This paper examines S&P 500 firms, their trends, revenue, earnings and the price of their stocks. In order to effectively do this, the researcher chose one S&P firm, namely the General Motors Company. This paper examines the global automotive industry then narrows it down to the American automotive industry and finally gets to the position of the General Motors Company in this particular industry. It also studies the success story of General Motors in order to know its strengths and weaknesses. The financial statements of this company are important in reflecting its financial position and determining where it will possibly be in the next 5 years. This paper also explores the regulations put in place by the General Motors and any issues related to litigation that they are currently experiencing or may have been experiencing in the past. It also looks at the management of the firm and its labor litigation issues. The General Motors has expanded into various parts of the globe and this has been accompanied by some issues both at home and in foreign countries, which is also a subject of research in the paper. Basically, this work discusses all the relevant information regarding General Motors Company as an S&P 500 firm.
There is a system of determining the leading US firms’ equities and this is important in showing the characteristics of the returns or risks of companies whose market capitalization value exceed $10 billion (Hortac?su & Syverson, 2003). There are various factors that are taken into consideration when determining the index of stocks such as the liquidity and size of the firms among as an example. According to Auinger (2015), a total of 500 firms are normally chosen for this category and these are known as the Standard and Poor’s 500. Standard & Poor 500 (S&P 500 firms) is made up of economists, analysts and a committee that is normally in charge of selecting the corporations that appear in this list. Each stock is given a weight that is equivalent to the market value it has.
There are numerous companies normally listed under the (S&P 500): this paper focuses on the General Motors Company, as it is one of these companies. General Motors Company, popularly known as General Motors is a firm that deals with the designing, building and selling vehicles and automobile parts. General Motors Financial Company Inc. is a branch of GM that provides financial services. GM has its headquarters in Detroit, Michigan. According to Crumm (2010), General Motors was founded in 1908 by William C. William did this in order to bring together different corporations in the business of producing motor vehicle brands like Oakland, Cadillac and Buick. GM has extended its operations to numerous parts of the world and it runs these companies through its four geographical segments; Europe, North America, International operations and South America. General Motors has been making significant contributions to the global automobile industry for more than 100 years now (Crumm, 2010).
The global automotive industry has experienced a considerably strong level of growth and profitability. According to various studies, there are regions with annual sales pre-recession. However, the future of this industry remains uncertain. This is mostly due to a number of factors, the most important of them being the unevenness of the global markets. According to the auto industry experts, the U.S market is projected to generate sales of up to 16 million cars in North America annually which is an improvement from 2008 when it sold about 13 million cars (Auinger, 2015). Experts are not that optimistic when it comes to Europe though, since it is still recovering from the six year sales slump it had been experiencing. South America and Russia have also seen a sales plunge of 15% and 25% respectively, as of August 2014 (Auinger, 2015).
The automotive industry of India has been facing lots of inconsistencies recently as well. China has gained reputation over the years for having the largest vehicle market globally but its automobile manufacturing hasn’t been spared in the downward spiral faced by many automotive industries worldwide (Hortac?su & Syverson, 2003). However, the majority of the original equipment manufacturers (OEMs) are still investing in it. Therefore, the way business leaders react to such shifts in demand greatly determine the direction that this industry will take from now on. Experts predict major transitions in the automotive industry in the coming five years.
The automotive trade of the United States is among the largest worldwide and has about 13 auto manufacturers, one of which is the General Motors Company (Auinger, 2015). Other players include Ford, Honda, Volkswagen and Chrysler among others. Studies show that the United States has managed to produce more than 8 million passenger vehicles on a yearly basis from 2008-2012 (“The automotive industry in the United States,” n. d.). About 3.5% of the gross domestic product of the United States is from this sector, inclusive of dealerships. By the end of 2012, the business employed close to 786,000 people (Auinger, 2015).
General Motors became successful even to the point of surpassing Ford Motor Company and earned the title of the leading passenger cars manufacturer in the whole of America (Crumm, 2010). However, it started facing stiff competition from automobile companies in Japan afterwards, which reduced its effectiveness in the market. In 2009, General Motors met numerous challenges, the biggest one being a bankruptcy, for which it was removed from the S&P 500 firms even though the government later bailed it out with a sum of $50 billion (Crumm, 2010). However, things started improving in 2010 and it even listed its shares on the New York Stock Exchange. Things continued to improve and its shares rose in price significantly (Auinger, 2015). In 2013, General Motors finally returned to the S&P 500 firms list (Auinger, 2015).
The GM made a commitment to allocate about 10% of its earnings for enhancing its automobile operations in North America (Verhage, 2015). This percentage refers to the earnings before interest and taxes (EBIT). General Motors recognized the potential in North America as a leading automobile market and that is why it chose to invest in it.
