Escolar Documentos
Profissional Documentos
Cultura Documentos
General Motors
Leading US car maker emerges
from bankruptcy
Reference Code: ML00007-007
WWW.MARKETLINE.COM
MARKETLINE. THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED
ML00007-007/Published 07/2012
Page | 1
OVERVIEW
Catalyst
US-based automotive manufacturer General Motors (GM), which in the 1950s and 1960s supplied almost one in two of
all the cars sold in the country, had been losing market share for many decades. In addition, it had posted net losses for
several years in succession and was burdened by legacy employee benefit schemes. The recession of 200809 led to a
sharp fall in demand for cars and trucks and a double-digit decline in GMs revenues. In mid-2009, the company filed for
Chapter 11 bankruptcy. It emerged a month afterwards with dramatic changes in ownership and structure. This Case
Study examines how well the rescue plan has succeeded in the subsequent two years.
Summary
GM had enjoyed US market share of nearly 50% in the 1950s and 1960s, but subsequently this was eroded by
the rise of Asia-based automotive companies in the US market.
Compared to sales in the US market overall, GM sold a higher proportion of large vehicles such as SUVs, which
had poor fuel efficiency. Gasoline prices in the US have been rising steadily over the past decade after many
years of stability, with the risk of declining demand for such vehicles.
GM had major pension and healthcare commitments for its former employees, dating back to an era when such
obligations were more affordable.
The recovery plan involved GMs assets being purchased by the US and Canadian governments and auto
workers unions prior to an initial public offering in 2010.
Several underperforming brands in the North American business were wound down or sold.
Retirement and healthcare benefits were altered to reduce the burden on GM.
Management structures were changed to make the company more responsive to customers.
In 2010 and 2011, the company posted healthy revenue growth, positive net income, and higher net margins
than it achieved during its most recent earlier years of profitability.
ML00007-007/Published 07/2012
Page | 2
TABLE OF CONTENTS
Overview ............................................................................................................................................................................. 2
Catalyst............................................................................................................................................................................ 2
Summary ......................................................................................................................................................................... 2
Table of Contents ................................................................................................................................................................ 3
List of Tables ....................................................................................................................................................................... 4
Table of Figures .................................................................................................................................................................. 5
Analysis ............................................................................................................................................................................... 6
Once the largest car maker in the US, GM has more recently suffered several problems .............................................. 6
Market share has been declining for several decades ................................................................................................. 6
For several years, GM posted billion dollar net losses ................................................................................................. 7
Production was focused on large, fuel-inefficient vehicles ........................................................................................... 8
Employee benefits were costly to maintain ................................................................................................................ 10
The recession led to a sharp fall in demand for cars and trucks ................................................................................ 10
In 2009, GM filed for bankruptcy .................................................................................................................................... 11
The ownership of the company drastically changed................................................................................................... 11
Employee benefits were altered ................................................................................................................................. 11
Fewer marques were to be produced......................................................................................................................... 11
The company aimed for a flatter management structure ............................................................................................ 12
Since emerging from bankruptcy, GM has posted two successive profitable years ...................................................... 13
Financials ................................................................................................................................................................... 13
Conclusions....................................................................................................................................................................... 14
Will a brief bankruptcy result in long-term change? ....................................................................................................... 14
Appendix ........................................................................................................................................................................... 15
Definitions ...................................................................................................................................................................... 15
Sources ......................................................................................................................................................................... 15
Further Reading ............................................................................................................................................................. 15
Ask the analyst .............................................................................................................................................................. 16
About MarketLine .......................................................................................................................................................... 16
Disclaimer ...................................................................................................................................................................... 16
ML00007-007/Published 07/2012
Page | 3
LIST OF TABLES
Table 1: GMs marques in North America, 2008 and 2011............................................................................................... 12
Table 2: GM'
s financial performance before and after bankruptcy ................................................................................... 13
ML00007-007/Published 07/2012
Page | 4
TABLE OF FIGURES
Figure 1: The rise and fall of GMs share of the US light vehicle market, 19202010 ........................................................ 6
Figure 2: US light vehicle market shares, 1960s typical ..................................................................................................... 7
Figure 3: US light vehicle market shares, 2011 .................................................................................................................. 7
Figure 4: GM revenue and net income/loss, 19982011 .................................................................................................... 8
Figure 5: Top seven auto makers in the US, ranked by average fuel efficiency of product lineup, 2006 ........................... 9
Figure 6: Rising gasoline retail prices in the US and the UK, 19782012 .......................................................................... 9
Figure 7: US new car market value ($bn), 200511 ......................................................................................................... 10
ML00007-007/Published 07/2012
Page | 5
ANALYSIS
Once the largest car maker in the US, GM has more recently
suffered several problems
General Motors (GM) was established in 1908 by a horse-drawn coach manufacturer diversifying into automobiles.
