Auto Industry On June 1, Thesis

Length: 8 pages Sources: 10 Subject: Economics Type: Thesis Paper: #85926476 Related Topics: Automotive Industry, Automotive, Pension Plan, General Motors
Excerpt from Thesis :

The other important function of the plan was to shift responsibility for the pension obligations from the company to the United Auto Workers. While smaller creditors and contractual partners need not be satisfied with the reorganization, it is difficult to believe that the reorganization could have been done with the cooperation of the UAW. It would not have been politically expedient for the federal government to become involved and without their involvement the judge would have had had the option of the 363 asset sale. In accepting responsibility for the pension, the union has lifted a major portion of the liabilities from General Motors. In addition, a deal reached before the filing adjusted some of the work rules, ended bonuses and froze wages, all of which combined to save GM $1.2-1.3 billion per year. Combined with plant closures, the moves are expected to bring GM's labor costs more in line with those of its competitors. This will eliminate a major competitive disadvantage. The cost to the company is a significant UAW ownership stake and a union seat on the board (Strumpf, 2009).

It should be noted that the unique structure of automakers' operations stretches the impacts of the Chapter 11 reorganization's internationally. General Motors and Ford in particular have a significant amount of their production capacity in Canada. The Canadian government, therefore, needed to become involved in the Chapter 11 process. The Canadian Auto Workers, however, did not have the same involvement as the UAW in large part because the health care liabilities to pensioners are dramatically lower in Canada due to the socialized medical system. It is highly unusual for one federal government to become heavily involved in a Chapter 11 case, let along two governments, which makes the case of the automakers unique.


In theory the automakers have utilized Chapter 11 to free themselves from the majority of their liabilities. Without these liabilities on their balance sheets, and other burdensome contracts that were left behind during the course of the bankruptcy proceedings, the automakers are theoretically better equipped to compete with their rivals. The cost of goods sold will be significantly lower, since not only with the average hourly labor cost be lower but so will the average number of hours per vehicle.

By altering the underlying financial situation of the automakers, the focus can be shifted towards improving the operations side of the business. With the less efficient plants and product lines jettisoned, General Motors expects at this point to only have four lines of product. They will be able to better focus on meeting customer needs, the lack thereof in the past has contributed to the dire financial situation in which they found themselves.


Chapter 11 bankruptcy allows for insolvent companies to reorganize themselves in order to satisfy their creditors and relieve their debt burdens. If there is reason to believe that the company will otherwise fail, Section 363 can be utilized in order to allow the company to sell its assets, if there is a willing buyer. Two automakers, General Motors and Chrysler, filed for Chapter 11 protection in order to restructure their operations and balance sheets.

At GM, the company was able to cut unproductive assets, renegotiate union contracts and transfer its good assets to a new GM company backed by the federal government. The most significant of its legacy liabilities was its pension obligations, particularly...


These obligations were transferred to the United Auto Workers in exchange for an ownership stake in the new company. Some other major creditors also received a stake.

The reorganization served some key functions, such as lower labor costs and dramatically improving the firm's balance sheet. What it did not do was address some of the other strategic and competitive issues facing the automakers. The hope is that by restructuring, these firms will be better able to respond to the challenges in today's competitive environment, allowing for their long-term survival.

Works Cited:

King, Jr., N. & Terlep, S. (2009). GM collapses into government's arms. Wall Street Journal. Retrieved November 1, 2009 from

CBS. (2009). GM gets green light to exit bankruptcy. CBS. Retrieved November 1, 2009 from

US Courts (2009). Chapter 11: Reorganization under the bankruptcy code. U.S. Retrieved November 1, 2009 from

Cornell University. (no date). U.S. code collection: § 363. Use, sale or lease of property. Cornell University Law School. Retrieved November 1, 2009 from

Morath, E. (2009). Pornography and section 363. Wall Street Journal. Retrieved November 1, 2009 from

Taylor, R. (2009). The decline and fall of General Motors. Suite101. Retrieved November 1, 2009 from

MSN Moneycentral: Various pages. (2009). Retrieved November 1, 2009 from

Wharton School. (2008). Behind the curve: Have U.S. automakers built the wrong cars are the wrong time -- again? Knowledge @ Wharton. Retrieved November 1, 2009 from

