What went wrong with General Motors

• In the run-up to the 2009 bailout, GM recorded one of the worst corporate performances in American history.
General Motors alone lost almost $40 billion in 2007 and another $31 billion in 2008.

• When the Great Recession began in late 2007, it had a catastrophic impact on the automakers. Auto sales
plummeted in 2008 and again in 2009 to below 10 million, from a peak of mover than 17 million just a few
years earlier

• The ratio of cars-to-population and the fraction of auto buyers stretching their credit by using subprime auto
loans were both at record highs

• Auto credit had been unsustainably inflated by the same housing and credit bubble that led to the economic
crisis in 2008

• By fall 2008, the financial situation of the domestic auto-makers led by GM was so dire that they would soon
be unable to make their wage and supplier payments.

• When critics highlighted the U.S. auto industry's decades-old problems of high cost, questionable quality,
and the like, the executives argued that they had already done the restructuring necessary to fix those
problems.

• In reality, though, GM’s problems had built up over many years, and were certainly not solely a result of the
economic downturn.
 Reasons for General Motors’ downfall
• Several factors had taken a toll on the demand for cars from the manufacturers over time:
the widespread perception of perennial quality
o and reliability issues,
o lower resale values,
o poorly received new models,
o and a lack of low-gas mileage cars at times of rising fuel costs.

• Moreover, the “transplant” car factories – that is, domestic U.S. production of foreign
owned companies like Honda, Toyota, Nissan, and others –
o were expanding employment and
o production in the U.S. using predominantly non-union plants in the American South, even
as the Big Three automakers had struggled

• GM also made an attempt to offload some of its assets. However, the market for loans
was tight. Hence, no company found itself interested in purchasing GM assets.
• The labour union in Detroit had cost the company a lot financially and estimates stated
that these were increasing the prices by as $1500 per car