At the time, according to GM the entire automobile fleet in the US was around 8,000 vehicles. 100 years later,
Department of Transport statistics revealed that there were 256 million vehicles on US roads, a compound annual growth
rate of 11%. GM played a central role in the rise of the automobile during the 20th century, but by the start of the 21st
century the company was clearly in difficulty, posting several years of large net losses.
Figure 1: The rise and fall of GMs share of the US light vehicle market, 19202010
ML00007-007/Published 07/2012
Page | 6
"#
$
' (
'
&
%
ML00007-007/Published 07/2012
Page | 7
$10.5bn. Multi-billion dollar net losses were then posted every year between 2005 and 2008.
Figure 4 shows these trends. The large net income in 2009 is a consequence of the restructuring that occurred during
GMs bankruptcy.
*
*
GM ANNUAL REPORTS
ML00007-007/Published 07/2012
Page | 8
Figure 5: Top seven auto makers in the US, ranked by average fuel efficiency of product lineup, 2006
'
' (
%
)
&
US DEPARTMENT OF ENERGY
Figure 6: Rising gasoline retail prices in the US and the UK, 19782012
"#
"-
ML00007-007/Published 07/2012
Page | 9
The recession led to a sharp fall in demand for cars and trucks
Sales of passenger and commercial vehicles generally decline during recessions. Consumers are less willing to spend
money or take out loans to buy big-ticket items such as automobiles at a time of job losses and insecurity; businesses
that might otherwise spend on their fleets tend to rein in capital expenditures and focus more rigorously on costs.
The impact on US sales of new passenger cars (excluding trucks and similar vehicles) was severe during the recent
economic contraction. From its 2007 value of $229bn, the market had declined by 24% overall by 2009. Even in 2011,
the market had barely recovered to 2007 levels. For any auto company already operating on tight margins, such market
conditions were almost certain to affect its top line, and thus its profitability.
./
*
*
*
*
ML00007-007/Published 07/2012
Page | 10
ML00007-007/Published 07/2012
Page | 11
2011
Buick
Pontiac
Buick
Cadillac
Hummer
Cadillac
Chevrolet
Saturn
Chevrolet
GMC
Saab
GMC
GM ANNUAL REPORTS
ML00007-007/Published 07/2012
Page | 12
Financials
In 2010, GM reported net income of $4.7bn. Some of this may be attributed to higher revenues in that year, with sales of
$150.3bn back to levels previously seen in 2008. Further increases in revenue and net income were seen in 2011.
GM, like all automotive companies, will have benefited from the increase in demand seen in the new car market as the
economy pulled out of recession. According to GM'
s figures, in 2010 and 2011 the North American light vehicle market
grew in volume by 9.9% and 9.8% respectively. The future is unlikely to see such buoyancy maintained.
Perhaps more importantly in these atypical market conditions, profit for the year equated to a net margin of 3.4%, higher
than the 1.8% average during 19982006. This indicates that GM is now more capable of converting revenue to profit, an
improvement that will strengthen profitability even if sales return to more normal growth rates.
Q1 2012 results show that revenue increased by 4.4% and earnings before interest and tax by 10% compared with Q1
2011. On the other hand, net income attributable to common stockholders was down by 69% on Q1 2011.
Table 2: GM'
s financial performance before and after bankruptcy
2008
2010
2011
Revenue, $bn
149.0
135.6
150.3
-30.9
4.7
7.6
-20.8%
3.4%
5.0%
Net margin
GM ANNUAL REPORTS
ML00007-007/Published 07/2012
Page | 13
CONCLUSIONS
Will a brief bankruptcy result in long-term change?