Koenig, B. (2009). UAW chief faces Reuther legacy, "crashing" industry. Bloomberg. Retrieved November 1, 2009 from

Grossman, a. (2008). Automakers needs bankruptcy, not bailout. Heritage Foundation. Retrieved November 1, 2009 from

General Motors 2008 Form 10-K. Retrieved November 1, 2009 from

US Bankruptcy Court. (2009). Chapter 11 Case No. 09-50026. Retrieved November 1, 2009 from

Strumpf, D. (2009). What GM's Chapter 11 filing means. Retrieved November 1, 2009 from

Sources Used in Documents:

Works Cited:

King, Jr., N. & Terlep, S. (2009). GM collapses into government's arms. Wall Street Journal. Retrieved November 1, 2009 from

CBS. (2009). GM gets green light to exit bankruptcy. CBS. Retrieved November 1, 2009 from

US Courts (2009). Chapter 11: Reorganization under the bankruptcy code. U.S. Retrieved November 1, 2009 from

Cornell University. (no date). U.S. code collection: § 363. Use, sale or lease of property. Cornell University Law School. Retrieved November 1, 2009 from

Cite this Document:

"Auto Industry On June 1 " (2009, October 31) Retrieved June 21, 2021, from

"Auto Industry On June 1 " 31 October 2009. Web.21 June. 2021. <>

"Auto Industry On June 1 ", 31 October 2009, Accessed.21 June. 2021,

Related Documents
Auto and Light Truck Sales
Words: 1786 Length: 5 Pages Topic: Transportation Paper #: 2362870

These different elements are important because they highlight the real reason as to why the industry saw such a long-term decline take place. To rectify the situation, it is recommended that the entire industry aggressively begin selling as many hybrid vehicles as possible. This is important because the article the Potential of Hybrid and Diesel Powertrains, indicates that the company / companies that are able to have their entire

Analyzing Industry and Firm Analysis
Words: 3126 Length: 6 Pages Topic: Sports - College Paper #: 33056499

Industry and Firm Analysis Bennett, J. (2016). Fiat Chrysler to Build Parts Distribution Center in Virginia. Wall Street Journal. Retrieved 25 May 2016 from: Fiat Chrysler Automobiles NV is investing $12.2 million to build a new distribution center in Virginia amid growing demand for parts used by its dealerships to both repair and customize its vehicles. The 400,000-square-foot Mopar distribution center, located in Winchester, will employ about 70 people and ship more

American Automotive Industry and Porter's
Words: 3581 Length: 10 Pages Topic: Transportation Paper #: 13403136

4). 2.4 Effects of Environment: Concerns related to carbon emission were heightened in mid-2000s and in 2007 Al-Gore in his book 'An inconvenient Truth' condemned the big three saying "They keep trying to sell large, inefficient gas-guzzlers even though fewer and fewer people are buying them." In comparison to other developed countries in Europe and Asia, American standard for distance covered in one U.S. gallon was only 25 mpg (miles per gallon).

Tarp and American Auto Companies
Words: 2747 Length: 8 Pages Topic: Economics Paper #: 73839289

Yet, today, they sell only about 47% and this market share loss has accelerated over the past decade (Sullivan, 2008). The major issue, according to Sullivan, is the inability of the Big Three to effectively compete with their more efficient and market savvy Japanese rivals, even on their home turf. Opponents of the auto industry bailout feel that placing more money into a failed business strategy makes no sense

Automobile Industry
Words: 2275 Length: 6 Pages Topic: Transportation Paper #: 30915114

Automobile Industry "the foreign market has surpassed quality over the U.S. Automobile Industry" The automobile industry is one of the biggest manufacturing industries of the 20th century and puts a severe impact on the economy of the nation. In Japan, a largest auto manufacturer of the world, the expression 10% industry is frequently used which indicates that the auto industry is involved in 10% of the total employment. As automobiles comprises of

Growth of Korean Automobile Industry in America Trade Relations
Words: 2964 Length: 10 Pages Topic: Transportation Paper #: 48661088

growth of the Korean automobile industry in the Unites States from a trade and finance perspective. Use eight sources of information. Korean Auto Industry Red To begin an investigation into the Korean automobile industry, we first have to start with some basic facts about the Korean Passenger car Industry. The South Korean auto industry is the second largest in Asia and has been one of the key growth industries, along with construction, shipping