A Fundamental Analysis of General Motors Corporation

A Fundamental Analysis of General Motors Corporation

Name

MBA 579: Advanced Financial Management

Submitted to: Dr. Tuncer Gocmen

Executive Summary

General Motors Corporation (GM), once a pillar of American manufacturing and the largest auto manufacturer in the world, recently emerged from Chapter 11 bankruptcy (Krisher, 2009). The New GM is officially named General Motors Company (Investor Information, 2009). Toyota’s sales surpassed General Motors sales in 2008 (Bunkley, 2009). This is the first time since the early 1930’s, when they passed Ford, that GM is not the industry leader (Bunkley, 2009). GM was the industry leader in sales through 2008, but the detailed look into GM’s financials show that Toyota surpassed them a few years earlier in other areas. GM has been struggling for years and this severe recession was enough to end the run for GM as world auto sales leader.

General Motors Corporation has been in serious financial trouble for years. In fact, GM has lost money for every year since 2004 (GM Annual Reports, 2003-2007). The company must restructure in order to stay competitive foreign auto makers. General Motors is hampered by high wages, retiree healthcare, and pension plans (Naughton, 2008). The average union wage is $28 per hour and that number balloons to $78 per hour when health insurance and pension are included (Naughton, 2008). The issue for General Motors has not been sales, the issue lies with a lack of productively and a business that is not streamlined like its competitors. The sales for its auto division increased from 155,831 in 2003 (in billions) to 178,199 in 2007 (GM Annual Reports, 2003 & 2007). The main problem for General Motors is profitability. This profitability issue has led to a lack of confidence from Wall Street and bailout funds from the federal government in the amount of 13.4 billion in 2008 (General Motors Corporation, 2009).

In 2005, GM had an operating loss of 4 billion and their bonds were downgraded to “junk status” (General Motors Corporation, 2009). General Motors was de-listed from the New York Stock Exchange (NYSE) (“www.gm.com/corporate/investor,” 2009). “On June 2, 2009, The NYSE informed GM that it is no longer suitable for listing on the NYSE (Investors, 2009). This was in response to GM filing for Chapter 11 bankruptcy protection (Investors, 2009). Things have changed for GM and the NYSE over the past few years. According to Brigham & Ehrhardt (2005), GM threatened to de-list in the past and the NYSE made concessions. At that point in time the GM deflection would have hurt the NYSE more than GM (Brigham & Ehrhardt, 2005).

General Motors