GM, Financial Crisis Roundup 2008

We’ve experienced a lot in the past year with the economy including record job losses across diversified industries, record foreclosures, record lows in demand especially in expensive goods such as cars, the near collapse of the world credit financial systems, bankruptcies, you name it…we saw it.

It was certainly a historical, yet very interesting year. One of the most interesting and controversial industries we all watched was without a doubt the auto-sector, with the near collapse of GM, Chrysler, and Ford which would have caused irreparable economic dislocation, I know, tuff words, but it’s the truth.

A lot has happened, so in this article, I chronologically highlight significant events related to GM in 2008. I also provide some insight into other significant events that occurred in 2008 and a bit of 2007 in the financial world. You can also read my thoughts on bailing GM out here. I also provide my thoughts as to why the financial crisis started at the end of the post, my complete article can be found here.

Significant Financial Events in 2008—————————————-

December 22 2008
GM CAW Boss said today the union might have to take wages and benefit cuts

December 19 2008
Russia Unveils Plan to Help Its Automakers
September 2008
Lehman Goes Bankrupt

September 2008
AIG Rescued by US Fed

October 24 2008
Merrill Lynch Reports $8.40020billion Loss

October 2008
Greece, Ireland, and Germany guarantee all deposits (Germany only retail). UK raises insurance to GPB 50,000 on all accounts

June 2008
Lehman Announces $3B Loss

March 14 2008
US Fed Gives Bear Stearns Emergency Loan to Avoid Bankruptcy

March 16 2008
J.P. Morgan Chase Acquires Bear Stearns for only $2 per share (book value $80)

February 2007
HSBC Writes Down Household International Acquisition

June 2007
Bear Stearns Subprime Hedge Fund Fails

September 2007
British Northern Rock Bank Experiences Run, British Fed Nationalizes Bank

Significant Events Surrounding GM in 2008—————————————-

December 19 2008
Canada Announces $2.8B Auto-Sector Bailout

December 19 2008
Bush Approves $17.4B Automaker Bailout

December 18 2008
GM introduces new 2.4L injection EcoTec 4 cylinder with 180HP EPA highway 30mpg; this would enable all 2009 GM vehicles to save 700M gallons of fuel over the vehicles life compared to 2008 models.

December 17 2008
GM vows to bring to market the Chevy Volt with or without a bailout by 2010

December 17 2008
GM stops construction of a factory in Michigan that is set to make the 1.4L engines for the Cruze and Volt as it awaits a bailout

December 13 2008
Canada Announces $2.8B Auto Bail Out if US Goes First

December 13 2008
GM Vice Chairman Bob Lutz says “it’s really much better to have fewer brands, do it well and then market the hell out of them,”

December 13 2008
Canada Announces $2.8B Auto Bail Out if US Goes First

December 12 2008
GM to cut production by 250,000 cars in 2009

December 11 2008
GM hired bankruptcy advisors to evaluate going into bankruptcy

December 10 2008
GMAC Fails to Meet Conditions to Convert to Bank

December 9 2008
$14B Big 3 Auto Bailout Fails in US Congress Vote

December 5 2008
GM November sales fall 41%

December 5 2008
GM Announces 2,000 New Layoffs

December 4 2008
GM Seeks Aid from CAW to reduce labour costs, CAW says it can’t do anything

December 01 2008
CNN/Opinion Research Corp survey shows 61% appose auto bailout, 70% said a bailout is unfair to taxpayers

November 24 2008
GM ends Tiger Woods endorsement. Woods endorsed GM since 2000 at a reported cost of about $7 million per year

November 21 2008
GM returns two leased jets

November 20 2008
GM affirms Saab will continue operations in US because it is profitable, despite 31% decline in sales in the first 10 months of 08

November 17 2008
GM to sell $230 million Suzuki Stak

November 13 2008
Obama Wants $50B Auto Bailout

November 11 2008
GM Stock price Hits 65 Year Low $2.76 on the NYSE

November 10 2008
GM (owns 49% of GMAC) says GMAC could fail because of the credit and mortgage markets

November 6 2008
GM Tightens Restrictions on GMAC, Hurts Dealers

October 29 2008
GM Global Sales Drop 11% in Q3 or 2.11 Million Cars

October 22 2008
GM considers selling ACDelco

October 16 2008
GM announces 1,600 job cuts at 3 factories, announces it will close Michigan plant and will cut 1,340 jobs

October 11 2008
GM and Chrysler Hold Merger Talks

October 11 2008
GM stops employee stock purchases from 401(k) programs because the common stock was so low, it increased demand in the stock hence exhausting outstanding shares according to an SEC filing

October 10 2008
GM announced the recall of 17,301 MY2004 Cadillac SRX crossovers because of a glitch with the automatic transmission system which could automatically shift the car from “Park” when the vehicle isn`t even on

September 24 2008
GM Dealership Count (as of Sept 1 08): Chevrolet: 3,786. Pontiac: 1,083 GMC: 289. Buick: 557. Saturn: 404. Cadillac: 301. Saab: 106

September 22 2008
GM pulls all ads from Super Bowl. 30 seconds would have cost GM $3 million

August 29 2008
GM recalls 944,000 cars and trucks because of a problem with the windshield wiper fluid system that could cause a fire

May 14 2008
GM stops benefits for striking UAW workers

How did the financial crisis start?

Here is a simple roundup of how the financial crisis started. Feel free to read my full post of how the financial crisis started here.

- Banks started offering sub-prime mortgages to people who would otherwise not qualify for a loan.
- People took the loans because they were mislead and believed house prices would continue to increase in which case they would renegotiate the loans (see the graph below on US house prices)
- Banks grouped mortgages into Mortgage Backed Securities (MBS)
- Banks converted mortgages into MBS because MBS only require 1.6% of capital, compared to 4% to hold a mortgage
- MBS bought by investment banks who converted them into new securities called Collateralized Debt Obligations (CDO) which were later sold
- Initial consumer mortgages had initial 2 year discounted rates, then the rates would skyrocket, people then could not afford their homes
- The CDOs then failed, everyone lost their positions

US House Prices

Source: Nomura

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Hercules holds a B.Comm Finance from Ryerson University in Toronto, Canada. He is a Chartered Financial Analyst (CFA) level 3 candidate. He was previously a contributor at FiLife, a finance website owned by Dow Jones and IAC. Write to hercules@business2press.com
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  • http://obruo.com/ Shadus

    I’d rather see the auto sector bailed out during the current economic conditions we’re in than see the banks bailed out. The auto sector bailout cost less than 2 months of our ongoing wars. Less than 1/35th the bank bailout and saved many more jobs in the process. The bank bailout did *nothing*.

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