Accounting for Managers: GM's Financial Crisis and Analysis Report

This report provides an in-depth analysis of General Motors' financial performance, tracing its history from its inception in 1908 to its eventual bankruptcy filing in 2008. The report examines the company's key milestones, including its early successes in innovation and mass production, as well as its strategic acquisitions. It then delves into the factors that led to the company's downfall, such as a failure to innovate, rising costs, and changing consumer preferences. The report also explores the significant impact of GM's bankruptcy on the US economy, including job losses and government intervention. Finally, the report offers lessons learned from GM's experience, emphasizing the importance of adaptability, innovation, and effective management in the face of market changes. The report highlights the company's capital structure, major changes in the business, and reasons for the failure of the company. The report also examines the impact on the economy and lessons learned from the financial crisis.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
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Author’s Note

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Introduction
The main purpose of this assessment is to analyze the financial information of a company
which had undergone serious financial crisis and was ultimately declared insolvent. The
company which is selected for this assessment is General Motors which operates in many
countries and is regarded as one of the leading makers of automobiles in USA. The company has
a rich history and is known to be a big company in USA.
History of the business
The history of the business dates back to even a century where one of the largest car and
truck makers were established. The company was founded in 1908 in Flint, Michigan by William
C. Durant and the company is made up of several different companies which was acquired
rapidly within a short period for the purpose of effectively establishing the business of General
Motors in the country. Some of the main products which was manufactured by General Motors
were Buick, Oldsmobile, Cadillac, Oakland and a variety of trucks (General Motors., 2018). The
company then formulated strategies for rapid expansion in the market and for such a purpose
engaged in research and development activities in order to facilitate innovation in the business
(Kollewe, 2009). The company also had to face severe competition from other automobile
companies such as Ford and therefore the management of General Motors needed to formulate
strategies which included innovative approach, restructuring of the sales function of the business,
making subtle improvements in the model of the cars or other automobiles which was offered by
the business.
Key Initial Success Drivers and Milestones Achieved

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General Motors was always engaged in the business where there was intense competition
and the management had to plan strategies which can make the products which was offered by
the company better than the products which were available in the market. Therefore, in 1929, the
company made a change in the management and also change the process of the business. The
business started to invest more in innovations and better sales structure of the business. The
management of the company was more concerned with innovation and better model of cars and
therefore the introduction of Chevrolet Corvette and BelAir and also the Cadillac El Dorado
redefined the car design which was then available in the market. The introduction of such models
marked the era of golden generation of car deigning in the market and also attracted the
customers in large numbers (Helper & Henderson, 2014). The key success factors which can be
identified for General Motors was the brand of car which was initially acquired by the business
and also the adjustments which was made towards the model and engines of such cars in order to
differentiate the brand of General Motors from its competitors. Another success factor was the
innovation activities which was undertaken by the management of the company for the purpose
of making changes to the products which was offered by the business (Flores, Krueger &
Clements, 2013). This resulted increasing need for innovation and development in the market
and most of the companies in the industry adopted such an approach. Another successful policy
which was formulated by the management of General Motors was the mass production of the
automobiles in order to meet the increasing demand for automobile products in the market which
not only improve the revenue of the business but also build a strong reputation of the business in
the market. The financial performance of the business and the milestones which is achieved by
the business is clear from the reign of the business as the top manufacturer of automobiles in the
world. In addition to this, the acquisition made by the business also shows that the company has

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strong capital backing which also suggest that the business is very strong in financial terms. As
per the estimates which are available for 2012, the company is regarded as the top manufacturer
of automobiles in world as in previous year the company sold around 9 million cars
Due to the efficient performance of the business, the company gained popularity in the
country and also globally. The models which was introduced by the business had become
bestsellers for the business and the people were positively responding to the products which was
offered by the business. The company was initially labelled as a company which resulted in
emission of pollutants in the atmosphere. The company soon through its innovative strategy
developed catalytic converters in order to reduce the emission which was caused by the
automobiles. The company was also the first automobile company to suggest the incorporation of
air bags in automobile in order to reduce the impact of accidents on people and reduce the
casualties in accident. The automobile manufacturer was also engaged in developing navigation
system and guidance system for first moon landing mission in Apollo II and was also engaged in
designing the lunar roving vehicle for Apollo I5. Thus, it can be clearly stated that the business
has been engaged in some of the important activities and has achieved a lot of success over the
years. The company was so much important that the business was regarded as one of the top
automobile makers and industrialist in USA. They had a brilliant hand in the framing the
economy of USA effectively.
Major Changes in the business or Capital Structure of the Business
The business was established in 1908 and since then the management of the business has
made it an initiative to acquire different business or brands which can help the business to
establish a strong product line up for the business. The business in initial stages acquired the

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brands of Buick, Oldsmobile, Cadillac, Oakland and Chevrolet Corvette. This resulted in
strengthening the business and the products which was offered by the business (Smil, 2013). The
capital structure of the business has always comprised of long term debts which would help the
business to effectively finance the products which are to be offered by the business and the
innovation process and different activities which are undertaken by the business (Lucky &
Takim, 2015). The company has engaged itself in numerous number of acquisition and takeovers
over the years and the same has helped the business to further strengthen the business effectively.
As per the information which is available regarding the acquisition which was made by
General Motors, Daewoo is the most recent acquisition which was undertaken by the business of
General Motors in the end of 2000. The brand was mainly kept for the markets of South Korea ,
however by 2005, the brand was also being sold in areas of Australia and also in other markets
under the flagship of General Motors. In addition to this, the company also holds an insurance
and financing company with the name of GMAC financial services which offers commercial,
residential and automotive finance services and also insurance services to the clients of the
business. Therefore, it can be said that the business has a strategy towards acquisition of other
businesses in order to strengthen its own business and the company during the 2000s were the
market leaders of automobiles in areas of USA, China, Canada and UK. As regard, the capital
structure of the business, the management of the company has always preferred application of
debt capital in contrast to equity sources and the same can also be attributed to be one of the
reasons for the financial turmoil which the business faced during 2007-2008.
Reason for Failure of General Motors

