Trouble for GM

The decision by the rating agency Standard & Poor’s to downgrade GM title at the junk bonds in May 2005 showed the fragility of a company that is fighting for its survival. Severely challenged by the Japanese domestic market, the company suffers from overcapacity, low reactivity of commercial and high fixed costs (such as health coverage for many retirees). Despite its 193 billion dollars in turnover, 324 000 employees, or its 8 million vehicles sold worldwide in 2004, the company posted 3.3 billion loss on the first three quarters of 2005 and has a market capitalization of only 17.2 billion, with group debts reaching 292 billion. GM’s market share in the United States has reached 50%, but is now moving closer to a low of 25%.

To avoid having to be put under the protection of Chapter 11 of U.S. bankruptcy, its former subsidiary, the manufacturer Delphi Corporation, announced on 17 October 2005 radical restructuring measures for GM:

* Sale of majority shareholding in its financial subsidiary GMAC, which was its main source of profit and had a market value twice that of GM, but was handicapped in its fundraising by the credit rating of the group.

* Reduction of jobs: 25 000 would be dropped in the period of 2005-2008.

* Agreement with the United Auto Workers union (UAW) to reduce the medical expenses of its 750 000 employees and retirees.

* The group announced shortly after a reorganization of certain investments, including the sale of its Subaru (Fuji Heavy Group) to Toyota.

An alliance with Renault-Nissan had been discussed and abandoned during the year 2006.

In 2006, the net loss from General Motors stood at two billion dollars. The company has invested $ 7 billion in research and realized in the last quarter of 2006 earnings of $ 950 million. GM was the first automotive manufacturer in the world with 9.1 million vehicles sold in 2006.

At the call of the United Auto Workers union, 73 000 GM employees spread over 80 sites of the United States, went on strike in September 2007 for the renewal of wage contract. An agreement in principle was reached between management and the UAW union after two days of the strike. GM established a management structure of the welfare of retirees, called Voluntary Employees Beneficiary Association (VEBA) and administered by the unions. The financial contribution from General Motors would be 70%. The union would have the burden of the remaining 30%.

General Motors is planning on marketing by 2010 a fully electric vehicle, the Chevrolet Volt. On 3 June 2008, the company’s CEO Rick Wagoner said the company was working on conversion of production to models that consume less fuel.

General Motors has not been spared the difficulties of the American car market in the first half of 2008. On July 2, 2008, while the stock of the group fell to its lowest level in more than 50 years, the investment bank Merrill Lynch raised the possibility of the insolvency of the automaker.