Shri Vile Parle Kelavani Mandal’s

Narsee Monjee College of Commerce and Economics

(Autonomous)

AY 2021-2022
Name of Course: Financial Accounting and Auditing Paper
TYBCOM
Semester V

Title of the Project/ Assignment – Turnaround Strategy and Internal

Reconstruction: GM

Sr. Full Name of SAP ID Div/ Contact Content

No. Learners Number Roll Number Contributed
No
1 Dhvani Shah 45208190659 F011 8689948310 GM after
internal
reconstruction
2 Heet Shah 45208190667 F012 9820759313 GM after
Turnaround
strategy
3 Ira Shah 45208190671 F013 9930164449 Turnaround
strategy
4 Ishita Shah 45208190673 F014 9870025474 Introduction
and What went
wrong with
GM and
Conclusion
5 Jay Shah 45208190676 F015 9833923813 Restructuring
plan of GM

Teacher in Charge – Prof. Jignesh Bhatia

 TABLE OF CONTENTS

Sr. Particulars Page Contributed by

No. No
1. Introduction 3 Ishita Shah
2. What went wrong for General Motors 4 F014
3. Turnaround Strategy of General 5 Ira Shah
Motors F013
4. Restructuring plan of General Motors 7 Jay Shah
F015
5. General Motors post internal 8 Dhvani Shah
reconstruction F011
6. General Motors post turnaround and 10 Heet Shah
2009 crisis F012
7. Conclusion 12 Ishita Shah
F014
8. Bibliography 12
 INTRODUCTION

General Motors Corporation, a U.S.-based company, has been in business for 100 years, has
produced nearly 450 million vehicles globally, and operates in virtually every country in the
world. While GM has recently enjoyed rapidly growing sales and revenues outside the United
States, the U.S. remains the company’s largest single market. It has been the backbone of U.S.
manufacturing, is a significant investor in research and development, and has a long history of
philanthropic support of communities across the country. The auto industry today remains a
driving engine of the U.S. economy, employing 1 in 10 American workers, and is one of the
largest purchasers of U.S. steel, aluminium, iron, copper, plastics, rubber, and electronic and
computer chips.

Like all domestic automobile manufacturers, GM has increasingly struggled over the last
several years due to increased competition from foreign manufacturers with lower wage,
healthcare and benefit. GM has spent $103 billion over the last 15 years alone on these legacy
costs, constraining investment in more advanced manufacturing and product technologies and
significantly weakening the company’s balance sheet. GM has made some erroneous decisions
in the past in now untenable provisions from prior collective bargaining agreements, and scarce
investment in smaller, more fuel-efficient vehicles for the U.S. Even so, GM still supplies one
in five vehicles sold in the U.S. today. In fact, 66 million GM cars and trucks are on this
country’s roads today, 44 million more than Toyota.

GM has made substantial progress in narrowing the gap with foreign competition in quality,
productivity and fuel efficiency. It is also noteworthy that in other markets, such as China,
Latin America and Russia, and where GM does not have the burden of legacy costs, the
company has recently grown rapidly and outperformed the competition. GM has never failed
to meet a Congressional mandate in the important areas of fuel efficiency and vehicle
emissions, and sets the industry standard for green manufacturing methods. Furthermore, it is
expected that the company’s role in creating green technology and high paying jobs of the
future will increase substantially.
 WHAT WENT WRONG FOR GENERAL MOTORS?

General Motors is coping with the worst economic downturn, and worst credit market
conditions, since the Great Depression. Significant failures have occurred in America’s
financial services sector — including two of America’s five largest investment banks, the
nation’s largest insurance company, both Freddie Mac and Fannie Mae, and two of the ten
largest banks — with financial institutions receiving total Government bailouts valued today
at well over $2 trillion. Consumers have had to contend with illiquid credit markets, rising
unemployment, declining incomes and home values, and volatile fuel prices.

GM’s financing arm, GMAC, cannot effectively access the secondary markets today. With
each passing day, it is less able to finance the sale of GM vehicles, either for dealers or for the
public. One year ago, GMAC was able to provide either instalment or lease financing for nearly
half of GM retail sales. That number has fallen to 6% today. In addition, GMAC is no longer
able to buy contracts for customers with a credit score under 700, which excludes roughly half
the buying population. All of this has been especially toxic to GM sales in the past two months,
with sales running about 40% behind year-ago levels. The company’s restructuring plan,
including a new collective bargaining agreement, coupled with the then current economic and
market outlook, indicated adequate liquidity to sustain operations.

