PREPARED BY: Group II Zun Pwint Kyu Kim Jae Chol Kyu Jong Park Emmy

CONTENTS
1 2 3 4 5

OVERVIEW OF FINANCIAL CRISIS THE CANOPY ECONOMY EXAMPLES GM CASES

DISCUSSION

OVERVIEW OF FINANCIAL CRISIS

The 2008 Financial crisis was the worst global economic setback since the Great Depression.
10

million Americans have spent more than six months out of work Two million have been unemployed for more than two years Three million people to be registered as long term unemployed in UK.

OVERVIEW OF FINANCIAL CRISIS

People lose their selfconfidence Skills deteriorated Long term unemployment is morale- breaking
Homeless people rapidly grew

Local governments have cut essential services including public safety and education

OVERVIEW OF FINANCIAL CRISIS

However not everyone suffered over the last decade;
American CEOs
The Financial sectors Energy Sector Lobbyists

And children of wealthy families were living safe and sound.

For example:
Americas four largest oil companies have gained $300 billion excess profits.

The average annual salary of New York Banker earn $390,000 annually.

OVERVIEW OF FINANCIAL CRISIS

Energy, military, telecommunication and processed food industry The financial services Legal, accounting and medical professions

Several unions

Politically powerful interest groups have ability to block reforms

THE CANOPY ECONOMY

DEFINITION: Canopy ecosystems are worlds of flora and fauna that occur at the tops of very tall trees and exist largely apart from the multiple bio systems beneath them. They get the best access of sunlight, but in doing so they block the sun from reaching everything below.

THE CANOPY ECONOMY

Companies are wallowing in cash, but average workers dont have money to spend. Investment decisions, wage rates and government policies are determined largely by people in canopy economy.

CONSEQUENCE OF CANOPY

The well run , successful companies are indeed investing not in people, and not at home. CEOs see far better opportunity in

The extreme wealth was gained not through superior productivity, but via

EXAMPLES:
GE, Boeing, Caterpillar, Ford, GM and Apple

now have on average, about 60%of their sales overseas. Finally it created the financial oligarchy get so amazingly rich particularly during the crisis period. Consequently the new power structure that rules America and lead the world to financial tsunami.

EXAMPLES:

Caterpillar: the heavy equipment manufacturer Caterpillars recent major acquisitions and investments are in China, India and Brazil.

Apple: there are 70 000 employees worldwide including its retail stores. But the largest supplier, Foxconn, a Taiwanese Company, has 1.3 million employees.

GM, Ford and IBM have the same profile. $ 2trillion in cash sitting on American corporate balance sheet, about $ 1 trillion is actually parked overseas

Case study: General Motors Bankruptcy

Historical Circumstances
General Motors Company is one of the biggest companies of current automotive industry. GM was founded by William Durand in 1908 (General Motors, 2012a), so it is a company with history longer than 100 years, which nowadays employs more than 202 000 people in 158 facilities within all the continents.

The head office is located in Renaissance Center in Detroit, Michigan, for more details about GM see General Motors (2012b).

On June 1, 2009 General Motors Corporation (old GM) announced its bankruptcy under Chapter 11 and was subsequently reorganized into its descendant, officially named as General Motors Company (new GM).

EXAMPLES: General Motors Bankruptcy

Reasons of Failure
Improper corporate governance rules set by GM.

External influences that affected GMs production after 2000.

The corporate culture (Mentioned by Canis et al.2010)

The company was managed like an institution. It was highly risk-averse, chronically slow to change, endlessly bureaucratic, and contemptuous of competition. General Motors was losing its positions on all important markets relatively to other automakers. In U.S., traditionally known as the core market, GM was selling less and less cars even since 2000 (The New York Times, 2009) and lost one third of its position, covering 28,1% share in 2000 and only 19,8% in 2009.

EXAMPLES: General Motors Bankruptcy

Reasons of Failure
The element of labour costs and connected expenses as health care insurance and pension funds, motivation programmes and other benefits paid to employees.

The extent of these costs was unsustainable in long term, the estimated loss during years 2004 2007 caused by lay of motivation could have reached $50 billion. It is more than the profit of GM during 90s.

The average time it took to GM to assemble a car was 46 hours, Ford needed 38 hours, while Toyota only 29 hours. The extra costs connected with health and pension insurance added to the cost of every car made in U.S. are quantified to be around $1500 (Canis et al. 2010).

GM was unable to rival neither the quality nor the efficiency of other market players, Toyota.

EXAMPLES: General Motors Bankruptcy

Other reasons of GMs failure are of an external character.

The car made by GM are traditionally not of those with low gasoline consumption.

It is example of rigidity of GM and unwillingness to accept new trends and to respond to market needs. 2008 Macroeconomic development after the crisis squeezed the demand for new car.

EXAMPLES: General MotorsBankruptcy

Reasons of Failure
Profit and loss statement tells us that the total sales were lowering each year until the bankruptcy in 2009 (see Graph 2). GM was not profitable since year 2004 and the period of continuing losses caused that GM was running at the end of 2008 out of cash. The only possibility how to solve this was declaring bankruptcy and bailout by U.S. Government via the TARP program.

EXAMPLES: General Motors

Bankruptcy
General Motors Corporation finished its history came in 2009. On June 1, 2009 GM filed Chapter 11.

Declaring a debt of $172 bil. : Asset $82 bil.

Obamas presidency agreed on providing financial help, which in the end reached $50 bil.

From todays point of view this legal action could be assessed as successful. GM is producing cars making a profit again trying to get rid of the features that (at least partly) caused its bankruptcy.

EXAMPLES: General Motors Bankruptcy

IPO and Recent Development
New General Motors Company to be relisted on stock exchange. This happened on November 18, 2010. The price of shares was set at the top of the pricing range at $33 per share. Since the IPO, GM stocks lost approximately 20%,

Trade around $26 per share, on 2012 Feb see Graph 3.

EXAMPLES: General Motors Bankruptcy

IPO and Recent Development
U.S. government is now playing a double role in the relationship to GM - as a shareholder and as a main regulator. GM is sometimes named as Governmental Motors. During the process of restructuring; 4 members of the board out of 11 were named by U.S. government4. Saab brand was sold to China count partner by government improvement. After the bankruptcy of GM not only members of board have been replaced. GMs future development was to be reassessed the approach to corporate governance. Aims General Motors Company are to produce environmental more friendly cars Chevrolet Volt more fuel efficient cars and to reduce labour costs GM whole company made made leaner and smaller. Employment was decreased from 91 000 U.S. employees in 2008 to 75 000 13 out of 47 U.S plants closed.

EXAMPLES: General Motors Bankruptcy

Remark
It is question. The on-going procedures will be sufficient to get back the lost positions of GM.

What we know is that the process of restructuring is not finished yet, but by now it can be labelled as successful, most important steps is to eliminate inefficiencies.

Questionable is the position of U.S. government, which should fulfil its declaration and divest itself GMs shares as soon as possible.

Need to meet market demand and environmental friendly car development.