Case Study on "General Motors: GM's Relationship"

Case Study 4 pages (1351 words) Sources: 4 Style: Harvard

[EXCERPT] . . . .

General Motors Case Study: GM's relationship with Cerberus Capital Management

The automotive industry is uniquely dependant on lines of credit. Consumers usually do not have the ability to buy cars with cash 'up front,' and the availability of credit enables consumers to buy more expensive cars and pay for them over time. The practice encourages greater consumption of costly vehicles, and a higher rate of turn-over for vehicles on lots. The greater the availability of credit, the greater the health of the automotive industry as a whole, provided these automotive loans are sound. However, although automotive loans were not as beleaguered by defaults as home loans in recent years, the financial insolvency of consumers has forced many individuals to default on their automotive loans. This has made banks wary of extending lines of credit to all but the least risky of borrowers. Consumer wariness about making new purchases combined with tightened credit has been a disaster for all major car companies. 70% of all banks this year have tightened lending standards regarding automotive loans (Welch 2008).

While all automotive companies have been hard-hit by the current financial crisis, General Motors was already in serious jeopardy because of tumbling sales, skyrocketing fuel prices, and the drain of the costly pensions and health insurance plans it had to provide for retired workers. GM is facing a serious liquidity crisis today. "The credit rating agency Standard & Poor's said Monday that it was keeping GM on a negative watch because of concerns about its declining cash reserves" (Vlasic 2008). GM's United States sales alone dropped 17.8% over the course of 2008 and the company is even less popular abroad, as most international consumers prefer more fuel-efficient Japanese vehicles than GM's usual output of SUVs (Vlasic 2008).

To increase consumer demand, GM has offered a variety of incentives, such as employee discounts and dealer flexibility. There has been a stress on offering consumers special agreements regarding cars sold on GM lots to stimulate demand. But GM's attempt to rehabilitate its fortunes has met a roadblock regarding its complicated relationship with the financial corporation that extends credit to most GM car buyers. The finance company known as the General Motors Acceptance Corporation (GMAC), of which GM was once the sole owner but which is 51%-owned by Cerberus Capital Management "sent a letter to GM dealers on Oct. 13 saying that the company won't loan money to car buyers with credit scores lower than 700. Consumers with credit scores above 680 are considered prime-credit borrowers. That means even some would-be car buyers whose credit is considered sterling would be nixed by GMAC" (Welch 2008).

In short, although it is GM's desire, and in the car company's interest to facilitate the process of extending loans to consumers, because GM's primary financing company is partially owned by Cerberus, GMAC is tightening its extension of credit to consumers to bolster the long-term interests of Cerberus and is thus acting against the desires of GM. Cerberus said it has become concerned about its fortunes in the wake of today's economic downturn. Before GMAC started tightening standards in recent months, half of GM's buyers obtained loans through GMAC (Welch 2008). "Most customers of GM's largest brand, Chevy, reportedly sport scores in the 600 range...Additionally, GMAC funded 43% of all GM sales in the second quarter, but only 20% of funding in September" (Wurtzel 2008). Now GM dealers have to go to banks to get loans for their consumers -- banks which are also tightening their requirements for extending credit to borrowers. GM has prepared a campaign to help its customers locate financing from different sources, but because GMAC's decision came so quickly and dealers and customers are used to working directly with GMAC, this has proven difficult (Wurtzel 2008). GM now finds itself in the worst of all possible situations regarding GMAC -- because the financing company has extended loans to homeowners through its non-automotive loan program, GM has a 49% share in the company, but it is enjoying none of the benefits of a special… READ MORE

How to Reference "General Motors: GM's Relationship" Case Study in a Bibliography

Related Papers:

Fiat's Fall From Grace Can Fiat Turn Thesis

Fiat Case Study

Fiat, once a global leader in auto manufacturing, is more challenged than the majority of other global manufacturers by the ongoing recession due to several macro and… read more

Thesis 7 pages (2120 words) Sources: 4 Style: Harvard Topic: Business / Corporations / E-commerce

---

Business - Management Theory: Toyota Term Paper

Business - Management Theory: Toyota Case Study

Toyota Case Study

In an increasingly globalized marketplace, many companies have been forced to reduce costs and staff, improve supply chain management techniques… read more

Term Paper 10 pages (2854 words) Sources: 8 Style: Turabian Topic: Management / Organizations

---

Entry Mode in the Chinese Car Market Term Paper

Chinese car market

An Analysis of Entry Mode into the Chinese Car Market

The Case of Chinese Car Industries and Foreign Direct Investment

The flow of Foreign Direct Investment (FDI)… read more

Term Paper 33 pages (8417 words) Sources: 10 Style: Harvard Topic: Economics / Finance / Banking

---

Organizational Analysis Ford Motor Company of Canada Term Paper

Organizational Analysis

Ford Motor Company of Canada Organizational Analysis

In assessing the competitive environment of the Ford Motor Company of Canada, its strategic roles as part of Ford Motor Company… read more

Term Paper 6 pages (1847 words) Sources: 1+ Topic: Business / Corporations / E-commerce

---

Intercultural Issues in Offshoring of Hyundai to the U.S Literature Review

SHORING of HYUNDAI to the U.S.

Intercultural issues in offshoring of Hyundai to the U.S.

Off-shoring is a business practice that has taken root with the light of technological innovations… read more

Literature Review 10 pages (3236 words) Sources: 15 Style: APA Topic: Business / Corporations / E-commerce

---

View 100+ more related papers  >>