Understanding the scenario of Bankruptcy and Recovery
According to Becker, Davis and Murphy (2010) the prevailing recession is less severe as compare to the recession in 1973-1975 and 1981-1982. However the nations as well as corporations adopted pessimistic approach as compare to optimistic approach and the recovery seems too much slower. In 1982 although the unemployment rate reached to 10.8 even then the next year confirmed with the growth rate of 7.7. In recent scenario the GDP just grew by 2.2 even in the third quarter and it seems difficult to guard from the recession. The major reason for recession include bail-out programs due to which federal government has provided unlimited funds to assist financial institutions due to which most of the bankers and venture capitalist have lost confidence in them. Similarly household found an increase in home prices, overextended debts and an increase in unemployment. Another reason for recession highlight the role of Bush government which extensively aided companies like General Motors, Chrysler and banking sector however just after that Obama presidency has brought drastic changes in tax structure and government spending. They formulated a package of 800 billion to reduce the impact of recession but major portion was allocated towards education, energy and health sector. Tax rate was further increased on higher incomes which have discouraged investment in different businesses. One research shows that only 7 of the small and medium enterprises suppose to expand their business in the next few months. One research reveals that only 8 of SMEs provided job opening due to the effect of the recession. Investment has further decreased by 20 as compared to previous year. According to Michigan survey about 37 of the household has delayed their purchase decision because of recession and fear of uncertainty about job availability and income.
Target Inc
Target Corporation was founded in Minneapolis in 1902 by the name of Dayton Dry Goods Company. It opened its first store in Roseville in 1962. It is regarded as the second largest discount store in United States. It is positioned as 28 among the Fortune 500 companies. It deals in both hard lines and soft lines along with grocery stores. It has 351, 000 employees working in different countries for the business (Target 2009).
CIT Group
CIT which is an abbreviation for commercial investment trust operates in 50 different countries while providing its services to 30 different industries. It deals in corporate, trade, transportation and vendor financing businesses. It was established in 1908 and is one of the 500 fortune companies. The head office is in New York City and employees more than 7, 300 employees working in Asian and European countries specifically in North America. It provides its services to SMEs (small and medium enterprises) and medium markets. The business prime focus is towards the relationship, intellectual and financial capital (CIT 2009).
General Motors
According to General Motor (2009) the business is considered as one of the largest automobile manufacturer in the world. It was established in 1908 with its headquarter in Detroit. Today the business operates in 140 countries comprising of 235, 000 employees. It has manufacturing plants in 34 countries from where different brands are being sold worldwide. The major market lies in United States which is accompanied by China, Brazil, United Kingdom, Germany, Russia and Canada. The General Motor Company started its business of General Motor Corporation in July 2009. Previously General Motor Corporation was operating all business operations. The business opted for technological collaborations with Suzuki motors, Isuzu motors, Daimler, Toyota, Chrysler and BMV. It sold 8.35 million of products under the name of different brands in 2008. OnStar is it subsidiary which provides information related to vehicle security and safety.
Understanding the scenario of Bankruptcy and Recovery
Target Inc
Gregory (2009) acknowledged that economic downturn is one the major issue that had strained individuals to look for inexpensive products. Consumers search for merchandize products and foods items at suitable prices and Target Inc. is one of the options for them. However the company is faced with critical tribulations throughout its business operations. There are merchandizing companies which are even providing superior grocery products as compare to Target Inc. The annual revenue of Wal-Mart valued 406 billion against 65 billion of Target Inc. Even then the company has performed outclass with the growth rate of 4.6 as compare to 2.9 of Wal-Mart. In 2008 the company faced decrease in sales by 2.6 for consecutive 8 months due to recession. On the other hand Wal-Mart improved by 5.1. In 2008 its profit decreased by 22.3 and amounted 2.2 billion. Davidowitz and associates believes that it might be due to two major reasons. Target Inc. uses 45 of the in-store placement for apparels and allocates less than 20 of the area for its food and health products. ARG (Americas Research Group) found that customers associate Target Inc. with the apparel sector and believes that its grocery items are overcharged. Another issue is related to the credit business of the company. As in the recession consumers were faced with mortgages and credit-card debt issues due to which consumers were reluctant to use retail card. The company found a decrease in its credit-card business profit by 80.5 to 155 million. Furthermore the business incurred the pre-tax loss of 135 million during its fourth quarter and 47 of its receivables were sold to JP Morgan costing 3.6 billion otherwise the firm would have faced the worst situations. The company is struggling to recover by focusing on mounting frequency and building loyalty. The major step includes the opening of distribution center for fast moving goods which will improve the quality as well as profit margin. They have renovated their merchandize stores and decided to open 75 stores in new locations. In grocery items they are trying to emphasize on freshness of products. Thirvent Financial believes that the business requires uphill struggle and it will not have an immediate effect. Nonetheless it seems difficult for the company to manage both merchandize as well as grocery products same while. Moreover if the business tries to decrease its products prices then Wal-Mart will response in a much eager way.