The problems facing GM when it filed for bankruptcy in 2009 were major. Market share in the US had been falling as new
entrants reinforced their own positions, commitments on employee pensions and healthcare taken on in a more
expansive age had become costly burdens, and rising gasoline prices were making GMs reliance on fuel-hungry SUVs
and pick-ups appear questionable. Even before the recession, with its catastrophic collapse of demand for automobiles,
GM had suffered several loss-making years. By 2009, it was clear that it could not continue as before.
The period in Chapter 11 bankruptcy, although only lasting a few weeks, seems to have concentrated managerial minds.
A recovery plan was put in place. Existing investors were wiped out, and governments and unions became major
shareholders in GMs new incarnation. Unprofitable divisions were sold or wound down. Employee benefits were altered
to reduce the cost to GM. New management structures were established. In 2010, the company was relaunched on the
New York Stock Exchange in an initial public offering.
The signs so far have been promising. GM has posted two successive years of growth in revenue, net income, and net
margin. In fact, its net margin is currently higher than in its most recent period of profitability, which ended in 2006. Going
forward, growth for GM may be more difficult, as the US automotive market will no longer be in its post-recession
recovery and demand may show lower growth rates. It may be that the current product range still assumes gasoline
prices that are low compared with many other developed economies. The portfolio will require further adjustment if they
continue to rise in line with crude oil prices. However, with an enhanced management structure, lower costs, and perhaps
also some painful memories of the past few years, GM is likely to be better placed to respond swiftly to customer demand
and remain profitable.
ML00007-007/Published 07/2012
Page | 14
APPENDIX
Definitions
Chapter 11 bankruptcy A form of bankruptcy available under US law that allows a company to remain in business while
negotiating a rescue plan with creditors.
Marque Equivalent to brand in the automotive industry. Also referred to as nameplate.
Net margin Calculated as (net income) / (revenue).
Sources
GM market share, financials, and similar: GM Form 10-K filings with the Securities and Exchange Commission
Other share data: www.carofthecentury.com/answer_to_gm'
s_market_share_plunge.htm
Fuel prices: www.eia.gov/totalenergy/data/monthly/query/mer_data_excel.asp?table=T09.04
www.decc.gov.uk/en/content/cms/statistics/energy_stats/prices/prices.aspx
Fuel efficiency: www.fueleconomy.gov/feg/epadata/06data.zip
Pension funds: http://www.pensionresearchcouncil.org/pdf/news/20.pdf
Organizational structure:
http://media.gm.com/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2009/Jul/0710_NewGMLaunches.html
Further Reading
MarketLine (2011) Industry Profiles: New Cars in the United States (October 2011)
MarketLine (2011) Company Profiles General Motors Company (June 2012)
ML00007-007/Published 07/2012
Page | 15
About MarketLine
At MarketLine, we deliver accurate, up-to-date insights on over 30,000 companies, 300 industries, and 215 countries, as
well as the latest news and financial deal information from within your market and across the globe.
Established in 1997 when the Internet was in its infancy, we recognized the need for a convenient and reliable data
service to help our clients understand local and global markets and the companies operating within them.
In todays information-rich world, sifting fact from fiction to pick out whats relevant and whats up to date has become the
new holy grail in business information provision.
Our 170 dedicated research professionals aggregate, analyze, and cross-check facts in line with our strict research
methodology, ensuring a constant stream of new and accurate information is added to MarketLine every day..
Disclaimer
All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, MarketLine.
The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that
the findings, conclusions and recommendations that MarketLine delivers will be based on information gathered in good
faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such
MarketLine can accept no liability whatever for actions taken based on any information that may subsequently prove to
be incorrect.
ML00007-007/Published 07/2012
Page | 16
ML00007-007/Published 07/2012
Page | 17
Copyright of General Motors: Leading US Car Maker Emerges from Bankruptcy is the property of MarketLine,
a Datamonitor business and its content may not be copied or emailed to multiple sites or posted to a listserv
without the copyright holder's express written permission. However, users may print, download, or email
articles for individual use.