According to O’Hara (2015), GM has a plan in place for improving the margins it has in North America. The fact that the costs of raw materials such as steel and copper have been declining in the last six months means that GM is actually able to achieve the EBIT margins it has set in place (O’Hara, 2015). The past 22 months have been great for GM and it has experienced continuous growth with regards to sales. The company expects even more sales volume for the next few years. Therefore, this will help them achieve their plan of increasing margins in North America. GM has announced that it will launch a variety of new models in 2016 and 2017, especially in North America (O’Hara, 2015). In addition to the fact that this will be a great move towards expanding their business, it will also bring in more profits since new models are normally sold at higher prices and there is little room for discounts. General Motors also plans on getting back into the medium track business. It hopes to make adjacent sales through its fresh lineup of medium trucks. The company knows that this market is not very big but believes that doing so will avail the vehicles needed by the commercial fleet customer. GM can use its financial arm for margin expansion too.
Various automobile companies have realized the extent of the demand for luxury cars among consumers and GM also plans on venturing into this market. BMW, Audi (VLKAY) and Mercedes-Benz are currently the main players in this industry. GM believes that 60% of the profits realized from the automotive sector are coming from the luxury segment (“The automotive industry in the United States,” n. d.). The firm has numerous full-sized trucks but the same cannot be said for the luxury segment. The company has realized how significant the luxury car market is and that is why it is currently giving it more attention through strengthening the Cadillac brand. It does it with the view to gain about 10% share of this market.
According to Select USA, GM presently owns about 3.4% of luxury cars worldwide. In addition to that, the corporation aims at making the Cadillac brand much stronger (“The automotive industry in the United States,” n. d.). It intends to accomplish this by significantly reducing its dealer inventories which is not something new to them. Its target is supplying the Cadillac cars for about 60-65 days (Verhage, 2015). In the past, there was an oversupply of the Cadillac autos which is normally bad for a brand since it lowers its perception. This is why most luxury carmakers like maintaining a low inventory. General Motors is also working towards improving its product portfolio in order to give it a competitive edge in the luxury car market. It will do this through launching numerous vehicle brands particularly for the high-end buyers.
The automobile industry is constantly changing and the players within the industry may be confused about the future path to take. New innovations are designed in the form of electric vehicles, self-driving cars and car sharing, which has forced the automobile manufacturers to reorganize their business plans and strategies.
Competitive Strengths and Weaknesses
General Motors has faced some challenges in the recent years but the headlines show that it is doing its best to get back on its feet. The success that General Motors has enjoyed has been made possible thanks to some of its major strengths. Similarly, the challenges it has faced have been partly brought about by its weaknesses among. The market is changing and GM’s competitors are also fighting to be the largest automakers worldwide. In addition to that, there are also new rivals entering the market. However, General Motors has some strengths it uses to ensure it stays ahead of the competition.
According to Crumm (2010), one of its strengths is redesigning. General Motors (GM) regularly redesigns its products because it knows that reaction’s speed is very important in this industry. This is even easier for it to do since it has the fastest design rate together with Ford Motors Company. Therefore, GM has the ability to come up with fresh models of approximately 24% of its sales volume annually (Verhage, 2015). Currently, GM is undertaking a full-on product makeover which is expected to continue up to 2016 (Verhage, 2015). This means that the company is able to regularly improve on what it offers its customers and therefore appeal to a wider market. In addition to that, this helps increase the firm’s revenue and earnings for years to come.
The General Motors Company has been so successful partly due to its brand portfolio. Over the years, the company has manufactured a variety of stable and popular automobiles that have made GM a household name in the United States. Therefore, GM has strong roots in America and globally, which facilitated growth. Examples of the vehicles GM is known for include Pontiac Cadillac, Buick and Chevrolet. The company produces 18 brands of automobiles which satisfy the majority of customer needs (Ovidijus, 2013). General Motors has a worldwide presence and this has increased its scope of growth. It has operations in about 157 countries, which are in charge of the assembly, production, and distribution processes and so on (Ovidijus, 2013). GM also works on factories located in South Africa Ecuador, Brazil, Viet Nam, Poland, Sweden, Germany, China, Argentina and several other countries.
General Motors is on a mission to identify its weak spots and work on them in order to be stronger. In addition to that, it plans on identifying the sectors that its competitors are thriving in order to give them stiff competition. It is therefore targeting the luxury market since this is where the German automakers (who are GM’s rivals) thrive. GM wants to strengthen its footing in this sector through augmenting and promoting its Cadillac brand, as well as improving the company’s portfolio. One of the ways it wants to do this is by introducing a big rear-wheel-drive sedan. In addition to that, it is working on launching about 10 new or redesigned models of the Cadillac before the end of 2015 (Coyle, 2013).
One of General Motor’s major strengths is the fact that it always focuses on how the auto industry evolves and it currently has its eye on the electric car. Most of GM’s sales have been from the sport utility vehicles and the full-sized pickup trucks. However, Dan Akerson, the chief executive officer of GM together with his team have discovered a lot of potential in electric cars especially due to the unstable way in which oil prices are rising in addition to the fact that the automotive industry is undergoing an evolution and there’s a definite need for small, fuel-efficient cars. GM is ready to do what is necessary to stay relevant in the automotive industry. With that in mind, it has projections of producing at least 500,000 vehicles operating with a type of electrification by 2017 (Ovidijus, 2013). Additionally, GM is planning on refurbishing 70% of the brand it manufactured in years 2012-2013 in order to make the vehicles more appealing to its customers (Verhage, 2015).