Mitchell (2008) highlighted that the companys earnings dropped by 34 in the third quarter of 2008. Due to the economic recession the business is trying to change its product mix through expanding its grocery and drugstore section.
Duff (2009) explained that the firm restructured and laid-off 9 of its head office workforce. They also closed one of their distribution centers by name of Little Rock Arc which resulted into the loss of 500 jobs. The turmoil resulted into
The delay in salary promotion of senior management.
The company repurchased its stock.
More focus was given to enhance the productivity of stores while spending reduced by 1 billion.
They further decrease their operating expenses, expenditures on travel and entertainment.
Shareholders have also obliged the top management to evaluate their business operation specially related to credit business. According to Mr. Steinhafel the retail stores are faced with difficult economic indicators and the company opted to lay-off its employees in order to remain competitive in the market arena. The company has changed its strategy for advertisement and is mainly visualizing inexpensive brands and trying to communicate factors like in-store saving to its potential customers.
Zimmerman (2009) stated that the company is forced by activist shareholders who believe that the company might not be able to overcome the economic issues. The management has come up with the concept of mini groceries in its discount stores.
CIT Group
Harford (2009) stated that in United States alone major focus is towards health care sector or towards the dilemma of war and terror. However growth is being given no attention. An increase in stock market value made the majority to sense that either recession is over or is just going to end. However a major slump in last month November in the stock market resulted in an opinion that the economy is in the recovery stage. Just after that it was found that CIT group which provides financial services to SMEs (small and medium enterprises) including the apparel industry might be filed for bankruptcy. According to United Kingdom this is one of the major downfalls for United States. It would create the issue of financing for SMEs and taxpayers will fail to avail the 2.3 billion amount which CIT group got through TARP program. Moreover powerful economists believe that recession is still going on and it will further get deepen. One of the prize winning economist Mr. Stiglitz believes that the situation would have been worsen however it just got saved because of Obamas stimulus package. Furthermore experts believe that in the current year unemployment will further increase and public spending will further cut down on social programs. In addition, bail-out programs will further increase which has raised the question of would government still be assisting huge business or they will be providing direct aid to the working class to eradicate or lessen poverty. Chasan (2009) acknowledged that the business opted for the reorganizational plan and went to court for the approval. In this plan it has been highlighted that the business will reduce its debt of worth 10 billion. It was only possible because the company made bondholders agree on the minimum amount on the basis of bankruptcy law. In addition the business has been pressurized to solve the issue as it will create a negative impact for its potential competitors. According to BBC News (2009) the company case was the fifth largest one to be filed under bankruptcy. The company has decided to went through restructuring.
Times of India (2009) wrote that the only reason company got saved is only due to bail-out program in which it got an emergency loan of 4.5 billion dollars. However due to the prevalent home mortgage crisis the debt-exchange plan could be applicable for a longer term. It has received the major support from its debt-holders. The worst analysis reveals the comparison of 71 assets against the liability of 65 Billion. The business operates on the basis of confidence and trust which it has built for decades among its customers and prime creditors. Harrison (2009) acknowledged that it went through an agreement with Goldman Sachs in which it agreed to reduce the loan of 3 Billion to 2.13 billion. Carl Icahn has also provided a 1 billion for the purpose of backup financing. Obamas government is also under severe conditions as it has helped mammoth corporations leaving behind SMEs and if CIT group goes under similar situations as in the case of Lehman brothers then Obama politics might be considered as incompetent and they would again be concluding with the bail-out program with the same answer to the taxpayers that they again save the mega structure. Nonetheless if the business would have unfortunately gone to bankruptcy then the result would be a loss of tons of assets in terms of both political and financial perspectives. Indian Express (2009) described that major companies like General motors, WorldCom, Lehman Brothers, Washington Mutual and CIT which went through bankruptcy scenario were accompanied with worth of billions of dollars of assets and major weaknesses which ended into a mishap was due to management strategic decision making concept.
