What Are the Causes of General Motors' Problems?
A variety of issues contributed to the financial troubles experienced by automaker General Motors in the 2000s, each playing a part in the eventual collapse and rebuilding of the once powerful car manufacturing company. Through taxpayer assistance, GM eventually experienced a financial comeback, posting record breaking profits in the year 2011.
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Skyrocketing Fuel Prices
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Based on an article published by Uncommon Thought in 2005, one of the biggest concerns relating to the day to day operations of General Motors was the increasingly erratic cost of fuel. Because GM relies on a steady supply of fuel for transportation of their vehicles and vehicle parts, high gas prices caused a significant reduction in General Motor's profits,resulting in cutbacks wherever possible. While cutbacks in staff, advertising and operations presented a temporary solution to GM's budget, their long term affects were harmful to the company, resulting in reduced quality, reduced sales and a sharp decline in GM stock.
Foreign Competition
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According to a report published by Bloomberg Business Week in 2005, another issue that was directly contributing to problems at General Motors at that time had to do with the company's inability to compete with its foreign competition. With foreign automakers manufacturing and selling vehicles at prices far less than GM could afford to, budget conscious consumers turned to foreign autos as a means to save money. Because of the economic issues General Motors was facing, the company simply could not lower their prices enough to compete without creating economic hardship to its employees and investors.
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Cost of Operations
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The cost of operations also played a large part in the problems faced by General Motors. Already facing economic hurdles, governmental demands for tougher fuel standards posed an increased risk of economic hardship, forcing the company to spend money it did not have to redesign and improve its fuel models. According to an article published by Economist's View, in as early as 2006, General Motors management was in heated negotiations with union representatives from United Auto Workers (UAW) over high wage and benefit demands for its workers. Salary increases and the cost of benefits for GM workers caused the already struggling company to spend money it simply could not afford.
Economic Influences
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Of all of the issues that contributed to the problems at GM, one of the largest contributing factors was a lack of consumer spending. The high rate of foreclosures and job losses in the United States, which began reaching crisis levels in the year 2006, resulted in a reduced level of spending on luxury items including new cars. Despite General Motor's best efforts to lower prices and offer buying incentives in a bid to draw consumers, the reduction in sales proved too much for the automotive manufacturing company to bare, leading to its eventual bankruptcy in 2009.
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