General Motors does an extensive research especially on its competitors to find out what they are doing right in order to match it Coyle, 2013). For example, it cannot ignore Elon Musk and his invention of “Tesla” which has attracted the attention of many consumers. Akerson is interested in knowing why Elon and his invention resonates well with consumers and this is why he has set up a special taskforce in charge of studying Tesla. Studying this electric carmaker is important especially because GM is looking to expand into the electric car field and, therefore, it will know what to do with regards to that.
It has been a good year for General Motors, especially with regards to the sales. According to reports released by the company recently, it sold 4.85 million vehicles during the first half of the year which is equivalent to a 3.9% increase (“The automotive industry in the United States,” n. d.). The company’s figures in China have been particularly impressive and this kind of overseas success has been important in outweighing some of the losses that GM has encountered in other parts of the continent such as Europe resulting from economic crisis. Although General Motors Company is still competing with Volkswagen AG and Toyota Motors for the status of the largest automaker in the world, recent reports show that Toyota is behind GM (“The automotive industry in the United States,” n. d.).
The General Motors Company may have faced bankruptcy in 2009 due to some of its weaknesses (O’Hara, 2015). One of these weaknesses was a loss of market focus with regards to the portfolio levels it had. Examples of these portfolio levels include models within brands, brands within divisions and market segments. Studies reveal that GM has always paid more attention to improving its market revenue as opposed to coming up with a sustainable positive net cash flow. Researches indicate that this makes a company prone to huge cash losses in the long run. The loss of focus was experienced on all levels of the company’s portfolio which resulted into a loss of huge amounts of money. General Motors had plans of launching around 12 new vehicles in 2010 (Ovidijus, 2013). As a matter of fact, it incurred approximately $6.2 billion while trying to achieve this goal (Ovidijus, 2013). This resulted into the company having to spend $30.9 billion in the same year. It had lost about $38.7 billion in the previous year too (Ovidijus, 2013). An automotive company needs to create car market-segment shares and also design the strategy of positive cash flows in order for market focus to exist, which General Motors didn’t have in 2009 (More, 2009). GM engaged in numerous vehicle segments which in turn destroyed its market focus. This was due to the fact that the company then relied on the same market segments and the same car buyers. In the end, it could not make profitable sales from a single cash vehicle. Therefore, it became difficult to get positive cash flows. GM, accumulated lots of cash flow losses to an extent that it considered filing for bankruptcy and the government stepped in to help.
The General Motors has the highest cost structure in the industry because of the huge workers’ compensation and pension plans it committed itself to. Although it lowered this cost in 2008, the company cannot be said to be cost competitive (O’Hara, 2015).
The brand recognition that General Motors used to enjoy some decades ago has gone down due to the fact that it has undergone a brand dilution. In 2010, the company discontinued the production of some of its brand such as Pontiac, Saturn, Hummer and Saab (Ovidijus, 2013). Although GM still has various qualities of automobiles depending on consumer interest, this has affected consumers’ perception of the brand. The cost of materials used in the manufacturing of vehicles has gone up over the years and this has negatively affected the automobile industry as a whole. Companies are employing various strategies for reducing their costs from material to production costs with less regard to quality and this applies to the GM Company too. The decline in quality of its vehicles has negatively impacted its sales.
General Motors has a bureaucratic culture which is also a definitely not it’s strong strong side. Although GM reacts to changes in the automobile industry, it isn’t as quick as some of its competitors like Ford or LLC. This can be witnessed by the fact that these companies introduced fuel efficient vehicles and other diesel options much before GM. GM recalls many of its cars, which is a negative tendency that can be seen for a number of years now. A missing hood latch made the company recall about 120,000 pickup trucks in 2012 (Ovidijus, 2013). In addition to that, the Chevrolet cars faced a battery problem in the same year and GM reacted by recalling the vehicles. Recalls are normally expensive and they affect the brand perception negatively, particularly if one uses them frequently.
The researcher examined the financial statements of the GM for the past 4 years.
These are the annual income statements for General Motors from 2011 to 2014 and the values are in 000’s. By 31st December 2011, the company had total revenue of $150, 276, 000, cost revenue of $131, 171, 000, and gross profit of $19, 105, 000 (Nasdaq, 2015). Under operating expenses it had $0 for research and development, $12, 163, 000 for sales, general and administrative expense, $1, 286, 000 for non-recurring items, $ 0 for other operating items, $5, 656, 000 for operating income, $869,000 for additional income/ expense items, $9, 717, 000 for earnings before tax, $110,000 for income tax, $97,000 for minority interests, $3, 192, 000 for equity earnings/ Loss Unconsolidated Subsidiary, $12, 400, 000 for net income-count (Nasdaq, 2015), operations, $9,190, 000 for net income and $7,585, 000 for net income applicable to common shareholders (Nasdaq, 2015).
