Subject category:
Strategy and General Management
Published by:
IBS Case Development Center
Length: 16 pages
Data source: Published sources
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Abstract
General Motors (GM) incurred losses to the tune of US$1.6 billion in the third quarter of 2005 mainly arising from its North American operations. Rick Wagoner, Chief Executive Officer (CEO) of GM, announced that the company would eliminate 30,000 jobs and close down four of its 20 assembly plants in North America by the end of 2006. The management cited rising health care and labour costs as major reasons for the losses. But the United Auto Workers (UAW) felt that the vehicle design, product development and foreign competition were the major reasons for the company''s poor performance. The opposing stands taken by the management and the labour union had stalled negotiations concerning reduction of health care costs, job cuts, outsourcing and sub-contracting. Finally on 17 October 2005, GM announced its deal with the UAW, which agreed to reduce its health care costs for retirees by US$15 billion and its annual employee health care expenses by US$3 billion a year. Other than reducing costs, GM has also planned to increase its revenues by refocusing on sales, marketing and development of new models. It even planned to sell a majority of its stake in the profit making General Motors Acceptance Corporation. Despite this, in December 2005, S&P (Standard & Poor?s) slashed GM''s credit rating to ?junk'', from BB to B, and expressed concern about the turnaround efforts. It also said that bankruptcy was a distinct possibility in the near future. The case study provides a historical perspective about the legacy costs at GM and enables a discussion on whether CEO Rick Wagoner can bring down the legacy costs and turn the company around. The case also highlights the possible effects of bankruptcy on its suppliers, customers, creditors and investors.
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Abstract
General Motors (GM) incurred losses to the tune of US$1.6 billion in the third quarter of 2005 mainly arising from its North American operations. Rick Wagoner, Chief Executive Officer (CEO) of GM, announced that the company would eliminate 30,000 jobs and close down four of its 20 assembly plants in North America by the end of 2006. The management cited rising health care and labour costs as major reasons for the losses. But the United Auto Workers (UAW) felt that the vehicle design, product development and foreign competition were the major reasons for the company''s poor performance. The opposing stands taken by the management and the labour union had stalled negotiations concerning reduction of health care costs, job cuts, outsourcing and sub-contracting. Finally on 17 October 2005, GM announced its deal with the UAW, which agreed to reduce its health care costs for retirees by US$15 billion and its annual employee health care expenses by US$3 billion a year. Other than reducing costs, GM has also planned to increase its revenues by refocusing on sales, marketing and development of new models. It even planned to sell a majority of its stake in the profit making General Motors Acceptance Corporation. Despite this, in December 2005, S&P (Standard & Poor?s) slashed GM''s credit rating to ?junk'', from BB to B, and expressed concern about the turnaround efforts. It also said that bankruptcy was a distinct possibility in the near future. The case study provides a historical perspective about the legacy costs at GM and enables a discussion on whether CEO Rick Wagoner can bring down the legacy costs and turn the company around. The case also highlights the possible effects of bankruptcy on its suppliers, customers, creditors and investors.