General Motors and how This Huge Company Lost its Way

General Motors is known as the multinational corporation responsible for many of the cars driven throughout the world. After all, we can’t expect less from a company that’s been part of the auto industry for more than a century.

However, General Motors is not the same company today as it was in the past. Despite a glorious IPO in 2010 that came with a reorganized company, the initial corporation is known for failure.

Many people think the company has lost its way and lacks the focus and vision it once had. In this article, we’ll take a look at what made this world-renowned American corporation fail and nearly cease to exist.

The Popular Opinion

General Motors failed due to multiple reasons. Bad sales and low stock prices were only a few of them. Most people say GM lost its way because:

• It made cars people didn’t want — back in the day, owning a Chevrolet, a Cadillac, or even a Hummer was a big deal. Nowadays, only the sports versions of Chevrolet are sought after. People have many other options for a city car now, and GM isn’t their go-to option anymore.
• It didn’t engage in innovation — some people also believe that once GM became a multinational corporation, it wasn’t able to innovate anymore. In short, GM expected it could stick with the ways that worked for the company over the past 100 years.
• It was unable to adjust to the markets — some think that one of the main reasons GM went down is because the leadership didn’t know how to adjust their vision for the upcoming markets. On top of that, they didn’t even bother to focus on them.

As you can see, General Motors engaged in a long-term strategy that didn’t apply any changes to the company’s initial vision and focus. Nobody says the company is making bad cars, but many people say GM doesn’t make modern cars.

The Slow Downfall

Reportedly, General Motors stopped being profitable in 2005. Moreover, the company’s market share fell to roughly 23% in 2007. This is quite serious, given that its market share in 1962 was more than 50%.

Still, this means that the company was able to keep itself floating for 95 years with no difficulty. So, what caused the extreme lack of profit in 2005 and the $90 billion loss? Here are some of the reasons:

• Vehicles that couldn’t compete — As mentioned above, after the 2000s, GM continued to make what people saw as noncompetitive vehicles. Judging by its later models — Pontiacs and Chevys alike — GM was mainly selling poorly designed cars that were expensive to build. In the end, General Motors was put face to face with excess production capacity.
• No eye for competition — When running a business, it’s very important to look in your neighbors’ yard, so to speak. However, GM didn’t bother to check what their competitors were doing to ensure profits and success. Why? Well, GM used to control more than 50% of the vehicle market in North America in the 1950s, so the management team considered competitor analysis to be useless.
• Lack of innovation — We said this earlier, but it’s important to emphasize the lack of desire to innovate within GM. The company was known to focus mainly on profits from finance rather than building better vehicles and improving the current ones. Customer needs and expectations, innovation by competitors, and the availability of new technologies still didn’t force GM into making improvements.
• Lack of interest by employees — It is also well-known that the managers of GM did not get promoted because of their awareness of the changes needed within the company. Instead, they were simply going after promotions. They were not interested in improving production.

Naturally, we can’t blame every manager or employee of GM for the failure of the corporation. Some of them may have tried to introduce better practices in the company, but most of the managers had their eyes only on profits.

The Major Issue

GM’s biggest issue wasn’t a lack of innovation or interest. Its main problem, which couldn’t be easily fixed, was its financial practices.

Namely, when the company’s sales began to decrease and threaten its position in the marketplace, GM leaders couldn’t cut down costs. Why? Because the company had mostly fixed costs for its manufacturing process. When sales went down, the costs didn’t. This is what affected GM the most. The company couldn’t keep itself afloat or even manufacture vehicles if it cut costs.

On top of that, General Motors was known for having fixed costs on union contracts. They had to respect the legacy of healthcare costs and company pensions even if they tried to cut down on costs in other ways.

Why Didn’t the Support and Investments Save GM?

GM received a lot of support — even from the government — when it was faced with bankruptcy around 2005. What became of this support?

Well, before the company lost its way entirely, it had roughly $20 billion in loans and more than $30 billion in debtor-in-possession financing. Entities such as the US government, GM managers, dealers, unions, bondholders, and suppliers contributed to these massive sums.

In short, support and investment — even if on a massive scale — couldn’t help GM when the company wasn’t able to cut costs. GM was losing money and market share continuously once sales decreased.

The end of GM

After more than 100 years in business, General Motors had to let itself be controlled by Al Koch, the company’s turnaround executive. After debt and loan assessments and many other things, General Motors was split as follows:

• 60% of the new GM, including Buick, Cadillac, Chevy, and GMC, would be owned by the US government.
• 12% would be owned by Canada, which had lent GM roughly $10 billion in the past.
• 17.5% would be owned by UAW, a percentage that represented roughly $10 billion that the company held in healthcare obligations. Warrants for an extra 2.5% were also put in place.
• 10% to 25% would be owned through warrants by the bondholders.
• Close to 0% would be owned by the old GM shareholders.

This division also caused the shutdown of 20 GM factories, the dismissal of as many as 21,000 union workers, and the closure of no less than 2,400 GM dealers throughout the world.

The Bottom Line

How did this huge company lose its way?

First of all, GM didn’t bother to change and adapt its initial ways to the ever-changing economy around them. While its ideas helped shape the automotive world in the 1900s, the same ideas couldn’t stand up in the face of technological and economical advancements.

Probably one of the main reasons for GM’s failure was that people stopped seeing its vehicles as viable. Of course, some of us wouldn’t mind having a Pontiac Firebird or a Chevrolet Camaro in our garage, but we probably wouldn’t use those cars daily.

GM’s unusual financial policies and blatant ignorance related to its competitors also contributed to its downfall. Naturally, these reasons also give straightforward answers to questions like “What should I do to prevent my company from failing?”