By 31st December 2012, GM experienced $ 152, 256, 000 in total revenue, $ 141, 443, 000in cost of revenue and $10, 813, 000 in gross profit (Nasdaq, 2015). Under operating expenses it had $0 for research and development, $14, 031, 000 for sales, general and admin, $27, 145, 000 for non-recurring items, $30, 363, 000 for operating income, $595, 000 for additional income/expense items, $28,206,000 as earnings before interest and tax, $489, 000 for interest expense, $28, 695, 000 for earnings before tax, (Nasdaq, 2015), $34, 831, 000 for income tax, $52, 000 for minority interest, $1, 562, 000 for equity earnings/loss unconsolidated subsidiary, $7, 500, 000 for net income-count. operations, $6, 188, 000 for net income and $4, 859, 000 for net income applicable to common shareholders (Nasdaq, 2015).
In 2013, GM had total revenue of $155, 427, 000, cost of revenue of $137, 373, 000 and gross profit of $18, 054, 000 (Nasdaq, 2015). With regards to operating expenses the figure was $12, 382, 000 for sales, general and administrative expense, $514, 000 for non-recurring items, $0 for other operating items, $5, 131, 000 for operating income, $851, 000 for additional income/expense items, (Nasdaq, 2015) $7, 792, 000 for earnings before interest and tax, $334,000 for interest expense, $7, 458, 000 for earnings before tax, $2, 127, 000 for income tax, $15,000 for minority interest, $1, 810, 000 for equity earnings/loss unconsolidated subsidiary, 6, 944, 000 for net income-cont. Operations, $5, 346, 000 and $ for 3,770,000 for net income applicable to common shareholders (Nasdaq, 2015).
In 2014, the company’s total revenue was $155, 929, 000, cost of revenue was $142, 121, 000 and gross profit was $13, 808, 000 (Nasdaq, 2015).Under operating expenses, it incurred $12, 158, 000 for sales, general and admin, $120, 000, non-recurring items, $0 for other operating items, $1, 530, 000 for operating income, $1, 025, 000 for additional income/expense items, $4, 246, 000 for earnings before interest and tax, $228, 000 in income tax, (Nasdaq, 2015) $69,000 in minority interest, $2, 094, 000 for equity earnings/loss unconsolidated subsidiary, $6, 245, 000 for net income-cont. Operations, $3, 949, 000 for net income and $2, 804, 000 for net income applicable to common shareholders (Nasdaq, 2015).
Cash Flow Statement
The author studies the cash flows realized by General Motors and the values are in 000’s. By the end of 2011, GM had a net income of $9, 190,000. With regards to cash flows-operating activities, it had a depreciation value of $7, 587, 000 and net income adjustments of $5, 252, 000 (Nasdaq, 2015). The changes in operating activities included accounts receivable of $0, changes in inventories of $0, other operating activities worth of $ 3, 456, 000, liabilities worth $ 0 and net cash flow-operating of $ 8, 166, 000. The cash flow investing activities included; capital expenditures of $6, 249, 000, investments of $12, 704, 000, other investing activities worth $6, 213, 000 and net cash flows investing of $ 12, 740, 000 (Nasdaq, 2015). The cash flows-financing activities included; sale and purchase of stock worth $0, net borrowings was $ 697, 000, other financing activities worth $139, 000, net cash flows-financing was $358, 000, effect of the exchange rate was $253,000 and net cash flow of $ 5, 185, 000 (Nasdaq, 2015). In 2012, GM experienced a net income of $6, 188, 000 (Nasdaq, 2015). It got a depreciation of $38, 950, 000 and net income adjustments of $ 35, 900, 000 (Nasdaq, 2015). Its accounts receivable is $0, changes in inventories of $0, other operating activities of $1, 419, 000, liabilities of $0 and net cash flow-operating of $3, 505, 000 (Nasdaq, 2015). With regards to cash flows financing activities, it has a sale and purchase of stock of $1, 412, 000, other financing activities of $116, 000, net cash flows-financing of $4, 741, 000, effect of the exchange rate of $8, 000 and net cash flow of $2, 351, 000 (Nasdaq, 2015). In 2013, the company got a net income of $ 5, 346, 000. Under cash flows operating activities, it got depreciation worth $8, 155, 000 and net income adjustments of $ 1, 211, 000 (Nasdaq, 2015). Under changes in operating activities, the accounts receivables were $0, changes in inventories of $0, other operating activities of $2, 067, 000, liabilities of $0 and net cash flow operating of $12, 630, 000 (Nasdaq, 2015). With regards to cash flows investing activities; capital expenditures were $7, 565, 000, investments were $ 5, 184, 000, other investing activities of $1, 613, 000 and net cash flows-investing of $14, 362, 000 (Nasdaq, 2015). Under cash flows financing activities, it incurred $ 2, 438, 00 in sale and purchase of stock, $8, 006, 000 in net borrowings, $150,000 in other financing activities, $3, 731, 000 in net cash flows financing, $ 400, 000 in an effect of the exchange rate and $1, 599, 000 in net cash flow (Nasdaq, 2015). In 2014, GM experienced net income of $3, 949, 000 and depreciation of $7, 419, 000 and net income adjustments of $1, 516, 000 (Nasdaq, 2015). With regards to changes in operating activities, its accounts receivable was $0, changes in inventories of $ 0, other operating activities of $137, 000, liabilities were $ 0 and net cash flow operating of $10, 058, 000 (Nasdaq, 2015). Under cash flows-investing activities; the sale and purchase of stock was $3, 277, 000, net borrowings of $ 12, 240, 000, other financing activities of $123, 000, net cash flows financing of $5, 675, 000, effect of the exchange rate of $ 1, 102, 000 and net cash flow of $ 1, 067, 000 (Nasdaq, 2015).
