Question

Read the business case on page 338: "What's Good for America Is Good for GM." You are to answer the three Questions for Thought. Also, for a fourth question, I want your opinion on whether you think that it was a good idea for the government to bail out GM. I could argue it either way so, you will not be graded on whether you are right or wrong as long as your argument is credible. There are 4 questions so there MUST be 4 separate answers.

Answer 1

Introduction

The Auto Industry in the United States was primarily dominated by General Motors as the top most company followed by Ford and Chrysler LLC which were the top manufacturers in the country at one point of time.

However, in the year 2008, the company soon realized that they were in big trouble, when losses began accumulating and the company was in an urgent need for funds. The company argued in front of the Congress that the government save the declining industry as they saved the banking sector and infuse funds to the tune of 25-35 Million Dollars.

The government finally was warned about the fall of the US economy as without a bailout the company would fail leading huge loss to both reputation and employment opportunities in the Auto Sector. With the Federal Government acquiring direct stake in the company, the problems were far from over. It had to sell all of its stake in the company in the open market a few years later owing to the heavy losses the company was still making even when the government provided funds and took over operations for a brief period of time.

Specifics:-

In my opinion therefore, a takeover by the government and a bailout are unwarranted for in any economy that observes a market based economy in which demand and supply are crucial for a company’s overall success.

The major reason for the failure of General Motors is the fact that it lacked competitiveness in the industry which was full of Japanese and Korean manufacturers which offered both safety and fuel efficiency.

The company went on manufacturing and selling such products which were incomparable to the technology being developed by other similar players. The fuel emissions were never a concern for the company and demand kept decreasing to a point when the company started making losses over each subsequent quarter.

By then it was already very later and capital infusion would lead to further losses without a change in stance in technique of production and cutting jobs and dealerships to reduce the overall costs of operations.

The company failed because it did not realize market dynamics and was only focused on outselling products. With market demand changing and products become noncompetitive it was bound to suffer losses.

Further, in my opinion governments should stay away from management of companies even at the loss of jobs. Most people will get employed in the long run with firms that are competitive if they are capable enough of enhancing their overall skills.

Also, governments have social motives in running businesses whereas profit is the core of any business. You cannot worry about unemployment if the company is making losses. The technical knowledge required to change the product line and engage in practices that fulfill customer orientation cannot be fulfilled by subsequent governments this can only take place if a competent enough business owner would take over the operations through open sale of shares of the company which subsequently indeed happened.

Please feel free to ask your doubts in the comments section if any,