General Motors and Ford Company
The Company’s Current Performance
General Motors or GM and Ford are considered as the biggest car manufacturing in the United States. However, due to the current financial and economic condition in the US, as well as in the global market, the two companies are facing a long, hard battle for survival due to the lost of confidence of the Wall Street in their financial stability in the face of plummeting vehicle sales (Clark, 2008).
GM reported that it had lost a total of .5 billion during the third quarter and stated that the company could run out of cash in coming 2009. Thus, the biggest automaker in the country that it had suspended talks in order to acquire the Chyrsler, its smaller rival. On the other hand, Ford declared that it had lost 9 million in the same quarter. Thus, the company is planning to eliminate another 2,260 white-collar jobs as it battles the downturn of the economy, crisis regarding credit as well as the weak environment for the sales of car. The company burned through .7 billion in cash during the quarter (msnbc.com, 2008).
In October 2008, GM’s shares crashed by 31% to close at .76, considered as the lowest in the entire history of the company since 1950. On the other hand, the stock of Ford plunged by 21% to a 20-year low of .08 on mounting concern that the both companies are at risk of bankruptcy (Clark, 2008).
Both of the company have already rated as offering junk debt, it means that they are high-risk prospects for lenders as well as further reduction that will make it even harder for them to borrow the money. Even before the current financial and economic slowdown in the USA and in the world, US based car makers were already losing headway to their Japanese rivals due to the shifts in tastes and lifestyle of the American motorists from pickup trucks and sports utility vehicles to smaller one and more fuel-efficient cars (Clark, 2008).
According to the report of Citigroup experts, if the said conditions of the two companies, deteriorate further, Ford and GM could be pushed into a severe spending cuts, including activities that are related in slashing jobs as well as making new pay deals with the union and even debt-for-equity exchanges, where in the banks would take some of the ownership of the two companies. Thus, the already weak balance-sheet positions will find it somewhat hard to cater a prolonged global downturn, thus the risk-reward balance has tilted decidedly negative (Clark, 2008).
At today’s share prices, GM was worth just .6billion, considered as less than its capitalization during the start of the Great Depression during 1929, while Ford was valued at less than billion. The said numbers or amounts are considered as worthless and small for the two companies that are considered as great earners and profitable in the industry, selling 3 billion worth of vehicles (Clark, 2008).
The Strategic Vision For The Company
The current economic and financial condition of the world can greatly affect the demand of people for vehicles, thus it can affect the entire performance of GM and Ford, being as the two largest automobile companies in the world. As the economic condition slows down, the demands for and sales of light vehicles in the US will fall to 13.6 from 16.1 this year, and then will continue to fall to 13.4 in the coming 2009 (msnbc.com, 2008).
Because of the growing problem, the two companies must think of strategies that could help them to prevent total bankruptcy that will result to closure. The US government promised a total f billion of loan that will help the different motor manufacturers to stay on firm financial footing (msnbc.com, 2008). The said amount can be used by the companies in order to support their financial problems. However, it is important to consider that experts are saying that the said amount may not be sufficient enough in order to avert the upcoming bankruptcy (msnbc.com, 2008).
According to Wall Street, one of the primary problems of the companies is that their market shares do not support its current size. Thus, both of the companies have too many plants, too many staffs and workers, too many models, too many dealers, thus the benefits and incentives of their employees are high (Gallagher, 2005). In order to save the company in future worse problem, it will be important for them to lay off employees, because it can help them to save money in terms of maintaining their human resource.
It will also be important to lessen the operating plants that will help the companies to save money in terms of maintaining and other operating cost in managing the operating plants. In addition to that, it will also be inappropriate because if it will continue, the number of the supply will be extremely greater than the number of the demands. This is somewhat the same with the varieties of models that they are releasing and the number of their dealers.
More over, it will also be important for the companies to implement an extreme cuts in the healthcare and retirement insurance of the companies that will result in pushing the employee to pay 25/30% of the costs, excluding many drugs from the entire coverage (Gallagher, 2005). The said action will help the company to save cost in terms of the benefits of the employee. This is due to the fact that, although the companies have already implemented massive lay off, the cost is still high due to the high amounts that are allocated for each and every employee. The said action can be done by explaining to the employees the current condition of the companies and telling them that it is the best solution in order to protect the interests of the entire organization.
Above all, Wall Street strategy demands and insists that GM must sell off the residential mortgage unit of the GMAC, considered as the biggest profit source of the company, together with the Kerkorian’s apparent prey. The said actions leave the remainder of the company certain to go bankrupt that much quicker (Gallagher, 2005).
References
Clark, A. (2008, October 9). American Automakers GM and Ford Fight for Survival. Guardian.co.uk. Retrieved November 20, 2008, from http://www.guardian.co.uk/business/2008/oct/09/ford-generalmotors
Gallagher, P. (2005, May 13). LaRouche: Move Fast to Save Auto; GM Sliding to Bankruptcy. Executive Intelligence Review. Retrieved November 20, 2008, from http://www.larouchepub.com/other/2005/3219gm_junkbond.html
GM, Ford Post Huge Losses as Crisis Deepens (2008, November 7). Msnbc.com. Retrieved November 20, 2008, from http://www.msnbc.ms n.com/id/27593678/
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