The GM Debacle

  • SumoMe

In January 2008, it was ranked the world’s second largest auto-maker. In June 2009, its bankruptcy is the fourth largest in US history. General Motors (GM) is a company that has lifted thousands of American families into the folds of the middle class. It gave to Detroit, Michigan its image of being the industrial powerhouse of the United States. It defined luxury by manufacturing cars such as the Cadillac, Chevrolet, Opel and Buick. And now it has received this staggering blow. But the irony has to it more than the much-blamed Global Economic Crisis.

 
The company was founded in 1908 with the promise to offer “a car for every purse and purpose” and this promise it did fulfill. Then how did the General Motors get here? The missteps that led to this debacle can be traced back to the 1960s, when for the first time GM was criticized for the safety of its vehicles, particularly that of the Corvair. The 1970s saw the world oil crisis and middle-income consumers, hitherto GM loyalists, now turned to small cars manufactured by Japanese companies and GM lost a major portion of its market share to such new competitors. In the 1980s, under the pressure of the same competition the company turned its tables against itself. It began to manufacture too many brands and GM’s multi-brand strategy failed as these brands began to compete with one-another.

 
In the 1990s, its efficiency got struck by labor issues and in order to appease its dissenting workers, GM ended up spending extravagant amounts on resolving strikes and providing perks and benefits. While its profits kept plummeting, the company kept its expenditure high by investing in full size SUVs and acquiring newer brands. The fall reached its lowest during the present decade, when GM’s credit ratings fell further because of its allegedly dubious health and pension schemes and it had to beg for a bailout as the crashing world economy pushed it to this desperate state.

 
GM proposes to come out of bankruptcy soon, and launch the “new” GM within at the most 3 months from now. President Obama, though stating explicitly that he does not want to get the state involved in the auto-industry, has said that he sees GM as an important part of the American economy and bailing the company out was essential to keep its employees’ payrolls running.

 
There are lessons to be learnt from this debacle, both by GM and also other big companies such as it, whose fate decides the fate of thousands of families. The giant company, now jokingly dubbed Government Motors should seriously try to get into shape now. It should try to shut its superfluous factories and cut down on the dealership network. Sure it needs to reduce debts, and renegotiating with its shareholders would be a good idea for now. It should not forget that the money being used for its bail-out is the hard-earned money of the average American tax-payer, and henceforth, must make policy-decisions considering the environment it is operating in- one of an economic crisis, coupled with the threat of competition from smaller, more stable motor companies, both within America as well as in the better-off economies of Japan and China. Though one cannot help but lament at the massive downsizing and laying-off of employees such crashes lead to, one can only hope that lessons learnt from this crisis will prompt the management of companies to take wiser, more long-term decisions in future.

 

Shruti Agarwal

[Image courtesy: http://www.flickr.com/photos/tobanblack/2851479080/]

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