What exactly happened to GM, the first company to post $1 billion in profit in a single year, way back in 1955 ?? Read on....
The last few weeks have been the toughest in General Motors' era, having seen their market capitalization succumb to only $5.6 billion - a ridiculous sum considering their assets almost 10 times that figure.
- Credit crisis/Subprime Mortgage has taken its toll in the form of consumers defaulting on their car loans. SUVs and Pickup trucks' resale value have diminished as a result. In turn, the Company bears losses of cars returned after their lease has expired.
- Gas prices in America have crossed $4 a gallon, which has hit the auto industry very hard. The Big Three - GM, Ford, Chrysler have been the worst-hit as they generally made huge cars and fuel-swallowing trucks, and had only a few fuel efficient cars on production.
- Roger Lowenstein has said in his article, that GM paid their employees pension funds and health-care benefits so dearly, that they had little to pay to shareholders or design new cars or research alternative fuels. He estimates that GM have spent $103 billion from 1993 to 2007 just to pay GM workers pension, a whopping $90 billion more than they paid shareholders dividends during that period!!
Latest news is that GM has closed 4 truck and SUV factories already, and is set to put its Hummer Brand for auction. Seeing things go too far in the near future, GM is set to make losses of atleast $1 billion a month.
I guess it'll have to got the Merrill Lynch way or Bear Sterns way if it has to save its reputation. Roger reckons that 'bankruptcy is not unthinkable for Detroit's former king'.
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