General Motors: The Fall of an American Icon
By Bill Russo
The American automotive industry has met the hard realities of the 21st century. The
Chapter 11 bankruptcy filing of General Motors (GM) on June 1st, just one month after Chrysler
entered US bankruptcy court, represents a defining moment in a long and once‐proud history of
an iconic American company. Automobiles and the industry that produces them are in fact
woven into 20th century American history and culture. It is an industry that has brought forth
remarkable innovations, provided jobs for millions of middle‐class people, and offered
individuals and families he chance to experience the freedom of the road.
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Founded in 1908 by Billy Durant, GM dominated the American automotive industry as
well as the American economy for most of the last century. In 1954, GM reached its peak of 54%
share of the US market. GM has also been a pioneer in the global expansion of the automotive
industry, having been fairly successful in expanding their global footprint through acquisitions
and partnerships. Acquisition of the British automaker Vauxhall motors in 1925, followed by
acquiring the majority share of German carmaker Adam Opel in 1929, gave GM a strong
European base. They added Saab to their European base in 1989. More recently, GM and its
partner Shanghai Automotive Industrial Corporation (SAIC) have established a strong position in
the rapidly expanding China market.
However, GM has been on a steady decline in its domestic market over the past half‐
century, and the recent global economic crisis has accelerated the need for restructuring through
bankruptcy. The story of GM’s rise and eventual fall offer important lessons for 21st century
companies with global ambitions.
Impact of the Global Financial Crisis on the Auto Industry
The global car industry has long suffered from overcapacity resulting from overly
ambitious assumptions for market growth combined with optimism surrounding whatever
product or technology was being offered. Ambition and optimism are the first victims of a
recession as businesses struggle to realign to a new era of fiscal conservatism. This translates
into a major reduction in capital spending and asset sales as businesses attempt to adjust their
size in order to regain a profitable footing. The financial crisis, which worsened in the 3rd quarter
of 2008, has dragged the world into its deepest economic downturn since the Great Depression.
A unique attribute of this recession is how quickly the financial turmoil has spread across the
world as a result of global interdependence along with a synchronization of business cycles
among these interdependent markets. According to a recent forecast from Global Insight, 2009
will likely witness the first drop in global GDP since the 1930s.
In previous economic crises, the U.S. economy has always come to the rescue and restored
hope to a troubled world. The $838 billion economic stimulus bill enacted in February is
designed to create millions of new jobs and jump‐start the economy. However, most experts do
not foresee a recovery until 2010 at the earliest. Of course, the housing crisis and resulting credit
crunch have made it more difficult for car dealers and consumers to buy on credit. On top of this,
American consumers have become much more cautious in their buying behavior, preferring to
spend less and save more than they have done historically. In the current economy, American
consumers are placing a much higher priority on value‐based products, which have much lower
The impact of this on the car business is immediate and significant. Car companies
understand and are often prepared to handle many economic cycles – but the sudden loss of 40%
of the demand from the US market was far beyond even the most pessimistic assumptions. Every
carmaker competing in this market has suffered as a result. However, the impact on Chrysler and
GM is catastrophic. The consequence of which is the need to fundamentally restructure both
companies in order to shed non‐performing assets. The near‐term challenge is to restructure the
business to regain an appropriate balance of supply and demand.
The Success Trap
The plight of the Big 3 in the US market is actually a decades‐long story of the loss of
domestic market dominance. However, many have been too quick to say that their recent
troubles have resulted from “making cars that customers are no longer interested in buying”.
While it is a historical fact that the Big 3 have gone from a combined share of 66% to well under
50% within this decade, it would be incorrect to say that this is a result of the consumer’s
rejection of American brands. Today, Chrysler’s market share in the US is about what it was 20
years ago (roughly 10%). However, over the course of the last half of the 20th century, the Big 3
fell into a several traps that were largely a result of their prior success – especially for General
Businesses hoping to grow and thrive in the 21st century global business environment would be
wise to learn the lessons from GM’s ultimate failure to avoid the “Success Trap”.
End of Story?
Chapter 11 is not the final chapter of GM’s story. In fact GM has a core business that can in
fact compete in the global auto industry. As noted earlier, GM was perhaps the first truly global
car company. GM’s is well positioned and is successfully selling its Buick, Chevrolet and Cadillac
branded vehicles in China. Ahead of the Chapter 11 filing, GM has already been able to
renegotiate many of its debt obligations and fixed cost burdens with the support of the Obama
Administration’s auto task force. Through the bankruptcy process, GM will be able to further
eliminate non‐performing assets including discontinued products and facilities associated with
them. They also intend to adjust the size of their dealer network in‐line with global competition.
Bringing their overall cost structure in line with a new market place reality will allow GM to
regain a profitable footing at a much lower breakeven point.
Successful 21st century companies will be the ones that can quickly adapt to the reality of
globalization. Noteworthy examples exist – such as Apple Corporation. Also an American icon,
Apple has carefully deployed a business model that yields innovative products while leveraging
the best and most cost effective resources from home and abroad.
The US auto industry may have come late to the realization of the need for this
fundamental rethink of the business model – but it is very possible that GM can rise from
bankruptcy to once again be a formidable competitor in the global automotive industry.
ABOUT THE AUTHOR
Synergistics , a China‐based auto
consultancy focused on building successful cross‐border partnerships He
operations, roles Bill is a
sought‐after opinion leader, having recently appeared on CBS News and China Radio
International. He has been quoted numerous times in such journals as Newsweek, the Wall
Street Journal, Washington Times , Straits Times as well as National Public Radio.