So far General Motors (GM) has steered around competitors to remain the world's #1 maker of cars and trucks, with brands such as Buick, Cadillac, Chevrolet, GMC, Pontiac, Saab, and Saturn. GM also produces cars through its Holden, Opel, and Vauxhall units. Financing and insurance business is primarily conducted by one-time wholly owned subsidiary GMAC (GM currently owns 49%). In addition, GM owns slightly more than 50% of South Korea's GM Daewoo Auto & Technology. Like its US counterparts Ford Motor and Chrysler, GM is in the midst of restructuring its North American operations.
Those efforts were not helped when, in early 2008, GM reported the largest annual loss in the history of the automotive industry -- $38.7 billion. The loss is largely attributable to a $39 billion third-quarter charge for unused tax credits. GM's remaining stake in GMAC also hurt the auto giant, as the lender struggles with the US mortgage crisis. After posting a $1.3 billion gain at the same time in 2007, the carmaker took a $6.3 billion loss in the second quarter of 2008. After adding in one-time charges (which includes $3.3 billion in employee buyouts) and $1.3 billion in the negative column from its share of GMAC, the total losses for the quarter come to $15.5 billion.
The reporting of the record loss was accompanied by the announcement of a fresh round of employee buyouts. The latest plan offered buyouts to as many as 74,000 US hourly workers. According to its new United Auto Workers (UAW) contract, GM can replace as many as 16,000 workers with non-assembly jobs. Those workers can be offered as much as $62,500 to retire early with full pension and benefits, or as much as $140,000 to walk away with no benefits.
Health care costs have been a GM pain point for years, with retiree health care arguably the biggest drag on GM profits. To cut costs, GM early in the decade offered to finance the early retirement of thousands of unionized GM and Delphi workers. By mid-2006 GM had reached its target of more than 20,000 blue-collar workers accepting the buyouts. Ultimately, about 35,000 hourly employees, or about one-third of GM's hourly workforce, accepted the buyouts. The better-than-expected reaction to the buyout offers put GM about two years ahead of schedule for planned job cuts. In addition to hourly job cuts, GM said it would cut 7% of its white-collar positions, or about 2,500 jobs.
GM dodged a bullet in 2007 when the UAW, fighting for health care for retirees, ended a two-day strike -- the first nation-wide UAW strike against GM in more than 35 years. The two hammered out a deal creating a $50 billion independent health care trust (with GM ponying up most of the trust's funding), a move expected to stop health care-related red ink from piling up on the GM balance sheet. The deal was probably the best news that GM, and the UAW, had heard in a long time.
To help pay the bills while it restructures, GM has sold some assets over the last few years, including its stake in Fuji Heavy Industries (2005), all but 3% of its stake in Suzuki (2006), its stake in Isuzu (2006), a 78% equity stake in GMAC's commercial mortgage business (2006), a 51% stake in GMAC itself (2006), and Allison Transmission (2007).
The effect Robert Lutz, current vice chairman of Global Product Development, has had on GM is bearing fruit as the Chevrolet Malibu was named 2008's North American car of the year by a panel of automotive journalists. (The Saturn Aura received the same honor in 2007, while the Chevrolet Silverado was declared 2007 North American Truck of the year.)
GM's fortunes outside of North America are also looking up. The company is poised to sell some 300,000 GM-branded units in Russia, a 10% increase over 2007. With the world's largest pool of potential drivers, China's automotive market is experiencing explosive growth. China remains the world's fastest-growing automotive market with 20% growth in 2007 over 2006 (down from the 26% growth in 2006 over 2005). GM's annual unit sales keep climbing in China, but in 2007 GM lost Chinese market share for the first time in six years due to more intense competition and overall industry growth that outstripped GM's volume growth.
GM plans to spend $3 billion in China over the next couple of years in order to keep up with demand. GM plans to double its production capacity and introduce new models, and it has set up a financing venture with Chinese partner Shanghai Automotive Industry Corporation. While much of GM's success in China thus far has been in higher end models like the Buick Excelle, the market for small cars is the fastest-growing. GM is shifting resources to meet this trend head on. The company is also building a separate research center in Shanghai to focus on the hybrid technology development. Elsewhere in Asia, the company is investing about $450 million to build a new diesel engine plant in Thailand. The company will begin work on the new facility, which will focus on engines for small pickup trucks, in 2010.