By 31st December 2011, General Motors had a current ratio of 122%, a quick ratio of 95% and a cash ratio of 62% (Nasdaq, 2015). Its gross margin was 13%, an operating margin was 4% pre-tax margin at 6%, and a profit margin of 6%, Pre-Tax ROE of 24%, remained the same after tax ROE (Nasdaq, 2015). By 31st December 2012, GM had experienced an increase in its current ratio amounting to a 130% another increase in the quick ratio which was at 102% and yet another one in the cash ratio, at 52% (Nasdaq, 2015). According to profitability ratios, GM’s gross margin was 7%, operating margin at 20%, pre-tax margin at 19%, a profit margin of 4%, a Pre-Tax ROE at 79% and after tax ROE at 17% (Nasdaq, 2015).
In 2013, the company experienced current ratio of 131%, a quick ratio of 108% and a cash ratio of 48% (Nasdaq, 2015). The percentages for profitability ratios were; 12% for gross margin, 3% for operating margin, 5% for pre-tax margin, 4% for profit margin, 18% for pre-Tax ROE and 13% for Tax ROE (Nasdaq, 2015). As of 31st December 2014, GM experienced an increase in its current ratio amounting to 127%, a decrease in its quick ratio which was at 107% and a decrease in cash ratio which was at 45% (Nasdaq, 2015). The percentages for profitability ratios for 2014 were; 9% for gross margin, 1% for operating margin, 3% for pre-tax margin, 3% for profit margin, 12% for pre Tax-ROE and 11% for after Tax ROE (Nasdaq, 2015).
Projections by experts indicate that S&P will spend approximately $2.2 trillion in 2016 and years after that (Verhage, 2015). According to Verhage (2015), 54% of this figure will be allocated to growth activities like research and capital expenditure. This figure is estimated to go up by 3% (Verhage, 2015). In addition to that, 46% of the money will be used to give back the shareholders (Verhage, 2015).
Management and labor relations
The General Motors Company has a Board of Directors made up of 13 members (GM, 2015). This board was formed on March 31, 2015 (GM, 2015). All its Directors are independent except Joseph Ashton, the former vice president of UAW, Mary Barra, the CEO of GM and Stephen Girsky, the former Vice Chairman of GM (GM, 2015). This is in accordance to the guidelines set by the Board’s Corporate Governance and these guidelines are in line with the standards put in place by the New York Stock Exchange and the United States Securities and Exchange Commission. The Board is made up of a number of standing committees namely; Public Policy, Finance and Audit, Executive Compensation and Corporate Governance among others (GM, 2015). The last three committees are mostly made up of independent Directors. Every committee of the GM comprises of a written charter that describes its function, duties and authority. The Board and the committees have their roles to play in the company. The Board’s responsibility is overseeing how General Motors manages its risk and is also in charge of the program of Strategic Risk Management (SRM) and the processes involved. The Board has the right to directly implement its authority in the mentioned areas or to do it through committees such as the Risk Committee (GM, 2015). The management of GM provides the Board with regular reports regarding the status of the principle and potential risks facing the company. The committees provide this information through their regular communication with the Board or using the company’s strategic plan. The committees have regular meetings in which they discuss their different areas of responsibility and how to manage the company’s risks. They then present a complete report to the full Board.
By 2014, General Motors had a total of 216,000 employees (GM, 2015). 110, 000 employees were from North America, 37,000 were from Europe, 33,000 international, 29,000 from South America and 7, 000 were financial (GM, 2015). These employees were split into two categories; 80,000 of them earned salaries while 136,000 employees were paid on an hourly basis (GM, 2015).
The General Motors Company had been thriving way before its neared collapse in 2009. GM made history in the 1950’s as the first company to get a revenue of $ billion annually in addition to owning 50% market share of the automobile industry (Crumm, 2010). There are a variety of factors that contributed to the decline of the General Motors Company such as failure to respond to market cues, dealing with too many brands and struggling with the United Auto Workers (UAW) who was its union among others (Crumm, 2010). GM paid its UAW workers approximately $ 73 per hour. This is extremely high compared to what other automobile companies pay their workers. For example, the same worker would be paid approximately $ 44 per hour (O’Hara, 2015).
