Reasons Why General Motors Failed
Do you want to know the reasons why GM failed and declared bankruptcy after 101 years? This situation highlights the damage to economy. It also shows what happens when a company fails to change and simply rests on its laurels.
General Motors (GM) ceased to exist after almost 101 years in business.
GM was founded on September 1908 and closed down on June 1, 2009. The effects of failure are terrible but not so catastrophic thanks to loans of $19.4 billion and debtor-in-possession financing of $30.1 billion. A huge amount of this effort is by U.S. government as well as GM’s bondholders, suppliers, dealers, union, and management.
The new GM includes Cadillac, GMC, Buick, and Chevy – it will be owned by U.S. (60%), Canada (12%), UAW (17.5%), and bondholders (10%). GM factories (12-20 units) will close, 2,400 dealers will shut down, and 21,000 union workers will lose their jobs.
To avoid suffering GM’s fate, it’s worth knowing the reasons why it failed:
- Managing in the bubble – the managers of GM got promoted by ignoring external changes and toeing the CEO’s line.
- Failure to innovate – GM didn’t really care about building better vehicles. All they did was focus on its profits from finance.
- Ignoring competition – for the past 50 years, the company ignored competition completely. They controlled 54% of North American market in 1954 but last year, the figure tumbled to 19%.
- Uncompetitive vehicles – GM’s cars were poorly built and weakly designed compared to Toyota Motor Co. (its toughest competitor). In addition, the manufacturing costs were too high. As a result, GM was left with excess production capacity.
- Bad financial policies – for years, GM used their cars as razors and sold consumers a package of razor blades every month through highly profitable car loans.
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