While the market heats up in Asia, GM is trying to jump-start its GM Europe division, which suffered decreased profits in 2007. GM Europe was challenged by weaker demand in Germany (a key GM market), poor currency rates, and increased raw materials costs. GM Europe plans to drive productivity by relying on outsourcing and increasing production without increasing headcount. GM insists its European operations do not require the same type of sweeping restructuring taking place in North America.
With production scheduled to begin at the end of 2009, GM has earmarked some $200 million to build a new engine and components manufacturing facility in Brazil. In 2007 GM invested $500 million on its Brazilian unit's product development center. The carmaker hopes that once its South American operations are hitting on all cylinders, it will be able to take advantage of the free trade agreement set up between Argentina, Brazil, Paraguay, and Uruguay.
As 2007 wound to a close, GM entered into a tentative agreement to sell its medium-duty truck business to Navistar for an
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In the early years of the auto industry, hundreds of carmakers each produced a few models. William Durant, who bought a failing Buick Motors in 1904, reasoned that manufacturers could benefit from banding together and formed the General Motors Company in Flint, Michigan, in 1908.
Durant bought 17 companies (including Oldsmobile, Cadillac, and Pontiac) by 1910, the year a bankers' syndicate forced him to step down. In 1915 he regained control when he formed a company with racecar driver Louis Chevrolet. They soon formed GM Acceptance Corporation (GMAC, financing) and bought businesses including Frigidaire (sold in 1979) and Hyatt Roller Bearing.
With Hyatt came Alfred Sloan (president, 1923-37), who built GM into a corporate colossus via a decentralized management system. Unlike Ford -- which offered cars in any color you liked as long as it was black -- GM offered a range of models and colors; by 1927 it was the industry leader. It bought Vauxhall Motors (UK, 1925), merged with Adam Opel (Germany, 1931), added defense products for WWII, and diversified into home appliances and locomotives.
GM expanded with the nation in the post-war boom years; the good times rolled until Japanese automakers became established in the 1970s. GM spent much of the decade trying to emulate the Japanese while making its cars meet federal pollution-control mandates. CEO Roger Smith laid off thousands of workers.
In 1984 GM formed New United Motor Manufacturing (NUMMI) with Toyota to see if Toyota's manufacturing techniques would work in the US. GM also bought Electronic Data Systems (1984), Hughes Aircraft (1986), and 50% of Saab Automobile (1989). GM launched the Saturn car in 1990; that year Robert Stempel became CEO. In 1992 GM made what was then the largest stock offering in US history ($2.2 billion), and Jack Smith replaced Stempel as CEO.
GM sold its National Car Rental business to an investment group led by William Lobeck in 1995 and spun off Electronic Data Systems the next year. In 1997 it sold the defense electronics business of Hughes Electronics to Raytheon and merged Hughes' auto parts business with Delphi Automotive Systems (now Delphi Corporation).
UAW walkouts at two Michigan GM parts plants in 1998 forced the shutdown of virtually all of the company's North American production lines. That year GM began consolidating operations for its five major brands and agreed to build cars with Suzuki, increasing its stake in the Japanese company to 10%.
In 1999 GM spun off Delphi and boosted its stake in small-truck partner Isuzu to 49%. Meanwhile, subsidiary Hughes Electronics acquired Primestar's direct-to-home business for about $1.3 billion, and subsidiary GMAC bought the commercial finance unit of the Bank of New York (now the Bank of New York Mellon) for $1.8 billion.
GM and Honda inked a deal late in 1999 for Honda to supply V6 engines and transmissions for GM while Isuzu Motors supplies Honda with diesel engines. GM also bought the rights to the Hummer brand from AM General. The next year GM acquired the 50% of Saab Automobile that it didn't already own (from Investor AB) and acquired a 20% stake in Fiat Auto (Lancia and Alfa Romeo, but not Ferrari and Maserati) in exchange for a 5.6% Fiat stake in GM. GM also acquired a 20% stake in Fuji Heavy Industries (Subaru).
President Rick Wagoner replaced Smith as CEO in June 2000. Also that year, GM and Fiat entered talks to acquire Daewoo Motor after Ford withdrew its bid for the South Korean carmaker, and GM cut its salaried workforce by 10%.
In 2001 GM paid about $600 million to double its stake in Suzuki to 20%. In addition, it submitted a bid (reportedly around $776 million) to take over Daewoo Motor. The company also announced that it would spend $340 million on a joint venture with AvtoVAZ (Russia's biggest automaker) to build 75,000 SUVs a year.