The company’s balance sheet, reflecting in substantial part the $103 billion in cash/assets used
to fund U.S. post-retirement healthcare and pension funds in the last 15 years, includes a ($60)
billion negative net worth position at September 30, 2008. Liquidity, at $16 billion, was above
the $11-$14 billion minimum range required for GM’s global operations, but continued cash
burn and closed capital/credit markets threaten the company’s ability to survive. Therefore,
GM considers reluctantly, but necessarily, to turn to the U.S. Government for assistance.
Absent such assistance, the company will probably default in the near term, very likely
precipitating a total collapse of the domestic industry and its extensive supply chain, with a
ripple effect that will have severe, long-term consequences to the U.S. economy. To avoid such
a disastrous outcome, GM considers proposing loans from the Federal Government and the
empowerment of a new Federally created Oversight Board to help facilitate all the necessary
changes for a successful workout and restructuring of the company. Although unfortunately
impacting approximately 50 hourly and salaried employees GM has already ceased all
corporate aircraft operations.
 TURNAROUND STRATEGY FOR GM

Definition:

A Turnaround Strategy can be defined in three senses.

1. In General sense, it is a retrenchment strategy followed by an organization when it

feels that the decision made earlier is wrong and needs to be undone before it
damages the profitability of the company.
2. In Business sense, it is to deal with the issues of a loss-making company.
3. In Academic sense, it is to solve the root cause failure of a loss-making company.
So, to sum up the three definitions, turnaround strategy is backing out from the decision
wrongly made previously and taking steps to transform a loss-making company to a profit-
making company. If a turnaround strategy is not applied to a sick company, it will shut down.
This strategy tries to remove all weakness at once to make the company strong, stable and
profit-making institution once again.

An institution can adopt this strategy when any of these indicators are present and hamper the
survival of company:

 Continuous losses
 Poor management
 Wrong corporate strategies
 Persistent negative cash flows
 High employee attrition rate
 Poor quality of functional management
 Declining market share
 Uncompetitive products and services
The types of turnaround strategy are:

1. Cost efficiency strategy

2. Asset retrenchment strategy
3. Focus on company’s core activities
4. Change of leadership

The strategy:
With a fall in car sales because of the Great Depression, GM was losing billions and running
out of cash. The sales plunged to almost 30-year lows. By the time the company closed its
books on 2008 it was in loss by $30.9 billion. Rick Wagoner (CEO) led the company in
Washington seeking government funding to save the industry and keep GM out of
bankruptcy.

A reduction in GM salaried employees, globally, by approximately 10,000 (14%) compared

to year-end 2008 levels resulted in an average annual saving of $ 100.000 per employee laid
off. The Company reduced the total number of powertrains, stamping and assembly plants by
12 in the U.S. (from 59 in 2000 to 47 at 2008 year-end).

The timeline looks like:

On Dec. 19, 2008, The Bush Administration announced plans to bail out General Motors.

On Dec. 31, 2008, GM received $13.4 billion in short-term financing under the Troubled
Asset Relief Program.

On April 22, 2009, The Obama Administration provided a loan towards working capital of $2
billion to GM and by May 20, 2009, another $4 billion was added to the loan.

On June 1, 2009, GM filed for bankruptcy reorganization. In bankruptcy, it cut costs and shed
well-known brands such as Saturn, Hummer and Saab.

On July 10, 2009, GM exits bankruptcy.

On April 20, 2010, GM makes its final loan repayment. By this date government held a 61%
stake in common and preferred stock.

On Nov. 18, 2010, General Motors turned into a public company again. The U.S. Treasury
earned $13.5 billion in conjunction with the new company's IPO, reducing its stake to 33%.

On Dec. 9, 2013, The last of four stock sales is completed and the company becomes free
from government holding.

As of Aug. 4, 2021, GM reported strong second-quarter 2021 results with revenue of $34.2
billion, net income of $2.8 billion and EBIT-adjusted of $4.1 billion.
 RESTRUCTURING PLAN OF GENERAL MOTORS

General Motors Co. is on track to save 4.5 billion USD by 2020 through its restructuring plan,
with $1.1 billion already saved in the first half of the year 2019.

GM announced a massive restructuring plan that includes the closure of seven manufacturing
plants around the world, including five in North America, the discontinuation of several slow-
selling vehicle models, and the elimination of over 14,000 jobs. The company will be able to
“strengthen its core business, capitalise on the future of personal mobility, and drive significant
cost efficiencies” as a result of the actions.

By the end of 2020, the restructuring plan is expected to increase annual adjusted automotive
free cash flow by $6 billion. Cost reductions of $4.5 billion and a lower capital expenditure
annual run rate of nearly $1.5 billion are contributing to these cash savings.

What General Motors wanted to do was to right-size and continually look at the fixed cost
opportunities, fixed cost business. Improving the operating leverage of the company will help
General Motors reinvest in future businesses while making the core business more resilient.

Unless the automaker can reach an agreement with the unions and the authorities to allocate
more work to those plants, four assembly and propulsion plants in the United States and one in
Canada will be shut.

