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Mergers and Acquisitions
The global recession that peaked in the year 2008 had a great effect to the entire economies world over. Multinational companies were forced to close down, while others adapted various strategies that allowed them to minimize their operation cost to enable them survive the recession. In the United States, multinational manufacturing companies like General Motors and Chrysler were declared bankrupt on the eve of the recession. The government had to come up with drastic measures like the bail out plan to save these companies from imminent collapse. This essay will illuminate the aspects of mergers and acquisitions prompted by business failures due to the 2008 economic.
Circumstances surrounding General Motors Bankruptcy
The manager of GM failed to file for bankruptcy early enough despite having witnessed souring labor costs, excess dealers, and the debts that the company had incurred as early as the year 2005. The manager argued that filing for bankruptcy would impact negatively on the buyers, the workers and the shareholders. The management seemed to be ill-prepared for the desperate moments in the economy. The September eleventh attack of the US by the terrorists added to the woes of GM by driving its incentives to the ground. This was occasioned by the response of GM to the victims when they offered zero percent financing on loans for a period of five years. This prompted financial implications associated with cash-back deals and low-rate financing.
The business failure that GM has undergone can be traced back to those days when they recalled the EV1 car model from the market. GM lost the market niche they had occupied in electric car manufacturing that was later occupied by Toyotas hybrid Prius. GM did err when they decided to sell their 51 percent holding in GMAC to Cerberus due the financial crunch it was going through. The failure of GM are partly due to their failure to heed Jerome York’s advice to develop a clean sheet of paper approach to business and the essence of time in the profitability of a business venture. Years after GM had acquired a 20 percent shareholding of FIAT an Italian auto company, the CEO of the company died. GM was never interested in buying FIAT and therefore unwittingly decided to pay FIAT to get out of the deal. This mistake has haunted GM to date. Other cause of GM failure is attributed to overreacting to the track boom.
Circumstances surrounding Chryslers Bankruptcy
Chrysler has over the years engaged in cost cutting decisions that seem to impact negatively on the cars. The huge amounts of money that were paid as consulting fee to Mercedes engineers and massive royalties paid by Chrysler on items they were supposedly forced to purchase, forced Chrysler to bankruptcy. Some of the causes to business failure are attributed to the management of the Chrysler misleading Daimler-Benz.
The GM bankruptcy forced the government to come up with bail out plan. Many people were opposed to the bail out plan as it was perceived that it will increase the taxes. The government reacted to this fear by engaging in domestic borrowing rather than increasing taxes. This is because increasing the taxes would have overburdened the tax payers. With the continued deteriorating performance of the company despite the all the effort given to it, the government being the leading shareholder in GM could have considered selling the company to the private companies. Total close down of GM would deny the government a lot of money in terms of revenue thereby rendering the government dysfunctional. GM and Chrysler being America’s largest auto industries, employ many people who work as engineers, sales people, marketers, and many others. When the company closes its doors, this would mean massive job losses occasioned by downsizing and job cuts.
Without a government bail out plan, the effects could have been devastating. Suppliers, dealers, design shops, and advertising agencies could have been greatly hit. This could have pushed the unemployment rate a notch higher. Failure of GM would mean scarcity of the spare parts of the vehicles. People from up country would have to move to the townships to purchase the spare parts. In case GM totally failed, its creditors were bound to suffer because the company owes a whopping 31 billion dollars in long-term debt and 34 million dollars in cash. Individual share holders may have lost a lot of money if the government did not come up with the bail out plan. Major shareholders can also possibly liaise with the management to fix the venture without bankruptcy. GM bankruptcy would have subjected the pensioners to untold suffering. The company is said to be paying out a total of 90 billion dollars in pension to its retired workers. The auto companies failures would mean that the warranty of any product you bought will be covered for by the government, the value of the cars are likely to fall due to un availability of the spare parts, the car dealers are also likely to close down their businesses.
List of References
Mergers, Acquisitions, and Corporate Restructurings 4th Edition. Web.
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