Companies normally lay off their surplus workers to avoid incurring unnecessary costs. GM opted to give its surplus workers 95% of their full salaries in addition to benefits as they waited to be reassigned (O’Hara, 2015). This meant that thousands of workers would be idle at the company or engaged in activities that do not add any particular value to the company while getting paid as they passed time. There were cases where some senior employees would get themselves “laid off” in order to spend their last few years in the bank under the umbrella of those “working” in the bank so they could get their full benefits when they retire. In addition to that, GM put in place the “thirty and out” rule. Accordingly to this rule, a union worker was entitled to health care benefits and full pensions if they retired after working for General Motors for thirty years. Therefore, one would work for thirty years and then retire in their early 50’s but get a yearly pension of $37,500 (O’Hara, 2015). Studies show that the ratio of retired to active GM workers by 2008 was 4.6: 1 respectively (O’Hara, 2015). This rule turned out to be unsustainable in the long run.
Majority of these labor issues were blamed on incompetent management at the General Motors. When asked about his opinion, Steve Rattner, the auto czar of President Obama described the management of GM as “stunningly poor.” The labor laws of the United States are considered to be coercive and these have influenced some of the decisions made by the General Motors. The Wagner Act put in place in 1935 states that businessmen are not allowed to discourage workers from forming unions provided it gets enough votes (Forbes, 2013). Therefore, the company has no option but rather to bargain with the union in this case. These kinds of labor laws have given unions the upper hand and the permission to create demands that are difficult for employers to adhere to without facing legal consequences. Hence, employees such as the General Motors find themselves agreeing to these demands to avoid wasting a lot of time and money on litigation cases. The United Automobile Workers (UAW) had been negotiating for better terms for their workers in the various automobile companies and by 2011, they had reached an agreement with General Motors (Bunkley, 2011). This was in the form of a new labor contract. This was the first the GM made a new labor pact from 2009 (Bunkley, 2011).
This pact would enable the 48,500 union workers employed by General Motors in 2011 to get part of the company’s turnaround (Bunkley, 2011). In addition to that, it would also provide more job security and these two areas were UAW’s top most priorities during the negotiations. Additionally, the deal also improved profit sharing. The union gave a statement to the effect that it had turned down General Motors earlier proposals of weakening the union workers’ retirement benefits. The U.A.W convinced GM that it would achieve greater success if it provided good pensions and health care instead of weakening them. According to Bob King, the union’s president, the new deal would enable workers who had been laid off resume working. In addition to that, it would create more jobs in the United States from the rest of the countries. The U.A.W said that it approached the negotiations with fresh strategies which helped them to achieve some of the major goals they had set out to accomplish. He went on to say that some of these goals included major investments and products for its plant. The negotiations took 14 hours and this came about two days after they decided to extend the old contract since they hadn’t reached an agreement (Bunkley, 2011). The Vice President of General Motors, Cathy Clegg said they were able to reach an agreement after deciding to apply a creative problem solving approach. She said that they had strived for a contract that would take into considering the current marketplace conditions which would help the company to continue investing in the manufacturing sector of the United States and also provide thousands of Americans with good and quality jobs. The leaders of the U.A.W from the various plants in the United States were expected to meet later on and vote on the deal.
The executives of the General Motors Company made it clear at the beginning of the negotiations that they wanted the worker’s pay to be proportionate to quality, productivity and profits. With regards to that, the GM workers would receive checks of about $4,400 in line with the profit sharing deal, as a company company had earned $4.7 billion in 2010 (Bunkley, 2011). This agreement was expected to bring in more success for the General Motors Company and for it workers too.
Regulations and Litigation Issues
In 2014, the Transportation department of the United States fined the General Motors $35 million for safety issues (“Government fines GM $35 M for safety violations,” 2014).This resulted in the 2.6 million cars to be recalled, company had delayed to recall as a result of faulty ignition switches (“Government fines GM $35 M for safety violations,” 2014). This was the biggest civil penalty that the government of the United States ever filed with regards to violations. General Motors agreed to sign a consent letter stating that it will pay the fines. Furthermore, it was to be subjected to the additional oversight. According to the transportation department of the United States, an automobile company is required to notify the government and in case it detects a defect that threatens the safety of its consumers which GM didn’t comply with (Harrison & Isidore, 2014). Investigations revealed that the switch could accidentally turn itself off while one was driving and this would disable a variety of safety features like power steering which could put one’s life at risk. By May 2014, the number of deaths linked to the faulty ignition switch was estimated to be at least 33 and the injured were more than that (Harrison & Isidore, 2014). By 2015, the number had risen to over 120 deaths (Bomey & McCoy, 2015).