GM also announced that two more plants outside of North America will close by the end of
2019. (In addition to the previously announced closure of the assembly plant in Gensan, Korea).
Due to low sales, GM plans to phase out a number of models, mostly sedans, according to
reports in the media

The automaker is taking steps to cut salaried and salaried contract staff by 15%, including 25%
fewer executives, in order to "simplify decision making." Pre-tax charges of $3.0 billion to $3.8
billion are expected as a result of these actions, with up to $1.8 billion in non-cash accelerated
asset write-downs and pension charges and up to $2.0 billion in employee-related and other
cash-based expenses. The majority of these costs will be incurred in the fourth and first quarters
of 2018, with some additional costs incurred throughout 2019.

If a 25% drop in spending occurred, for example, General Motors’ EBIT would be impacted
by approximately 60% or 70%, Suryadevara said. In addition to the automaker's expected
savings, General Motors is on track to refocus its capital spending to $7 billion in 2020, down
from an $8.5 billion run rate over the past several years, the CFO said.GM will use some of the
$7 billion to invest in the automaker's advanced technology efforts, including electric and self-
driving vehicles.

Suryadevara estimates that a 25% reduction in spending would reduce GM's EBIT by 60% to
70%. In addition to the expected savings, GM's capital spending will be refocused to $7 billion
in 2020, down from a $8.5 billion run rate in recent years, according to the company's CFO.
Some of the $7 billion will go toward GM's advanced technology initiatives, such as electric
and self-driving vehicles.

The development of electric and autonomous vehicle technologies, which could cost GM tens
of billions of dollars over the next decade, is another significant source of rising costs. In the
next two years, GM said, resources allocated to electric and autonomous vehicle programmes
will double, including money going into the GM Cruise self-driving technology unit. GM is
also working on 20 fully electric vehicle models that will be available worldwide starting in
2023.

GENERAL MOTORS POST INTERNAL RECONSTRUCTION

July 10-September 30 Preliminary Managerial Results

 Operating actions result in EBIT loss before special items of $261 million and
managerial net loss of $1.2 billion

 Continued progress on structural cost reduction

 Healthier balance sheet with significantly lower debt

 $3.3 billion positive managerial operating cash flow favourably impacted by working
capital; $42.6 billion third quarter liquidity position expected to decline materially in
the fourth quarter

 Accelerated plan to repay U.S. and Canadian taxpayers; first $1.2 billion payment in
December

General Motors Company (GM) delivered primer non-GAAP administrative outcomes for its
initial 83 days of activity, giving an underlying gander at its monetary exhibition since it started
tasks as another organization on July 10, 2009.

Preliminary Non-GAAP Managerial Results

 ($mils) “Old GM” GM
July 1-July 9, 2009 July 10-Sept. 30, 2009

Net revenue $ 1,637 $ 26,352

Earnings before interest $ (627) $ (261)

and taxes (before special
items)

Net interest $ (209) $ (250)

Special items $ 79,6721 $ (505)

Earnings before taxes $ 78,836 $ (1,016)

Taxes $ 522 $ (135)

Total managerial $ 79,358 $ (1,151)

income/(loss)

Managerial operating cash $ (3.6) $ 3.3

flow (before special
items)($bils)

Global cash and cash- $ 37.6 $ 42.6

related balance ($bils)

1
- Special items for July 1-July 9, 2009 includes a reorganization gain of $80.7 billion.

Revenue

GM posted income of $28.0 billion in the second from quarter of July 1-Sept. 30,2009 which
was up around $4.9 billion contrasted with the income perceived by General Motors
Corporation, or "Old GM," in the second quarter of 2009.

The improvement was generally credited to a higher worldwide occasionally changed yearly
rate (SAAR) of 67.8 million units in the second from last quarter, contrasted with 62.7 million
units in the second quarter of 2009.GM's worldwide offer was 11.9 percent in the second from
last quarter, up 0.3 rate focuses from the primary portion of the year for Old GM. The China
market specifically is ending up being a solid benefactor for the organization's outcomes.
Keeping a main piece of the pie position in China, GM and its joint endeavour accomplices
keep on seeing a vertical pattern, selling in excess of 4,78,000 vehicles in the second from last
quarter of 2009, up from around 451,000 and 364,000 units in the second and first quarters,
separately.

Beginning in the latter half of 2008, a global-scale recession adversely affected the economy
of the United States. A combination of several years of declining automobile sales and scarce
availability of credit led to a more widespread crisis in the United States auto industry in the
years of 2008 and 2009. Following dramatic drops in automobile sales throughout 2008, two
of the "Big Three" U.S. automakers – General Motors (GM), and Chrysler – requested
emergency loans in order to address impending cash shortages. By April 2009, the situation
had worsened such that both GM and Chrysler were faced with imminent bankruptcy and
liquidation. General Motors emerged from bankruptcy as a new company majority-owned by
the United States Treasury, and Chrysler emerged owned primarily by the United Auto
Workers union and by Italian automaker Fiat S.p.A. Both companies terminated agreements
with hundreds of their dealerships and GM discontinued several of its brands as part of
bankruptcy proceedings.