As GM reportedly neared a deal that year to combine Hughes Electronics (and DIRECTV) with Rupert Murdoch's News Corp., EchoStar -- the US's #2 satellite TV business -- made a $32 billion all-share offer for Hughes (Echostar's offer later dropped to $26 billion after News Corp. dropped out of the bidding). The deal later fell through when it was blocked by the FCC.
Later in 2001 GM announced that it planned to discontinue the once popular Chevrolet Camaro and Pontiac Firebird models.
The following year GM took a 42% stake in South Korea's bankrupt Daewoo Motor (now named GM Daewoo Auto & Technology Company) for $251 million. GM entered the Daewoo deal with partners Suzuki (which took a 15% stake) and Shanghai Automotive Industry Corp. (with a 10% stake). The remaining 33% of the venture was held by GM Daewoo's creditors. GM later increased its stake in GM Daewoo to 49% and then again to 51%.
Meanwhile, GM retooled its relationship with Isuzu Motors. Through a recapitalization, GM's stake in Isuzu was reduced to 9%. Fiat sold its entire stake in GM in late 2002 to an unnamed investment bank for nearly $1.2 billion.
Early in 2003 GM completed the sale of its defense unit (armored vehicles) to General Dynamics for $1.1 billion. Later that year GM finally made a deal to unload its 20% stake in Hughes Electronics by agreeing to sell its shares to News Corp. in a transaction valued at about $3.1 billion. The deal was completed in the waning days of 2003.
The company announced in 2004 that the headquarters for its Asia/Pacific operations would move from Singapore to Shanghai. That year also marked the last model year for GM's Oldsmobile brand. The world's final Oldsmobile rolled off the assembly line in June 2004 -- almost 100 years after GM first bought the brand.
Later in 2004 GM wrote its first car loan in China through a joint venture with its Chinese partner Shanghai Automotive Industry Corp., and in so doing became the first western car company to offer auto loans to Chinese consumers. GM also announced that year it would trim 12,000 jobs in Europe (one-fifth of its workforce there) in hopes of saving its ailing European operations about $618 million per year.
Early in 2005 GM sold its money-losing locomotive manufacturing operations (GM Electro-Motive) to Greenbriar Equity Group LLC and Berkshire Partners for an undisclosed sum. GM also said it would invest about $69 million to double its production capacity in India. The year also saw the fruition of a "put option" deal signed with Fiat in 2000. The deal could have forced GM to purchase the remaining stake in Fiat's troubled automotive operations that it didn't already own. Instead, GM paid $2 billion to make the whole mess go away. GM and Fiat have since dissolved their joint venture operations and gone their separate ways.
GM sold its stake in Fuji Heavy Industries, maker of Subaru passenger vehicles in 2005. The two companies' collaboration never bore the desired fruit and GM sold just under 9% of its 20% stake to Toyota Motor for about $315 million. GM's remaining 11% stake was sold back to Fuji as part of Fuji's open market buyback program and through regular stock sales.
In early 2006 GM's finance arm, GMAC, sold a 78% equity stake in its commercial mortgage business to a private equity consortium including Kohlberg Kravis Roberts & Co., Five Mile Capital Partners, and Goldman Sachs Partners for about $9 billion. GM trimmed its stake in Suzuki from 20% to 3% about the same time, and it sold its 8% stake in Isuzu to Mitsubishi Corp., ITOCHU Corp., and Mizuho Corporate Bank for $300 million.
Later that year billionaire GM investor Kirk Kerkorian (who owned about a 10% stake) suggested GM might improve its fortunes by hooking up a three-way alliance with Nissan Motor and Renault. Kerkorian's advise quickly prompted board meetings at all three companies to consider the idea. After a 90-day examination of an alliance's potential, Renault and GM walked away from the table in the midst of the 2006 Paris Auto Show without a deal. (Kerkorian slowly reduced his stake that year, officially ending his influence on the company.)
Also in 2006 GM sold a 51% stake in GMAC to a consortium of investors led by Cerberus Capital Management for $14 billion.
GM sold its Allison Transmission commercial and military business to The Carlyle Group and Onex Corp. for about $5.6 billion in 2007. GM retained an Allison plant in Baltimore that builds transmissions used in GM's light trucks.