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Everyone knows that starting up your own business can be very scary and risky, but the rewards can be the best feeling in the world if you are very successful. If you become a successful entrepreneur, you will have many benefits like being your own boss, financial success, job security, and quality of life. In order to be successful, you need to educate yourself, work hard, and be passionate and driven. Moreover, to be successful, you need to understand how a good businessman behaves. If you do not know how to manage a company, your chances of success are slim. There are many ways to achieve success, and one of these includes selecting a business idea. Without an idea, you can’t have a business. There are two ways of choosing a business idea. First, find something you love and are good at. Second, determine if your idea can satisfy a need in the market place.
Next, you should create a business plan. Without one, you’re setting yourself up for failure. A business plan is a document that outlines your goals and how you plan to achieve them. Another major factor for success in business is capital and knowing how to find financing. Many believe that you learn more from failure than success. With that being said, that’s why I chose the topic about General Motors heading for bankruptcy again.
How it works
General Motors was one of the largest car and truck manufacturers for more than a century. Founded by William C. Durant on September 16, 1908, GM involves a vast scope of industrial activity around the world, mostly focusing on motorized transportation and the engineering and manufacturing that make it possible. Originally a holding company in Flint, Michigan, GM employed around 209,000 people in 396 facilities on six continents by 2012. As of 2018, General Motors was ranked number ten on the Fortune 500 rankings of the largest United States corporations by total revenue. They produce a range of auto brands, including Buick, Cadillac, Chevrolet, GMC, Pontiac, Hummer, Saab, and Saturn.
I chose this topic because it touches on many things I learned this semester. Some of the articles talk extensively about stockholders and their essential role in a company’s success. Another term featured in the articles is marketing segmentation—a process of dividing a total market into several relatively homogeneous groups. GM exemplified this by the types of people they targeted—their vehicle preferences being small cars over larger ones, trucks over cars, and so on. Another significant aspect discussed in the articles was the financial market, the place in which corporations and governments issue and sell securities to the public. GM used to occupy a large portion of the market before it encountered numerous financial problems. It was one big mistake that led GM to file for bankruptcy.
The inability to think fast and produce a different product created a big headache for everyone at General Motors. “If there was one bad decision that was the lynchpin, it would be easier to fix,” says Laura Marcero, a restructuring expert at Grant Thornton. “But these are systematic problems pervasive in the industry for decades.”
GM is once again losing market share and is unable to produce a product that can compete with other car companies, like Ford, Dodge, and Toyota. To keep up with these big-name companies, you need to improve your product year after year by upgrading parts and making it better.
On July 10, 2009, General Motors emerged from a government-backed Chapter 11 reorganization initially implemented on June 8, 2009. A Chapter 11 reorganization is a bankruptcy code that enables a company to keep its business running and repay creditors over time.
In 2012, the federal government owned five hundred thousand shares of GM, approximately twenty-six percent of the company. This is a considerable amount for a company not to own itself. To break even, the company needed to get about fifty-three dollars per share. However, GM stock ultimately closed at twenty dollars and twenty-one cents, resulting in a substantial loss. At that point, the government owned approximately $10.1 billion worth of GM’s stock.
Despite this, GM reported a loss of $16.4 billion. Meanwhile, the Dow Jones Industrial Average rose by nearly twenty percent, indicating that GM lost forty-nine percent of their relative value. This is an adverse outcome for GM because the Dow Jones is a highly trusted stock market index.
During President Obama’s first term, he bailed out General Motors but seems unlikely to do so again. Interestingly, in the 1960s, GM claimed a 48.3% share of the U.S. car and truck market. However, in the first seven months of 2012, the market share decreased to 18%, down from 20% during the same period in 2011. These significant losses in market share resulted in a loss of relative cost-competitiveness.
If GM continues to lose market share at this rate, bankruptcy may be inevitable. Part of the reason why GM is losing so much market share is because of significant competition, such as the Chevy Malibu.
The “D segment” in the car industry, made up of mid-sized, popularly-priced family sedans, accounted for 14.7% of the total U.S. vehicle market in 2011. As the highest volume vehicle in the U.S., GM’s home market, it is almost impossible for GM to succeed given these facts and figures.
In order to improve and compete in the D-segment, GM needed to introduce a totally redesigned vehicle. To succeed in the automobile industry they needed to have the newest design in that segment. GM’s biggest problem was that they would come out with a new design that was not better than its older model or its competition. Consequently, they spent more time and money to redesign the vehicle and lost market share. Dan Akerson admitted in a speech that GM’s powertrain had not been up to par with competitors, which was evident in the gas mileage ratings – possibly one of their biggest design flaws.
