High Operating Leverage at General Motors (GM)
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Did GM (General Motors) suffered from a "high operating leverage" problem? If so, how should it have been corrected? What role did retirement benefits play?
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Solution Summary
This solution of 450 words discusses high operating leverage and recommendations on how to correct it using the General Motors case study. It also looks at how retirement benefits worked.
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High operating leverage is in essence the impact of sales on an organization's net operating income, which is income before taxes or interest paid on any accrued debt. The problem with high operating leverage is that it acts as a multiplier within an organization. In other terms, a small decrease in sales results in a multiplied decrease in net operating income. It can also go the other way; a small increase in sales can translate into a high net operating income.
General motors has a clearly defined market for it's products, i.e. a market segment highly sensitive to price. Their strategy depends on selling quantity in order to create profit. As there was a slow down in the ...
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