Real World Event Case Study: The Financial Collapse of General Motors - Essay Example

But with the fall of financial industry in 2007, things got worst across all the financial industries in America, including the automobile industry. GM declined in the late 20th century as it failed to adapt to the changing business environment and respond to an increasingly competition from abroad. Gm which has funded approximately $103billion towards employee related obligations proved to be 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 leaded 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). Question 2 How has this event impacted the economy as a whole? 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 auto motive industry had predicted a troubled economy. Almost about one third of the suppliers of the automobile industry were 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. By the end of 2004, GM has lost nearly $4.2billion and almost $73billion by the end of the year and thus the US government with respect to GM had adopted policies and took actions in order to prevent worst economic scenario. Collapse of GM had cost the US government as much as about $200 million with respect to unemployment cost of reviving the economy and other factors (Ujikane and Yamamura, 2008).

Question 3 How does this event tie into the chapters that have been assigned so far? Please give at least three examples. The financial collapse of the giant company, general Motors can be well tied up with the concept of managerial finance. Managerial finance is concerned about the duties of manger in the organization or business. The breakdown of GM was also mainly due to lack of managerial output. GM did not confront the financial problems that the company encountered; the executives did ignore the signals of future financial crises which ultimately led to bankruptcy. It was