In the months leading up to 2009, news leaked that General Motors (GM) was pitching a merger to other Big Three automakers. Although they are famous cross-town rivals, GM, Ford, and Chrysler are facing a brutal common enemy: global economic crisis. As the companies struggled to survive the worst sales slump in decades, an unexpected meltdown in the U.S. mortgage industry spawned an international credit crisis, freezing cash flows worldwide. 

Unable to obtain money, and burning through $1 billion of its own reserves monthly, GM set out to find partners who might circle the wagons to stave off bankruptcy. Chairman Rick Wagoner and President Frederick Henderson met with Ford executives Alan Mulally and William Ford Jr. to propose merging their companies to survive the economic downturn. After numerous meetings, Mr. Mulally and Mr. Ford concluded that Ford Motor Company could reorganize better on its own. Not willing to give up on the idea, Wagoner took his pitch to Chrysler.

The past few years have been a moment of decision for GM. With the world’s top automaker inching close to a financial precipice, senior executives have begun making tough choices and seeking out innovative solutions to rescue the organization.

Of the many possible options for saving GM, a merger strategy is perhaps the boldest. First, a merger could solidify GM’s position as global sales leader over Japanese rival Toyota, which in recent years has challenged GM’s status as the world’s top automaker. Although its position as top automaker is not unimportant, the bigger problem is cash: GM doesn’t have any. The company reported losses of $18.7 billion in the first half of 2008, and the ensuing plunge of shares to their lowest levels since 1950 left the company valued at just $3 billion. Against that backdrop, Chrysler’s $11 billion cash horde looked especially inviting to Wagoner and his executive management teams.

Not surprisingly, analysts were divided about a merger option. Van Conway, a merger and acquisitions expert and partner at Conway & MacKenzie, cheered GM’s survival instinct. “You want to be the last man standing here because the car market is going to come back.” However, Erich Merkle, an analyst at the accounting firm Crowe Horwath, did not applaud the move. “If you put two auto companies together, both that are losing money, both that are losing market share, you’ve just got an auto company that’s losing market share faster and losing more money.” Management has other options for performing what amounts to emergency bypass surgery on the 100-year-old company. For example, in July 2008, Wagoner announced a plan to cut $10 billion in costs while raising $5 billion through asset sales through the end of 2009. Within months, the iconic Hummer brand was up for sale. Next followed a steady drumbeat of plant closings throughout the Midwest—even the company’s Detroit headquarters was rumored to be up for sale.

Among GM’s most difficult decisions has been what to do about skyrocketing labor costs. The United Auto Workers Union, once a symbol of workforce stability and fairness, has become a financial albatross around GM’s neck. GM spends as much as $1,635 on every vehicle sold to cover benefits for active and retired U.S. workers. In addition, with all compensation perks factored in, pay for GM workers adds up to $73 per hour. Toyota pays nothing for retirees and only $215 per vehicle to cover active-worker benefits. Management addressed the imbalance in 2006 by offering 126,000 employees as much as $140,000 to sever all ties with the company. The massive buyout was part of a fourpoint restructuring plan announced in 2005 to achieve $7 billion in cost reductions.

Yet of all the tricks GM has up its sleeve to manage its financial crisis, one option is reportedly off the table. In a written statement to the press, management acknowledged “unprecedented challenges” related to global financial markets. The statement firmly added, “But bankruptcy protection is not an option GM is considering. Bankruptcy would not be in the interests of our employees, stockholders, suppliers, or customers.”

Questions

1. What planning approaches and methods might GM adopt to help manage its turbulent environment and respond effectively to global economic crisis?

2. In what way does a merger solution to GM’s financial crisis represent strategic thinking and planning?

3. As GM’s managers continue making decisions that affect the company’s ultimate survival, what prevents them from making purely rational decisions, and what common decision-making errors must they guard against?