Lessons learned from General Motors’ collapse

[Omaha Steve]

http://joongangdaily.joins.com/article/view.asp?aid=2907929

GM concentrated on larger-sized products that were popular more or less only in the U.S. market.
July 27, 2009
On June 1, 2009, General Motors (GM), the automaker that has been a symbol of the United States manufacturing industry for over 100 years since its establishment in 1908, filed for bankruptcy protection.

GM had introduced the “mass consumption” system following Ford’s adoption of the “mass production” system. The company’s collapse ? at least from a financial perspective ? signifies the end of the 20th century’s “mass production/mass consumption” manufacturing corporations.

GM’s bankruptcy was directly caused by two factors: a high cost structure and chronic liquidity shortage resulting from declining sales revenue because of a product portfolio vulnerable to the economic crisis.

However, that is only the tip of the iceberg. The true fundamental causes lie hidden below the surface.

When the economic crisis hit, GM products mainly consisted of high-priced, fuel-inefficient minivans, sport-utility vehicles and pickup trucks.

As a result, the crisis hit GM harder than other automakers.

The first reason behind this is that GM’s product portfolio was too exposed to light trucks, based on a “Galapagos Islands” strategy focused on the U.S. market. In other words, the company’s market developed into one that was entirely unique and completely isolated from the global market ? much in the same way that the Galapagos Islands have developed. Due to relatively high per capita income, low fuel costs, broad roads, long-distance driving and inadequate public transportation, the U.S. auto market mainly consisted of medium and large-sized vehicles. Hence, GM concentrated on larger-sized products that were popular more or less only in the U.S. market.


FULL story at link.

[GoesTo11]

1. They took a gamble and lost

From the CEO's perspective, they would probably have gone bankrupt if they had not been in light trucks etc. If fuel prices had stayed low a while longer and the financial crisis hadn't hit, they might have been able to make enough profits to get on more solid footing as they moved on to a more sustainable business strategy.

One problem with our business system here is that the CEO is responsible to shareholders. Taking that gamble might have been the best bet for shareholders, even if it led to an even bigger hole when bankruptcy hit - but that's not the shareholders' problem and so it wasn't the CEO's either.

[lefthandedlefty]

2. If not for health insurance they most likely would not have failed

People keep blaming the workers for getting paid too much,but no one has ever said just how much money was paid to the insurance companies.

[Kalyke]

3. Well, the product line crack is a crock.

GM had tons of smaller, efficient vehicles, but Americans live in 1989 and honestly believe that smaller Japanese cars are better.

They aren't - and they're more expensive.

[Turbineguy]

4. It's interesting but I don't think it's the whole story.

Cars (like most products now) are sold by creating a demand. Years ago you could read about concerns that auto manufacturers had about "market saturation". The counter to this was to be planned obsolescence. But planning obsolescence, while a good concept (in the short run), is difficult to do. Designing things to fail predictably is a daunting task. The advertising industry did an end run around it by creating demand.

So yes, while filling the gap created by a bad transportation system policy can keep you going, it only works as long as people like this bad policy and its effects.

The system and methods that sold inefficient cars can sell efficient ones.