What's Bad for General Motors?

“What is good for General Motors is good for the country” (Crumm, 2010, p. 1). At one time General Motors (GM) represented the standard by which all corporations in America could judge their standing in the world. For many decades General Motors was the biggest or among the biggest revenue-earning companies in the world. By 2009, the automotive giant was one of many conglomerates unable to

weather the economic collapse that sent the entire American economy to the brink of collapse. What were the factors behind both the rise of General Motors to dominance in a notoriously competitive industry and what factors led to their Chapter 11 bankruptcy filing in 2009?

The rise of General Motors begins with its earliest status as a holding company in 1908 headed by William C. Durant in 1908 (Bonbright & Means, 1932, p. 84). Over the next few years in early heyday of the rush to establish what would become known as the American automobile industry, Durant would give the term holding company a new definition and in the process sharply define the future shape that General Motors would take as he began collecting small automobile companies that included such soon-to-be-famous names Cadillac and Oldsmobile as well as a less famous company called Oakland that would transform into the equally famous Pontiac (Schweikart & Doti, 2010, p. 270).

The foundation by which General Motors achieved unparalleled success not just in its own industry, but as a worldwide global player was consolidation. The consolidation of small companies eager to be bought and merged into the fabric of a much larger tapestry also extended beyond automotive manufacturing and directly impacted their earnings and revenue growth. In the years following the end of World War II, General Motors moved to forefront of transforming the American public transportation infrastructure by through consolidation of the electrical streetcar industry. What may be seen as transformation for some because devastation for others as this consolidation was done for the sole purpose of dismantling the streetcar systems in major cities as a way to force residents to utilize their replacement: buses manufactured by General Motors (Cudahy, 1990, p. 188).

In addition to such aggressive measures to force the utilization of GM products, the great success of the company can also be at least partially laid at the feet of fighting union demands at every stop along the way and then becoming one of the leaders in the brave new world of outsourcing labor to cheaper market.

The development of a strategy that was based on consolidation and aggressive anti-competitive behavior was the hallmark that underlined the growth of General Motors throughout both the high points and low points of its history. General Motors created a timeline in which they essentially positioned themselves as the very antithesis of the model that the famous quote about being good for the country strove for. As the largest income and revenue producer on the block, General Motors became the model for running a large corporation and as such created a mythology that new companies attempted to follow. The corporate culture at GM put the profit motive above every other consideration—including the very safety of its own customers (Bouza, 1996, p. 34). The replication of this model by competitors and even their own workers would inevitably lead the company’s downfall.

Consolidation would be also become one factor that led to the economic collapse of General Motors. The most memorable quotes from the economic devastation of 2008 that led to the rush of bankruptcies in 2009 was “too big to fail.” The targets of this quote were for the most part relegated to the banking and financial industry, but in terms of historical overreach, many of them were minor league players when compared to the Babe Ruth of GM. The need to file for bankruptcy in order to save General Motors from the very same potential road to ruin of financial giant that failed to save themselves can in large part be blamed up such statistics as a product portfolio nearing 100 different cars (More, 2009). The concept of General Motors simply being too big to take care of itself only begins at the level of too many cars. The corporation also had to deal with a bureaucratic mess of various divisions within the company and subdivisions within those divisions.

One of the most interesting elements at play in the bankruptcy filing of General Motors is the awareness of the ungainly size that the company had grown to. The bloated sense of being out of control led to negotiations to eliminate some of the brand and products that were weighing too heavily on the company’s ability to sustain growth (Goussak, Webber, & Ser, 2012). The cost of delivering vehicles began to rise rapidly in the late 1990s and through the 2000s and the costs combined with the diminishing number of retail outlets at which General Motors could sell their products created an untenable economic situation for all American automobile manufacturers that could not be easily solved (Crumm, 2010, p. 169).

