General Motors Goes Bust

General Motors, maker of Chevrolet, Buick and Cadillac, filed for bankruptcy yesterday. After 75 consecutive years as the world's biggest car company, GM finally admitted market defeat and ran up the white flag. While gas prices and consumer excess are largely at fault, GM failed to produce cars and trucks that actually worked right. The test is simple enough; close the door on a Mercedes, BMW or Volkswagen and then, see if a Buick can make that sound. It can't. Selling fantasies eventually loses out to selling machines that work.

GM made cars that appealed to the imagination of the mostly male car-buying public. The Corvette was the prime example, no backseat, over-powered and the lines were something Da Vinci would have loved. Yet, the Lotus Esprit was a better car, and for the money, one was better off with an Italian sports car. An Alfa Romeo or a Carmen Ghia drives vastly better.

However, the point behind GM was that everyone could afford a car. If one lacked the cash, GMAC was there to provide cheap money. In the end, that funding destroyed GM. Henry Ford understood that if his workers couldn't afford his product, he would have no company. Yet GM insisted on selling cars and small trucks that went for $60,000 or so to people who earned $30,000 a year. Arithmetic doomed this business model.

Because of GM's lack of foresight, the United Auto Workers own 17% or so, and the US taxpayer has 60%, after throwing $50 billion at the company. GM has been removed from the Dow Jones Industrial Average. If there is a bigger symbol of GM's failure, it is the sale of the Hummer brand (modeled after the US Army's Humvee) to a Chinese entity.

The current management claims that GM will exit bankruptcy soon as a leaner, greener company. Perhaps, it will. However, there are still too many middle management old-thinkers at GM. The parallel with turning an oil tanker around is apt. GM may well remain too big and too unresponsive to adapt no matter how long it is in Chapter 11. If that's the case, then it is nothing more than a $50 billion jobs program.

© Copyright 2009 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

Kensington Review Home