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The collapse of General Motors came as a surprise to the entire market when the
management of General Motors filed for Chapter 11 bankruptcy in 2008. The business was
regarded as one of the leading businesses in the country and therefore the economy was devasted
with the fall of the company (Canis & Webel, 2013). The reasons which can be identified as the
major causes which led to the fall of the business are listed below in details:
 The management of General Motors was unable to innovate the business and further
improve the designs of automobiles which was offered by the business to the public. The
business was only focused on profiting from financing services for the business. The major
reason which can be attributed to the fall of the business was the lack of update of
technology, inability to meet the competition needs of the business.
 The company had entered into a contract with Saab in order to further expand the business
of the company in European countries with the introduction of the products of the company
there, however the same project became quite expensive as there was overlapping of
products of the business. The rise in the costs of the business can be identified as one of the
main reason for the fall in the profitability of the business and also the downfall of the
company.
 In addition to this, the automobile which was introduced by the business during the period
of 2007-2008 were complete failure as the same was unable to meet the expectation of
public in this respect. The management of the company was unable to meet the innovative
requirement and level of competitiveness which was present in the market. In addition to
this, there was a change in the taste and preference pattern of the customers as they started
switching from SUV models of cars to trucks which can be used for transportation. This

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further added to the failure of the products which was offered by the business during the
period which lead to the further downfall of the business.
 Another reason which can be attributed to the fall of the business was the effective
management of the business which lost its touch with the general public which was the
educated car public in the society and the same resulted in people moving towards Japanese
model of cars and other brands. There were other problems as well which can be identified
such as look alike cars, ineffective quality of the products which are on offer and in
appropriate promotion and advertisement for the same.
Impact on the Economy
In 2008, the management of General Motors filed for the protection of Chapter 11
Bankruptcy which shocked the industry as this was the greatest industrial bankruptcy in the
history and the economy of USA was shaken as a result of the same. The company was an
important part of the business environment of USA as the business employed 234,500 people all
over the world out of which 91000 people were from the USA and therefore the same resulted in
rise in the unemployment in the country (The Economist, 2018). The company used to spend $
50 billion in USA itself for parts and other services and was also provider of around $ 476
million as salaries for employee on monthly basis.
Thus, from the discussion which is covered in the above paragraph, the impact of
bankruptcy of General Motors resulted in an economic crisis in the country. The company was
considered to be one of the largest automobile makes in the country and therefore fall of the
same adversely affected the needs of the society and the market of USA. Therefore, the
government of USA put in every effort in order to save the business of General Motors from

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Bankruptcy by providing them with necessary financing. However, the control of the business
was passed partially to the government in order to ensure that the business survived (Goolsbee &
Krueger, 2015). The business also had to undergo restructure and reorganization process wherein
the management of the business was changed and focus was imposed on innovative practices of
the business.
Lesson to be Learned
Thus, from the discussion which is conducted in the above paragraph, it is clear that the
business of General motors made the mistakes of effectively analyzing the market and also
updating to the current needs to customers of the business. The business was also affected by the
severe level of competition which was present in the automobile industry and the same affected
the policies of the business. In addition to this, the management also needed to focus on
innovation and further development of the product which was another area which was ignored by
the management of the company and therefore the same resulted in the downfall of the business.
After, reorganization of the business, the management has met all the above mentioned
requirements and therefore has been successful to a level in the business environment.

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Reference
Canis, B., & Webel, B. (2013). The role of TARP assistance in the restructuring of General
Motors.
Flores, R., Krueger, C., & Clements, P. (2013). Second-generation product line engineering: a
case study at general motors. In Systems and Software Variability Management (pp. 223-
250). Springer, Berlin, Heidelberg.
General Motors. (2018). Gm.com. Retrieved 30 October 2018, from https://www.gm.com/
Goolsbee, A. D., & Krueger, A. B. (2015). A retrospective look at rescuing and restructuring
general motors and chrysler. Journal of Economic Perspectives, 29(2), 3-24.
Helper, S., & Henderson, R. (2014). Management practices, relational contracts, and the decline
of General Motors. Journal of Economic Perspectives, 28(1), 49-72.
Kollewe, J. (2009). The history of General Motors. the Guardian. Retrieved 29 October 2018,
from https://www.theguardian.com/business/2009/apr/30/general-motors-gm-history
Lucky, B. O., & Takim, S. (2015). Manufacturing defects in the automobile industry, a case
study of the remote causes and effects of Toyotas transmission malfunctions in
cars. International Journal of Engineering and Applied Sciences, 2(8).
Smil, V. (2013). Made in the USA: The Rise and Retreat of American Manufacturing. MIT Press.

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The Economist (2018). A giant falls. Retrieved 29 October 2018, from
https://www.economist.com/briefing/2009/06/04/a-giant-falls