis and Planning of the Collapse - Essay Example

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GM Financial Analysis and Planning of the Collapse

The debt kept rising and the conditions worsened for GM in 2008. (Henderson, 2008) The earnings per share in 2005 were $ (5.93) which lead to the fall in the value of the shares. (General Motors Financial report, 2005). In 2007, the earnings per share further decreased to $ (76.16). However, in 2008, there was a slight improvement. The earnings per share were $ (53.47). (General Motors Annual Report 2010) In 2007, GM made the biggest loss in automobile industry. It made a loss of $ 38.7 billion. GM had to sell Allison Transmission for 5.6 billion dollars to Onex Corporation and Carlyle Group. Then, the gas prices increased in 2008 and GM had to close its sports utility vehicle and pick up factories. 8350 people became unemployed. By the end of 2008, it had to ask the government for protection. It had to ask Congress for $18 billion to pay its debts and to remain afloat. The Congress gave him $13.4 billion. However, the loss made was huge. It made an annual loss of $30.9 billion and its debt was accumulating. In 2009, it declared that it needs $ 30 billion to survive. On the other hand, its unit in Sweden filed for bankruptcy. This was another blow to General Motors. It presented a survival plan and a restructuring plan to US Government in which it mentioned that they close all their units except Saturn by 2011. However, the possibility was it will lose of its brands and the retailers or other potential companies might buy them. The Government was not satisfied with the restructuring plan and gave them another chance to make an aggressive plan and do aggressive cuts. Then, it used another scheme it asked 90% of its bondholders to accept a share of equity in return for debt. This will enable the company to reduce its debt by $24 billion. It decided to issue 62 billion new shares and end Pontiac. Also, it decided to end its contract with 1100 dealers. But the debt exchange offer as named by General Motors failed. Bankruptcy seemed evident. Government gave more loans to GM and it rose to $19.4 billion. GM came up with a new idea. It decided to give 10% of the company to bondholders and another 15% stake to reduce the debt by $27 billion. Also, it decided to build cars in US instead of China. These decisions led to the fall in share price. The share price went below $1. 54% of its bondholders agreed to the new scheme given my General Motors. Thus, it enabled GM to ask for bankruptcy protection from the court. The bankruptcy protection was granted to GM. (GM-History of an Automaker, 2009) The state protection was one of the milestones in General Motors history. It not only enabled it to recover from losses but it set a new beginning for General Motors. July 2009, was the period in which it started recovering from bankruptcy. At this time, it started off with only four brands. Most of the GM was now owned by the state. GM then sold its shares of Opel to a Russian company and started its restructuring. GM then announces a $3.5 billion deal for AmeriCredit. This was the step taken by GM to get support for the floatation of stock and later it started preparations for IPO. From the IPO, it was able to raise almost $20 billion. It was a comeback and a great achievement for GM. The share price also increased from $26 to $33.(General Motore-Timeline of trills and spills, 2011) In 2011, GM achieved a profit and recovered well from the bankruptcy. It gained a profit of $7.6 billion which was 62% higher than the ...Show more

Summary

GM financial analysis and planning of the collapse General Motors was one of the biggest companies in Automobiles Industry. It was most innovative car maker and it led to the development of new companies in the automotive industry. Even though, it was the biggest player in the industry, it was exceeded by Toyota in 2008…
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GM Financial Analysis and Planning of the Collapse essay example
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