The Justice Department is still carrying out investigations with respect to case, forcing GM to agree to part with $900 million to facilitate this investigation (Bomey & McCoy, 2015). General Motors was charged with wire-fraud in addition to coming up with a scheme to intentional hi the issue of a deadly safety defect from the necessary authorities. However, the fate of General Motors hasn’t been decided yet and these charges are likely to be dropped in the next three years should the company fix its recall processes (Bomey & McCoy, 2015). Presently, though, the GM pleads not guilty. According to Preet Bharara, the U.S attorney, there is a possibility that specific GM employees may be persecuted with regards to this case. However, the attorney recognizes the bureaucratic process at GM and says that persecuting a particular individual may be challenging due to the fact that he or she may not have been fully aware of the concealment of the faulty ignition switch. He went ahead to say that they can still do it if they find a way. Investigations shows that the GM’s vehicles have had this defect for over a decade without being fixed or the authorities and the public being informed of such issues (Bomey & McCoy, 2015). When asked about it, General Motors admitted that they marketed their vehicles as safe for the stated period, which essentially amounted to defrauding its customers. In addition to the $900 million paid to the Justice Department, GM agreed to pay about 1,385 more victims affected by the defect (Bomey & McCoy, 2015). It is not clear how many of these additional plaintiffs will qualify for settlement. The company also faced a shareholder lawsuit which it settled and these two civil law cases amounted to about $575 million (Bomey & McCoy, 2015). The shareholder lawsuit questioned General Motors failure to inform its investors of the financial risks associated within the company and its operations. In total, the amount of money that the General Motors has already spent in fines and settlement has currently exceeded $2 billion (Bomey & McCoy, 2015). In addition to that, GM will have to spend a significant amount of money in solving the issue of the 2.6 recalled vehicles (Bomey & McCoy, 2015). According to Bomey & McCoy (2015), Mary Barra, who is the company’s CEO, expressed an apology for the way GM had behaved and said that she had made some changes to the internal procedures of the company in order to create more transparency and efficient communication.
She went on to say that the company is ready to take responsibility for its actions and that is why it is accepting the penalties placed on it. Mary went on to say that she knows the company’s apologies and accountability are not enough if no changes are made and GM is proud of the steps it has taken to create that change. GM’s recall processes will be under scrutiny for the next three years. The Justice Department is expected to appoint someone to be in charge of monitoring these processes (Bomey & McCoy, 2015). For the following three years, a monitor , appointed by the Justice Department, will be in charge of overseeing the company’s recall processes (Bomey & McCoy, 2015). According to the settlement procedure documents presented by the prosecutors, the company had fired those responsible for the mistake made with regard to the faulty ignition switch.
Victims of the defect did not agree with this move. When asked for their opinion, they said that the individuals in charge of making decisions at the company were responsible for these deaths but it was their juniors paying for those mistakes. According to Bharara, this case is challenging because there aren’t any federal laws particularly related to failure to provide information on the safety defects of motor vehicles. In 2005, General Motors had acknowledged the issue to the press but insisted that it wasn’t a safety defect (“Government fines GM $35 M for safety violations,” 2014). In 2012, GM came to the realization that the faulty ignition switches posed a threat to life because it had the ability to disconnect power to air bags which could put the lives of the front-seat passengers in danger (Harrison & Isidore, 2014). In its defense, the company did not make this information known to the public or the NHTSA in order to give it time to present this issue and manage it.
Barra came to know about this defect in February 2014, some days prior to the public disclosure (Bomey & McCoy, 2015). She reacted to this by carrying out an internal investigation on the issue which resulted in dismissing about 15 employees whom she blamed for not disclosing that piece of information or fixing it (Bomey & McCoy, 2015). The people who are liable for compensation from GM are the families of 124 who lost their lives as a result of this defect and the 275 who were injured as a result of the same (Bomey & McCoy, 2015). Some individuals turned this settlement offer down and opted to sue the company. This group of people is likely to receive compensation from the settlement being negotiated by Bob Hilliard, the Texas attorney. Lance Cooper is the attorney who discovered the faulty ignition switch and started a series of events that enabled this defect to be made public. General Motors is facing a suit by a team of private attorneys with regards to the loss of value that the company’s vehicle have gone through as a result of the damage done to the brand’s reputation (Bomey & McCoy, 2015).
Arizona is suing General Motors for consumer fraud and the company is liable to pay about $10,000 for each violation (Bomey & McCoy, 2015). GM could be fined up to $3 billion, since about 300,000 of its vehicles are registered in Arizona (Bomey & McCoy, 2015). The lawsuit filed by Arizona addresses several defects associated with GM vehicles and examples include airbags, seatbelts and brake lights among others. According to the state laws, the disclosure of the safety defects brought down the value of GM vehicles. In its defense, General Motors said that most of the recalls were done in a bid to protect customer safety.
The GM’s spokesman James Cain said that the company has decided to set up new standards for safety, quality and improved performance. He went on to say that the company commits to recalling vehicles proactively the minute the safety issue is detected (Bomey & McCoy, 2015). The lawsuits against General Motors are still ongoing and the next five years will be crucial to the company’s future. GM has committed to work more on its safety issues, taking accountability for all possible actions and putting in place regulations that will prevent such incidents in the future. The brand’s reputation has greatly suffered, not to mention the amount of money that the company will have paid in fines and settlements by the end of the settlements dates. All these will negatively affect the revenue, earnings and stock price of General Motors for the next five years.
