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General Motors, Accelerating Towards Bankruptcy

It’s hard to believe that from 1931 to 2008, when it was replaced by Toyota, General Motors was the largest carmaker in the world, and by some considerable margin.

Anthony Crawford

00:4814 April 2009

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In 1962 it had a massive 51 per cent of the US car and truck market but competition from outside the United States and GM’s failure to provide reliable cars on par with those from Japan, meant that the shine had gone off US made cars.

That in itself was almost a crime when you consider it owned classic ‘red, white and blue’ brands such as Buick, Oldsmobile, Chevrolet, Cadillac and Pontiac.

GM executives had forgotten the catchcry of their former leader, Alfred Sloan who led the company from 1923 to 1946, who’s success can be attributed to focusing on meeting consumer demand and offering a car “for every purse and purpose”

For many years it was innovation which kept General Motors in the lead, but with costly investments in good ideas such as the Saturn company (small cars) and the EV1 electric car in the 1980s and 1990s, which were both derailed due to lack of quick profits, GM has been playing catch-up.

Rivals Chrysler and Ford, were years ahead of GM, with their introduction of the popular SUV in the 1990s. It seemed that General Motors were reluctant to give up the highly profitable pickup trucks over the lesser margins of smaller cars, even when petrol prices went through the roof.

And in 2007, when the fuel price hit US$4 a gallon, GM Executives were apparently surprised by the move away from utilities and SUVs to smaller more fuel efficient cars. Again, they were dangerously slow to follow the trend.

By the end of 2007, the company had lost a staggering US$43.3 billion that year, and its share of the US Auto market had fallen to just 18.8 percent.

Losses continued to mount through 2008 and last month in its annual report, General Motors raised serious doubts about its ability to survive if the US Government didn’t tip in billions of taxpayers’ dollars just to keep the doors open.

“…. Inability to generate sufficient cash flow to meet our obligations and sustain our operations raise serious doubt about our ability to continue as a going concern”.

Should General Motors fail to reach agreement with its creditors who are carrying US$28 billion in GM debt, not to mention critical negotiations with the US car unions, the company will need to file for bankruptcy by June 1.

If that happens, and General Motors is restructured into two new companies, one with the brands worth saving and one that would be wound down, then speculation is that Pontiac and Buick will not survive.

Some say the industry will survive with far fewer dealers, they might be right.

In 2008 more than 1000 dealerships closed and 680 of these were either GM or Chrysler yards.

That makes even more sense when you realise that Toyota operates only 1400 dealers across the US, while GM runs more than 6000 despite the fact that they sell the same number of cars.