Paradoxically, the very same issue of worker pay can be forwarded a prime element at play in the downfall of the company and its need to file for bankruptcy in 2009. When the company cannot be competitive in the realm of wages, the stimulus is to cut corners everywhere it can. And, coming as no surprise the only mean of achieving success in the wake of the bankruptcy is to stage the same drama over wages once again since “lower salaries and efficiency gains, along with less debt, have helped make Detroit more globally competitive” (“Falling Wages at Factories,” 2014)

One of the core factors contributing to the revenue problems experienced by General Motors through the first decade of the 21st century was that it had nothing to replace the income lost by customers shifting to lower priced cars that did not guzzle up the gasoline of its big sellers in the SUV category. Such an offset in the loss of revenue had a natural safety net throughout much of the long history of the company in the form of its subsidiary for financing the sales of vehicles. GMAC had long been a huge revenue producer for the company, but in the wake of a need for ready cash in 2006, the decision was made to sell off the financing arm. At the time, the cash was more than a necessity so failing the arrival of the economic collapse of 2008, the decision could possibly have come to be seen entirely as wise. In the wake of the collapse, however, the decision to sell off GMAC unquestionably lost any scent of economic sense “In an effort to reduce its debt, GM had made a decision to sell 51% of GMAC in 2006 as well as portions of its ownership in other nonstrategic assets” (Martin & Schrum, 2010).

The basic story of the recovery of General Motors following its bankruptcy sets the stage for a strategic engagement with what went wrong in the first place and what should be done to ensure it does not happen again. Shortly after the bankruptcy General Motors reverse the course set by William Durant by dropping Saturn, Hummer and Pontiac from its portfolio (Guarino, 2010). Pontiac, it is worth remembering, was a company that began life under the name Oakland before getting a name change following its acquisition by Durant.

The recommendation of how to keep General Motors on track and away from what may be an inevitable repeat of the economic collapse that resulted in the bankruptcy of 2009 is inextricably tied to the long history of the Pontiac brand. The worst possible news for General Motors shareholders could well be that as early as 2011, pundits were already trumpeting how the company had successfully rebounded from the bankruptcy filing of just two years previous “Both General Motors and Chrysler have rebounded since their 2009 bankruptcy and a government bailout” (“Lessons from Detroit Three’s,” 2011).

After all, what is there to be gained from such a rapid and apparently complete turnabout of what was deemed at the time “largest industrial bankruptcy in U.S. history, and the fourth-largest overall” (“GM Hopes Bankruptcy Goes,” 2009). What lesson can possibly be gained from the experience of such an enormously bloated company with a history of such questionable tactics not being allowed to go under thanks to intervention from the government? This is really a question of cultural strategy at its most potent. One of the most potent questions surrounding the decision by General Motors to file for bankruptcy is actually why they did not take the action even sooner (Carty). The problem that General Motors was facing well before the decision to file for bankruptcy was never put any more succinctly than the following:

“the failure of GM, the world’s largest automobile manufacturer for many decades, was shocking yet a foreseeable event. There are problems associated with producing many, often unprofitable, vehicles in 34 factories, employing insupportable workers around the world. It is reported that GM kept its high production and high dealer incentives in order to generate cash for the health care benefits. It seems that this high-cost organizational structure has contributed to its unfavorable brand image and serious sales decline. (Chinen, Sun, & Ito, 2014).

Really, the solution to the problem could not be put in any more simple and insightful terms. If General Motors expects another century of existence that does not end in the exact same needs for a government bailout to save them from their organically bad strategic marketing strategy, they need to set the example for all other companies that they set once before. However, the model that General Motors needs to set for others is that the very concept of being too big to fail is bad for the country (Markham, 2011).

And what’s bad for the country is bad for General Motors.

Which is why General Motors and all other corporations should adopt a business strategy that focus on retaining the focus of a core identity. If GM and Lehman Brothers and AIG and all other multinational corporations really want to do what is best for America as well as doing what is best for their own interests, the word downsizing has to mean more than merely firing people. Downsizing must be not allowing any company to become too big to fail.

References

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