GM Bites Bankruptcy Bullet


general-motors-bankrupt

Rumors became reality today as GM announced its entrance into Chapter 11 Bankruptcy Protection. Of course, this story is everywhere, so I won’t go on about it here, other than to say that it’s a sad day in corporate America.  Once the industry leader, GM was the envy of the industrialized world.  The causes of it’s demise depend on who you ask.  Management blames labor, labor blames management, analysts disagree but most consider relentless competition, cheap foreign labor, and inept response by American manufacturers to cheaper (once considered inferior) imports and its refusal to listen to customers, who wanted smaller, more efficient cars.

oil-embargo-sign-lgWhen Japanese suppliers worked to develop industry benchmarks and best practices for production, fuel economy and customer satisfaction, all of which were later duplicated by other Asian manufacturers,  US car makers insisted on developing markets for gas-guzzling luxury land schooners, trucks and heavy, pretentious luxury cars whose prices and margins were far higher than those of smaller, more practical means of transport.  They stressed style, prestige, convenience, creature comfort  and safety, marketing their behemoths to soccer moms, weekend and road warriors.

Detroit seemed content to surrender the midsized and compact markets to foreign competitors who enthusiastically  competed against one another with improved offerings, while Detroit paid the sector lip service with lame lines like Ford’s Escort and Fusion, GM’s Cavalier and Chrysler’s Neon.  Given a free pass in the economy sector, the imports had a foot-hols that provided a strong base for market expansion.  As Asia developed benchmark luxury lines like Lexus and Acura,  Detroit seemed slightly bemused…somehow they were insulated when it came to luxury/performance vehicles. With ownership of the more lucrative truck, family and luxury sectors,  American standards for luxury and performance would prevail, sending the imports packing. except for one thing that Detroit overlooked.  It was quality that sold the imports.  Before they knew it, import manufacturers had offerings for consumers in every category, most of which were vastly superior to their American counterparts.hummer-h1-wallpaper-3

Detroit responded with more of the same, faster, gaudier, heavier “life-style” vehicles that depended on deep-pocketed consumers and abundant fuel.  Import manufacturers  were foolish enough to respond but not at the exclusion of their alternative, more economical, fuel-efficient models. Much easier to drop an unpopular model when you can move a customer into a more practical offering by your company.

Import suppliers had comprehensive lines while American car makers offered hot vehicles in  sectors but had gaping holes in lines.  Not a great place to be for long-term profits.   Sectors gain and lose favor.  Lines accommodate changing consumer preference. Detroit once knew this. Profit motivated myopia made them forget it.

Details of the banbkrupty can be found here.

GM returns profits of $4.7bn on new vehicle sales.

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