GENERAL MOTORS AFTER TURNAROUND STRATEGY

Post the bankruptcy filing of the old General Motors (GM), a new age General Motors (GM)
Corporation was created in the United States. This corporation was relatively financially
smaller i.e. it had shorter turnaround. Another interesting point to note is that the company had
a smaller United States presence. However, its overseas presence was still noteworthy. The
new age General Motors (GM) decided to focus its strategy on emerging markets like India
and China instead of saturated markets like the United States. The newly formed General
Motors (GM) Corporation had a good hard look at its brands. Some of the divisions which were
not performing well were sold off whereas others were simply shut off.

It is because of this that Saab was sold off to a Dutch company whereas Pontiac, Saturn and
Hummer were simply shut down. The company wanted to focus all its attention towards the
cash cows. It is this lack of cash that had caused the bankruptcy in the first place, and General
Motors (GM) had learnt its lesson, it now wanted to be a cash rich company. The new age
General Motors (GM) had significantly ramped down its operations. The number of workers
working in General Motors (GM) took a drastic hit after the subprime mortgage crisis.
Worldwide General Motors (GM) let go off close to 40,000 workers whereas in the United
States close to 16,000 jobs were cut. In the process of this sudden and forced cost cutting,
General Motors (GM) had to shut down 13 out of its 47 plants. This also caused major damage
to the local economies where these plants were situated. However, General Motors (GM) took
the difficult steps that were required. As a result, the corporation still survives in some form
today. The new General Motors (GM) cleared all government debt within a few years and stood
tall even though subprime mortgage crisis had wreaked havoc on its balance sheet. General
Motors post 2008 crisis.

The company has reported annual profits since 2010. It can carry forward previous losses to
reduce tax liability on future earnings. It earned $4.7 billion in 2010. The estimated the tax
break, including credits for costs related to pensions and other expenses, can be worth as much
as $45 billion over the next 20 years. In 2010, General Motors ranked second on the list with
8.5 million units produced globally.] In 2011, GM returned to the first place with 9.025 million
units sold worldwide, corresponding to 11.9% market share of the global motor vehicle
industry. The top two markets in 2011 were China, with 2,547,203 units, and the United States,
with 2,503,820 vehicles sold. The Chevrolet brand was the main contributor to GM
performance, with 4.76 million vehicles sold around the world in 2011, a global sales record.

On April 24, 2014, CNNMoney reported that GM profits fell to $108 million for the first three
months of 2014. GM now estimates the cost of their 2014 recall due to faulty ignition switches,
which have been linked to at least 124 deaths, at $1.5 billion. Shares of GM were down 16%
for the year before the new announcement of GM's lower profits. On January 4, 2016, Fortune
reported that GM led a $1 billion equity financing in the transportation network company
(TNC) Lyft.com. This was GM's first investment in the ridesharing ventures and its reported
participation ($500,000,000) in the round is considered to be indicative of its efforts towards
the future of transportation, which it believes will be "connected, seamless and autonomous".
As a result of the COVID-19 pandemic, in July 2020, the company reported a $758 million net
loss for the Q2 of 2020. Despite profit decline, it was less than financial analysts predicted as
a consequence of pricey pickup trucks sales. In September 2020, GM and Honda announced
an alliance that proposes cooperation on purchasing, research, and vehicle development.
 CONCLUSION

The story of General Motors is one of rising, falling - and rising again. Born from the wild
early days of the Detroit car business, "The General" made it through the Great Depression and
rose to become the model of an American corporation. At one point in the 1950s, one of every
two cars sold the in US carried a GM brand name.

GM's decline wasn't swift. From the 1970s through the 2010s, it remained a force in business,
not just in the US, but worldwide.

But the changing global auto industry took its toll, and by 2009, when the financial crisis hit,
GM hit a wall. The company had to be bailed out by the US government before entering
bankruptcy.

A changed company emerged - leaner and more agile, determine to never again collapse under
its own weight. Since its 2010 IPO, GM has been steadily profitable. And under CEO Mary
Barra, the first woman to lead a major automaker, GM has invested in a future of electric cars
and self-driving vehicles.

BIBLIOGRAPHY

https://investor.gm.com/news-releases/news-release-details/gm-reports-strong-second-
quarter-2021-results

https://money.cnn.com/2016/01/13/investing/general-motors-outlook-turnaround/index.html

https://businessjargons.com/turnaround-strategy.html

https://corporatefinanceinstitute.com/resources/knowledge/strategy/turnaround-recovery-
strategies/

https://www.usatoday.com/story/money/cars/2013/12/09/gm-bailout-timeline/3929953/