The Financial Collapse of General Motors Essay Example | Topics and Well Written Essays - 1000 words - 1

The Financial Collapse of General Motors - Essay Example Gm which has funded approximately $103billion towards employee-related obligations proved to be a disadvantage for the company. Not only legacy cost but also due to its poor business strategy. It relied on its old mode of thinking which resisted the offering, and manufacturing capacity. The business suffered decline where its market share fell from 45% to 22%. In addition, the deteriorating strength of the economy and the loss of purchasing power of its consumers resulted in bankruptcy for GM (Estrada, 2011). In 2009, GM announced that the cash reserves amounted to $14billion after losing $30.9billion in 2008. Thus GM was filed bankrupt and its assets were sold off to the new government-owned organization (The New York Times, 2010). It can be said that managerial finance was not applied by GM because if the financial manager would have made proper decisions with respect to cash flows and how much and the type of equity and debt to be used in order to finance the firm. Lack of proper managerial finance led GM to a debt of about $172.8billion as compare to it’s assess which was $82.3 at the time of bankruptcy petition (The New York Times, 2010). The economic impact with respect to the collapse of the auto industry has resulted to be dramatic. As per a survey conducted by Planning Perspectives Inc, reported that about 68% of the participants revealed that companies would downsize if GM declared bankruptcy, 12% of the respondent said that the business would likely to shut down. It was aid that if GM goes into bankruptcy business across the globe would be affected severely. As per the economic downturn, the American, during the financial crises bought few new cars. The collapse of any of the key players in the automotive industry had predicted a troubled economy. Almost about one-third of the suppliers of the automobile industry was deemed at the risk of bankruptcy  (Gray, 2008). The auto industry is an important employer and there are many related industries attached to it. The effect would not result in the collapse of the single company, not just America but all of Europe and Japan also.