General Motors Problems

http://www.moneysense.ca/news/headline_news/shownews.jsp?content=b101793A

GM's Problem

From a business standpoint GM's deal with the UAW union seems to be great new for its stockholder because it cuts their health care cost and give the company more cash. However, in the long term this could hurt the company because it upset the workers and makes the company a less attractive place to work. Anytime a company cuts their benefits or compensation their employees, their workers are not focused on doing their jobs therefore lower efficiency, therefore a lower quality product which leads to less profits. GM has been known to have the best benefits of most companies in America and if its decides to slash those benefits how do they attract the best and the brightest of America's work force.

Suggested Alternatives

The reason why GM has been downgraded to junk bond status because the the proceeds from the bonds sales used to finance the car operations has been losing money because the capital structure to build those products are inefficient. I would invest money on increasing the efficiency of the car making process. If that was not possible I would retrain their workforce to produce better selling products instead laying off workers and slashing the workers that stay their benefits. Despite their woes the company has been making a lot of money on their financing arm of the General Motors Acceptance Corp.,which earned $675 million in the third quarter, up from $620 million. At this time GM wants some to buy a piece of GMAC in order to improve the bond rating for the company. If I was CEO, I would use the profitability of the financing arm to reduce the level of debt buying back bonds therefore lowering debt, interest payments and therefore lower the risk and therefore increase the possibility of upgrade on the bond rating.