Another significant flaw that GM made was to reduce the wheelbase by 4.5 inches, which gave the Malibu the shortest wheelbase in the entire D-segment of vehicles. Many car companies that produce D-segment vehicles are attempting to produce larger wheelbase cars for more room in the backseat and increased comfort. Chevy’s biggest slogan has always been “more for your money,” but in 2012, the Volkswagen Passat became the car for your money. Unfortunately, all GM can do is lower the price and take years to redesign the vehicle. This is also reducing the small amount of profitability that GM is currently making.
The most shocking thing about General Motors going bankrupt is that in 1965, GM owned about 50.7% of the U.S. market. They made $117.9 billion in revenues and $12.1 billion in profits. Just when GM commanded the market of vehicles, Volkswagen was only a small part of the market. When a business performs this badly, tension starts to build up within the company, and many people begin pointing fingers as to who is to blame – which is precisely what happened.
Akerson, the CEO of General Motors, has been hiring and firing top GM executives. Another reason some experts think GM has not been making a profit is because they did not file for bankruptcy sooner than they should have. GM’s old CFO, Wagoner, was adamantly opposed to bankruptcy. He said it would drive buyers away and harm workers and stockholders, but when businesses fail, the law must step in to enforce good business practices. Many would think that Wagoner had bad business ethics because he didn’t file for bankruptcy, fearing it would harm customers, workers, and stockholders. Having good business ethics is crucial because many people will want to do business with you. If you lack good business ethics, many people won’t want to engage with you, leading to no profits – what some experts say happened to GM.
If GM had filed for bankruptcy in 2005 while the economy was good, it might have been able to cope with the job losses and stockholders selling their stock. After the 9/11 terrorist attacks, GM responded swiftly and smartly by offering incentives, such as 0% financing on loans for up to five years. After this term, the automaker added a $3,000 rebate.
Another significant reason GM was not profiting was due to overreacting to the high-profit truck boom. In the ’90s, GM noticed many people were switching to trucks instead of sedans. GM overreacted by putting too much time and money into trucks, over-committing to the trend. This strategy backfired when the market switched back to cars, leaving GM with expensive, unsellable trucks.
There are several reasons why consumers rejected trucks. Some found them out of style, too expensive, and the fuel prices hit records in 2008. The low fuel efficiency and high gas prices gave trucks a damaging reputation for the environment. A bad environmental reputation will deter potential customers.
After hearing about all these negative and poor business decisions, you might ask yourself, “How can a company ever escape from such enormous debt and become profitable again?” Many experts believed it would take decades to start making profits again, but GM managed to do it in significantly less time. General Motors answered that question a decade after the financial crisis. General Motors now has one of the best management teams and one of the top-performing C-suites in all of business.
By hiring a new management team, they ensured they had the right people to succeed. Most of these changes come with new top executives, which demonstrates that success starts from the top down. If the top isn’t executing, the bottom won’t either, so with good leadership and a positive mindset, anything is achievable. The top executives showed everyone that knowing how a good businessperson behaves can lead to success. They then altered the culture of the company. Barra, an executive at GM, stated, “To change a culture, you have to change behaviors. It’s not what you say, it’s what you do.” This mentality is crucial in a company because, with the wrong mindset, success will be hard to achieve like it was for GM in the late 2000s.
Before GM’s 2009 bankruptcy, the company was known for internal conflict, but it has since morphed into a model of cooperation. Since the bankruptcy of General Motors, it has executed one of the most impressive turnarounds ever. GM has yielded billions in profits and is now preparing 20 new and improved electrified vehicles for the future. GM’s turnaround led to one of the best years in the auto industry in 2015.
American carmakers sold 17.47 million cars in 2015, surpassing the record set in 2000 of 17.41 million. In April of 2018, GM reported favorable first-quarter earnings. Although the adjusted earnings per share declined year-over-year from $1.75 to $1.43, it still surpassed the average estimate of $1.24. GM’s management stated that the earnings are set to improve in the following year and beyond. Despite this, GM’s stock has continued to decline post-earnings report; however, GM is expecting stronger earnings in the second and third quarters.
The international markets are helping, and while trends in North America are going well, GM could potentially gain more earnings from its international operations. GM’s international operation suffered a loss of nearly $651 million in 2017, which negatively affected General Motors’ stock performance. However, the performance is now improving due to cost-cutting and improved macroeconomic conditions in South America. GM’s largest international operation is their Korean subsidiary.
