Summary
The bankruptcy of GM seemed imminent late last year and it has finally happened. On June 1 2009, General Motors filed for chapter 11 bankruptcy. This provides GM with financial tools such as loans to restructure its business. In the early 1950's, GM dominated the automobile industry in an oligopoly they shared with Chrysler and Ford. When imports from foreign companies into the American market were fast increasing, GM stuck with their big, heavy carbon dioxide producing automobiles. In the 21st century, where Americans are more aware of the negatives of heavy carbon producing cars, GM faced competition from more fuel efficient brands from foreign companies. Ottawa and Queen's Park have taken a 72 percent ownership stake in the restrctured GM set to emerge from bankruptcy in six months with the assistance of $72 billion US in loans and $9.5 billion from Canada. GM products have lost much of their popularity with a recent poll showing that two thirds of Americans are opposed to bailing out GM with the use of tax payer's funds. Currently, foreign brands such as BMW, Toyota and Honda are the preferred automobiles among motorists with GM's market share dropping to 19.1 percent. US president Barack Obama, however, remains optimistic about the restructured GM which is expected to make profits through the current 27 year low in auto sales. GM's problems arose when GM chief executive Roger Smith failed to reduce the overcapacity of GM as vehicles that were low in demand were continuously placed on the market.
Connections to Chapter 10
The market in which General Motors operates in involves a competitive situation that has many differentiated sellers. There are many sellers in the automobile industry due to the fact that imports from foreign brands are an available and popular product for consumers. GM has to compete with several other companies such as Ford, Chrysler, BMW, Toyota, Fiat, Mercedes Benz, Mitsubishi, and Volkswagen just to name a few. The products in this competitive group are similar but can be distinguished from one another. This definitely holds true for the automobile industry, where quality, brand name and design of the products of each company are different e.g.: foreign companies tend to produce more fuel efficient cars than GM. Each firm in a many differentiated sellers market makes us of non-price competition such as advertising. This can be seen in the automobile industry as well. During the 1960's the automobile industry functioning in North American consisted only of a few firms, General Motors, Chrysler and Ford. It would be considered an oligopoly at the time because of the few firms and the concentration of each firm in their market. Now, imports have gained a large share of the North American market and GM is forced to consider international competition from foreign auto makers as consumers can purchase cars made in Japan, Britain, Germany, France and other countries. This played a large role in the downfall of General Motors as foreign cars became more popular.
Reflection
In any competitive industry, such as the automobile industry, companies must adapt to the changing trends. GM has found itself in this situation mostly in part due to the low demand for GM products. Today, motorists' preferences lies mostly in foreign, fuel efficient cars and GM struggled to adapt to these changes. Another reason that I believe could account for GM's bankruptcy would be the recession as well as rising gas prices ( experienced by the US in the end of 2007) which would have lowerrf the demand for SUV's and pick ups that GM is known for. Though GM is expected to make a recovery, it will probably not be restored to its former glory as their market share would take a hit due to the competition. Overall bankruptcy could possibly force GM to produce higher quality and fuel efficient cars in order to compete with other companies; however, it is unfortunate that GM which has had a large influence on American culture, will have less market power in the future.
4 comments:
Over time, the competitive nature of an industry is likely to change. In this case, GM bankrupted due to its unpopular demand. It claimed itself the largest bankruptcy filing of a U.S. industrial company. Since there were many substitute brands like BMW, Toyota and Honda, it faced even harder competition .With the plan to re-emerge from it’s financial crisis, the new GM is possible of making even better cars in the future. The New GM is capable of markng America’s success once again.
It really was no surprise that GM had to declare bankrupcy, although it was expected to happen earlier. The trend of global sustainability have been in place from the late 1980's to the present day. When competing with other slightly more environmentally friendly car producing companies, GM did not stand a chance. With the demand for their big trucks, heavy fuel eating machines lowering, GM should have done more to help their situation. Especially during the depression the country experiences, the assistance given to GM could have been used for better purposes.
Jason Choy
Block F
With the increase of import cars, GM had a lot more competition than it did 20 years ago. The consumers today are looking for different qualities in cars like fuel efficiency, which was not a big concern back in the days. Japanese cars have a way bigger market for fuel-efficient cars than GM. Also consumers are looking for stylish cars and American cars are no competition to the European cars. Now with the economy in shambles, it was the last nail on the coffin for GM. I think bailing out GM is a good thing for the economy. If GM goes down, thousands of jobs would be lost and a higher unemployment rate is just not what we need in hard economic times like this.
Yifan. D
Your article is very similar to mine, and I believe like I have said in my reflection that because of all these issues with American car industries, Canadian car industries will also be affected. They have a number of automobile plants in Ontario. However after listening to all those economists like Peter Schiff I think maybe it is time to let go, and let the economy deal with itself. Also in the past I watched shows like 20/20 and many economists say the government should not intervene and simply let the companies that cannot uphold fail, so that stronger and new companies may rise. I think overall this may be better for the US economy, but may not be so great for our Canadian economy.
M Sun
Post a Comment