According to Reuters (2009) the stock price of CIT group drop by 61 to 28 cents and the New York Stock Exchange decided to hang up trading for the CIT business. Moreover recession would have a depressing affect and if the business face bankruptcy then there would be lots of layoffs and major businesses like non-recourse factoring, lending operating and asset-based loans will be facing the downturn.
General Motors
Stewart (2009) explained that General Motors was just to die during World War I when the demand for automobiles fell down and the only thing which rescued the business was emergency fund and going through the process restructuring. At that time JP Morgan and DuPont cooperated with the business and it just recovered outstandingly. The loans were repaid with bonuses and there was low financial risk. In 1980s the focus shifted from owner to the bureaucrat who were provided incentives as well as value. This took the turn and again the business was seen under crisis and they opted for the strategy of retirement benefits in order to keep the wages low. Moreover inadequate capital investment without understand and evaluating cost of equity showed negative consequences on value although they kept EPS high. Managers were just in the favor of spending as much as possible and recently they came across the mayhem. Would General Motors be able to recover from the economic downturn The company decided to layoff 120, 000 employees within a decade. Its market share reduced from 52 to 35. The North American Division faced the loss of 7.1 Billion in the previous year. Furthermore the business took loan of 5 billion to cover its operating expenses last year. In additional the company faced with critical issues in formulating the top-down style of management.
Jones (2009) enunciated that due to extensive curtailment the company was in the severe need for funds. President Bush aided with 13 billion for the restructuring plan. President Obama also focused on the bail-out programs towards General Motors. It further requested for 11.6 billion loan from Federal Reserve. Till 2010 the company has decided to shutdown 40 of its dealers operating in United States. According to Welch (2009) due to static credit market General Motors faced the economic downturn. The federal government took over the control and president Obama aided the business with 30.1 billion while favoring to restructure the business. Experts believe that the business has the potential to regain its competitive position along with profitability. The business has decided to use 4 brands instead of 8 brands to sell its cars comprising of Buick, GMC, Chevrolet and Cadillac. However all other brands will be liquidated while Pontiac will shut down The government has decided to hold 60 of the shares of the new company in order to absolve the issue however they have extended the loan of about 9 billion. Similarly the government of Canada will provide 9.5 billion loan and in return they will hold 12 of the shares of the company and the company has to pay back the loan of 1.7 billion. It stocks price is less than 1 billion and in order to achieve the sustainable level the stock price should increase to 69 billion. The business is trying to recover as much as they can. The business has decided to reduce health care expenditures for its employees and will provide medical benefits similar to pension funds. Due to recession the demand has decreased for trucks and the demand for SUV line seems increasing. The company faced the loss of about 15.5 billion i.e. 27.33 per share however the price of the share amounted 10.69.
Welch (2009) said that the General Motors recovery plan reveals that it will take two years for the business to come out from the impact and it will be able to pay the required amount back to the tax payers till 2014. These statistics were based on the figure that domestically car purchasing will increase to 18.3 million on annual basis till the year 2014. However Chrysler has forecasted that the overall sales will not increase more than 13 million till 2014 and if this situation arises then GM will not be able to pay to the tax payers and it will be requiring further aid of 30 billion. GM has further highlighted that its market share will reduce from 21.1 to 19.1 till 2014. It further acknowledged that if the stock markets conditions do not improve then the business will need further 12 billion to add in its pension fund till 2014 and more borrowing will result into decreasing the budget for new product development and formulating marketing plans. Stoll, Terlep and Kellogg (2009) instigated that GM had decided to sell its Saturn brand till 2011 and 47, 000 employees will be laid-off leaving with 200, 000 employees worldwide.
After going through brief analyses it can be concluded that government intervention plays a prime role in case of bankruptcy. It requires strategic decision making and companies need to restructure their entire business functions. Moreover it might take a decade to recover and achieve the similar position as it was previously therefore it requires consistency along with proper management throughout the operations. Companies in developed economies have understood the importance of risk management. The primary concern for global corporations and MNCs include risk evaluation, developing contingency plans, reducing cost on continuous basis, focusing on core business operations and understanding uncertainty factors in the long run.
According to BCG as well as McKinsey all major industries were affected due to the recession in the year 2000 and only 10 were able to achieve the successful position after 5 years. Furthermore 15 of todays leading companies were also performing astonishingly during recession. It has been found that major companies like Proctor and Gamble, General Electric and Kellogg surpassed leaders and became benchmark for other. They even established value-for-money strategies during depression and focused on building long term customer relationship. For global corporation the alternative during recession should be to gain an insight of emerging industries in which they can perform cost effectively (Williamson and Zeng 2009).
Categories:
0 comments:
Post a Comment