The General Motors has regulations put in place to enable the company achieve their set goals, both short term and long term. Although GM has numerous manufacturing operations in various parts of the world, the firm ensures that they all operate under the same Environment Principles put in place (GM, 2014). This set of principles helps GM to accomplish its goals of protecting human health, the few available natural resources and the environment. Every manufacturing site of the company has at least one major environmental engineer with a regional environmental team (GM, 2014). In addition to that, GM’s Global Manufacturing organization is in charge of overseeing the various regional environmental teams. The Business Plan Deployment (BPD) is a planning process put in place by the company to improve on the management in charge of its environmental performance (GM, 2014). GM has plans of connecting more of its global employees against the manufacturing commitments it plans on achieving in 2020 (GM, 2014). This is estimated to significantly increase the company’s revenue and earnings for the next five years (GM, 2014). The annual compensation of workers in the manufacturing organization depends on the BDP’s performance and this also includes its environmental metrics (GM, 2014).
All the corporate activities of GM are measured against the values and practices put in place known as “Winning with Integrity” (GM, 2014). The company has a code of conduct that guides its business conduct. This starts with the Board of directors, who are expected to uphold the highest form of legal and ethical conduct in the process of carrying out their responsibilities (GM, 2014). All salaried workers are expected to read and make a commitment to comply with the policies set by the company under” Winning with Integrity” (GM, 2014). In addition to that, they are supposed to disclose if they face any actual or possible conflicts of interest in writing.
Domestic and Foreign Macroeconomic Issues
The General Motors has contributed a lot to the automotive industry in the United States and worldwide especially since it has operations in various parts of the continent. It has been accompanied by a number of issues both domestic and foreign. The greatest problem that GM is dealing with currently is the economic slowdown in China. Mary T Barra, the CEO of the company voiced this concern at a global business conference the company had on October 2015 (O’Hara 2015). The company experienced a 3.39% year-over-year (YoY) fall in the sales of passenger cars in China in August 2015 (O’Hara 2015). This was the third month that this happened consecutively (O’Hara 2015). Actually, GM experienced a 2.5% increase in passenger car sales during the initial eight months of 2015, which is lower than the preceding years (O’Hara 2015). This has affected the overall profits of General Motors since China is one of its principal markets. Currently, Volkswagen (VLKAY) has the greatest market share in China (O’Hara 2015). GM had sales of about 3.5 million units in China in 2014 and 3.4 million vehicles in North America and yet the figure is supposed to be much higher in China, because it’s one of GM’s main markets (O’Hara 2015). Although China has seen a drop in its overall vehicle sales, it’s Cadillac and Baojun brands experienced great volumes of car trade (O’Hara 2015). GM’s SUVs have had a huge demand in China, which raised the firm’s revenue since this particular brand normally has higher profits. This made up for low sales of the other types of vehicles. In addition to that, GM provides a variety of product offerings and so its consumers can get vehicles from as low as $5,000 to as high as over $100,000 (O’Hara 2015).
In the following five years, GM plans on introducing a total of 26 new car and care types in to the market and these will be both new and refreshed. It will also improve on its current product offerings to increase the customer base. There is a sales cut put in smaller cars which is an attempt by the Chinese government to improve the current situation. Consumers can, thus, pay less for smaller cars in China and this is expected to boost GM’s operations and sales a lot.
The General Motors Company has also faced some challenges with its operations in South America. In 2015, it received negative EBIT of $0.1 billion (O’Hara 2015). However, these losses were experienced by numerous companies in the automobile industry. Ford reported losses too for majority of the previous quarters. Brazil also experienced a drop in vehicle sales even though it holds the largest market share in South America (O’Hara 2015).
Although General Motors Company has enjoyed a comfortable position in the automotive industry of the United States, it is now facing increased competition. The result has been increased industry rivalry since every automobile company wants to increase their revenue from the United States which is considered to be the most profitable worldwide. Examples of other brands from which the General Motors faces intense competition include Honda Motor, AB Volvo, Volkswagen, Daimler, Isuzu, Nissan Motor, Hyundai Motor, and Toyota Motor among others. Majority of the automobile manufacturing companies have had vehicle enhancements, come up with favorable leasing programs and provided subsidized financing and many more marketing incentives which have increased their number of vehicle sales. These have negatively affected the General Motors’s market share.
Fuel prices increase on a daily basis and this has negatively affected the General Motors Company. The increased fuel prices have created a shift in demand and consumers are leaning towards the hybrid technology vehicles and/or towards such that are fuel efficient. This has been to GM’s disadvantage because majority of its vehicles are large trucks and cars that have poor efficiency of fuel. In order to deal with this shift in demand, GM has invested in research on the new technology.
The General Motors Company was adversely affected by the economic crisis which shifted its position in the automobile industry both in the United States and worldwide. It faced bankruptcy resulting from a number of factors but managed to rise up and take back its place as the leading vehicle manufacturing company in the Unites States. The challenges it has faced over the years has propelled it to modify its strategies and perspective of the automobile industry. GM continues to improve its operations in the various parts of the continent. The future of General Motors Company is very promising given the current statistics and future projections. By taking the advantage of the opportunities it has, minimizing the threats it faces, capitalizing on its strengths and improving on its weaknesses, this company will continue to thrive for the years to come. With this, General Motors Company is very likely to experience a significant increase in its revenue, earnings and stock price in the next five years.
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