CASE STUDY

FINANCIAL MANAGEMENT

Name : P.Sitharthan

Class : First MBA

Date : 22.04.19

Submitted To : Ms. S. Salomi

Course Code : Financial Management

Course Name : YBA201

GENERAL MOTORS BANKRUPTCY-CASE STUDY

Bankruptcy Date:
06/01/2009
Assets: $91 billion

General Motors Company, also known as GM, is a United States based automaker with headquarters in
Detroit, Michigan. By sales, GM ranked as the largest U.S. automaker and the world’s second largest for
2008. GM had the third highest 2008 global revenues among automakers on the Fortune Global 500. GM
manufactures cars and trucks in 34 countries, recently employed 244,500 people around the world, and sell
and services vehicles in some 140 countries.

GM filed for Chapter 11 Bankruptcy protection in the Manhattan New York federal bankruptcy court on
June 1, 2009 at approximately 8:00 am EST. June 1, 2009 was the deadline to supply an acceptable viability
plan to the U.S. Treasury. The petition is the largest bankruptcy filing of a U.S. industrial company. The
filing reported US$82.29 billion in assets and US$172.81 billion in debt.

Discussion questions:

1. Why it become bankruptcy?

2. How they solve the problem?
3. What you are do, if you are the CEO of GM ?
ANSWERS:

1. Why it become bankruptcy?

GM is a very interesting case. Yes, it is certainly one of the great titans of U.S. industry and it’s not any fun
to see them go into bankruptcy.

There have been several opinions put forward at to why this all happened:

 GM makes cars people don’t want

 GM is too slow to innovate because of its size
 GM is too bureaucratic and unable to adjust to changing markets
 GM’s dealer network is too large
 GM sold off its formerly profitable financing business GMAC

To us the problem with GM is very simple. GM stopped making a profit. The reason any company exists
is to make a profit. When companies stop making a profit they fail. We measure profit using the income
statement. The income statement simply takes what you sold in a period and subtracts the costs in the
business during the same period. If sales are greater than costs or expenses then there is profit. If sales are
less than costs then there is a loss.

GM stopped making profit in 2005. Since that time GM lost more than $90 billion through the 1st quarter of
2009. As Joe says in his classes, “In finance we learn that losing money is bad.” GM has been very, very bad
for several years. The next question, then, is, “why did those losses happen?” From our perspective, even
though all of the above may be good points, the key to GM’s losses has to do with sales and fixed cost As
the losses mounted and the economy struggled, these losses became so significant that GM could not survive
as a viable business. In spite of billions of dollars of government support, the only solution for GM is to
declare bankruptcy and try to lower those fixed costs through a court process.

2. How they solve the problem?

The U.S. government lost $11.2 billion on its bailout of General Motors, according to a 2014 government
report. The government invested about $50 billion to bail out GM as a result of the company's 2009
bankruptcy, and at one time held a 61 percent equity stake in the Detroit-based automaker.

The USA did that because, USA economy mostly depend on GM

3. What you are do, if you are the CEO of GM ?

There is no other ways to solve this problem because they stopped their profit making in 2005 this is what
their beigest problem. If I were a CEO of GM, I issued more shares in share market this is not fair but except
this there is no other option.