By closing its Gunsan manufacturing plant and restructuring its labor contracts, GM expects to achieve annualized cost savings of $400 to $500 million by the second half of 2018. This is boosting GM’s sales considerably. Some Wall Street experts predict 2019 earnings per share to be higher than in 2017 and 2018. One way GM hopes to accomplish this is through increased truck production and improved product mix. Additionally, it is continually expanding its lineup of crossovers, which yield higher margins than cars. GM still expects to enhance its international profitability, and GM Finance is steadily gaining scale, significantly bolstering GM’s profitability. A significant issue that led GM into bankruptcy was their slow rate of redesign, and their inability to compete with other automobile companies when they did redesign. This problem was addressed by the new CEO, Dan Akerson, who transformed GM into an industry leader in redesign speed. GM now has the capacity to replace almost twenty-four percent of its sales volume each year with new and enhanced models.
Furthermore, GM is shifting some of its attention to the luxury market, making their Cadillac brand more pricy and luxurious. The luxury market is a profitable sector for many automobile companies. Another key strategy for GM is their planning for future years. With the escalation in oil prices and the demand for fuel-efficient cars, GM has oriented its focus to clean energy electric vehicles. This strategy will enhance GM’s profits as many consumers are weary of high gas prices and are interested in aiding environmental conservation, prompting them to switch to electric vehicles. This same line of thought led to the failure of GM’s Hummer due to its poor mileage. Consequently, GM has started to increase the gas mileage on all vehicles, a development welcomed by consumers wishing to avoid buying expensive gas frequently. Moreover, GM is currently dominating the Chinese market, a lucrative viewpoint given China’s richness and dense population. The market expanded from 640,000 units in 2000 to over 11 million in 2010, a significant surge in sales.
It’s truly remarkable how top executives can effectively resurrect a company billions of dollars in debt. Another notable executive, female CEO Mary Barra, had a significant role in General Motors’ success. Barra essentially revamped the company from the ground up, making major changes for the better. Before Barra, GM was known for internal conflicts, which pose enormous challenges in business. This was one of the first issues she resolved in the company. These conflicts usually arose from divisions quarreling over finances. If a company is fraught with conflicts, it is unlikely to succeed to the extent Barra envisioned.
In conclusion, if you understand how a good businessman behaves, you will be very successful. For instance, before Mary Barra became the CEO of General Motors, things were not looking good for GM due to many internal conflicts and billions of dollars in debt. It seemed as if there was no way out. But Barra, armed with much experience and knowledge, managed to transform a company that was billions of dollars in debt into one that is now making billions of dollars in profits.
One of the reasons why I chose to write about this topic is because it piqued my interest and encapsulated much of the material I learned this semester, including stocks and shareholders, market share, market segmentation, and business ethics. I found this topic to be very interesting, especially given that General Motors was on the verge of bankruptcy and nobody thought they could recover. However, the astonishing fact is that they did.
I found it remarkable that the top executives were able to steer a company from being billions in debt to becoming one of the world’s top automobile sellers. It is astounding that a simple management change can turn a company’s fortune around. I firmly believe that Mary Barra, the CEO of General Motors, is one of the best female CEOs in the world.
In order to successfully accomplish what they did at GM, one needs to possess the traits of a good businessman. It is a fact that many of the most successful businessmen share common attributes, such as a positive attitude, great vision, high energy level, the need to achieve, self-confidence and optimism, tolerance for failure, creativity, tolerance for ambiguity, and an internal locus of control.
Barra and her management team also had a robust business plan that outlined their goals and financial projections. Taking an ‘Introduction to Business’ course helped me understand a lot about the business world. It will be very beneficial in the future as I aspire to become a successful entrepreneur and manage a well-run company. I am confident that I will be able to do such a thing because of the substantial amount of material I learned this semester.
Today, everything revolves around business, and I think this subject should be taught to everyone. It forces you to think in a way that you normally wouldn’t. For instance, I’d never understood the nuances of stocks and shareholders. However, after this course, I am now familiar with terms like common and preferred stock and their differing rights and benefits.
I learned many invaluable business terms this semester that significantly improved my understanding of how businesses operate. In retrospect, this class has been incredibly beneficial to me in countless ways. If I hadn’t taken this course, I wouldn’t know where to start in learning about the business world and managing a company. Hence, this article educated me on how General Motors not only rectified their mistakes but also journeyed towards immense success.
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