The Top 7 Reasons Why GM Failed.
Monday, June 1st, 2009

Rusty GM Logo

Was this Rusty GM logo a sign of things to come?

Here are the “Top 7 Reasons Why General Motors Failed”:

7. Overreacting to the truck boom
GM is often criticized for too many SUVs, but, as Wagoner has acknowledged, GM actually overlooked the start of the high-profit truck boom kicked off by the launch of the Ford Explorer SUV in 1990.

“We always considered ourselves a ‘car’ company,” he later explained.

When GM realized how fast 1990s buyers were switching to trucks as personal transportation, it overreacted, pouring time and money into SUVs and pickups at the expense of car development. The result: As long ago as 2000, Wall Street was warning that GM could be overcommitted to trucks and wind up out of phase if the pendulum of buyer preference swung back to cars. Once consumer tastes began changing, the market was awash in new truck models, and profits were sapped by discounts needed to keep sales boiling.

6. Mishandling Fiat
When GM bought 20% of Italian automaker Fiat for $2.4 billion in GM shares, the deal seemed like a genius move. With Opel/Vauxhall, it would’ve given GM dominance in the European market and made GM an even stronger global player.

But then Fiat CEO Gianni Agnelli died, and problems with the automaker mushroomed.

As part of the deal for GM’s stake, Fiat had the right to force GM to buy the remaining shares and take control. In 2005, GM decided, instead, to pay Fiat $2 billion to get out of the deal. Fiat used that money to turn itself around, and it will be Chrysler’s newest owner.

5. Ignoring Jerry York
In the fall of 2005, billionaire investor Kirk Kerkorian bought up 10% of GM’s shares, making him the company’s largest shareholder. He then pressured GM to take his aide, Jerome York, as a board member, and tried to force GM to partner with Nissan and Renault. Although the Nissan/Renault marriage failed, York showed some foresight.

4. Selling control of GMAC
For years, the ongoing joke was that GM was a bank that happened to make cars. Quarter after quarter, year after year, GM’s financing arm, GMAC, pulled in way more revenue than its automotive operations.

3. Killing the EV1 electric program
Wagoner said his biggest mistake was killing the EV1, the company’s pint-size electric car that was in test fleets in the late 1990s. It was a public relations debacle when the test cars had to be reclaimed and GM then scrapped them. But the real loss was scrapping the program behind them. GM abandoned a big lead in electric car technology and let Toyota take the green mantle for its hybrid Prius.

2. Driving incentives into the ground
Following the 2001 terrorist attacks, GM was praised for responding quickly and decisively: It offered consumers 0% financing on loans up to five years. When the newness of that deal wore off, the automaker piled on a $3,000 rebate.

And the deals kept coming. GM stuck with cash-back deals and low-rate financing for years, increasing rebates to $6,000 to $8,000 in some cases. But to afford the rebates, GM kept sticker prices high. It took GM until 2006 to realize it was damaging itself with the non-stop deals: Shoppers often wouldn’t consider a GM vehicle because its sticker price was so much higher than the competition.

1. Not filing for bankruptcy sooner
Momentum toward a bankruptcy filing accelerated since the auto market collapsed last fall. But as far back as the North American International Auto Show in Detroit in 2005, then-CEO Rick Wagoner faced questions about whether GM would be better off filing for bankruptcy reorganization to cope with its labor costs, debt load and excess dealers.

Wagoner was then, and remained until his last days at GM, adamantly opposed to bankruptcy. He said it would drive away buyers and irreparably harm workers and shareholders. He believed GM could turn around: He was CFO in 1992 when GM teetered on the brink of bankruptcy, only to make a strong rebound.

Read the Full Article in USA Today.

Tags: "General Motors Bankruptcy", "General Motors Failure", "General Motors", "GM Bankruptcy", "GM Failure", "Show It Or Tow It", "Top 7 Reasons Why GM Failed", "Top Seven Reasons Why GM Failed", "Why GM Failed", showitortowit.com
Posted in Car News | No Comments »