The Decline and Fall of General Motors

Once the World’s Largest Company, GM Has Shrunk to a Shadow

Mar 6, 2009 Rupert Taylor

At its peak, in 1962, General Motors sold one out of every two cars and trucks in the United States. Now it's struggling to survive.

General Motors might not make it. On March 5, 2009, The Globe and Mail reported the company’s “auditors have raised ‘substantial doubt’ about the troubled automaker’s ability to continue operations.” How could the giant have been brought so low?

It’s a story that’s been developing for decades and was told at length in August 2008 by The Detroit News. Put simply, the company makes vehicles people don’t want in an industry that produces more units than it can sell. Billy Durant might understand this rise and fall in fortunes.

The Rise and Fall of Billy Durant

Having become rich making buggies, Durant bought the ailing Buick Motor Car Company in 1904. In 1908, he folded Buick into another company and called the result General Motors. But, within two years, the company was in financial trouble. The banks took over and booted Durant out. Quickly, he and Louis Chevrolet started up the Chevrolet Company. Billy Durant organized a merger with his old company and, in 1915, he was back in charge of General Motors.

But, it all turned sour again for the colourful Billy Durant; in 1920, GM said goodbye to him for the final time. The self-made, and then unmade, multi-millionaire died in poverty in 1947.

The Company Expands

World War II was good to GM. The company made a lot of the weaponry for the allies; it also made warplanes and trucks for Nazi Germany. Writing in The Washington Post (November 30, 1998), Michael Dobbs pointed out the irony: “When American [soldiers] invaded Europe in June 1944, they did so in jeeps, trucks, and tanks manufactured by the Big Three motor companies (GM, Ford, and Chrysler)…It came as an unpleasant surprise to discover that the enemy was also driving trucks manufactured by Ford and Opel — a 100 percent GM-owned subsidiary — and flying Opel-built warplanes.”

By the mid-1950s, General Motors was the biggest company in the U.S. and the world’s single largest employer.

The First Oil Shock

Then came the oil shock of 1973. In its October 2006 issue, the magazine Canada and the World reported “Very suddenly, drivers wanted fuel-efficient cars and GM was trying to sell them eight-cylinder models such as Cadillac Eldorados, Chevrolet Monte Carlos, and Buick LeSabres. Meanwhile, in Japan and Europe car companies were already making small cars. Their crowded countries with narrow roads meant that North American-sized cars simply wouldn’t fit. Canadians and Americans looking to save money started snapping up small cars, particularly Japanese ones.”

GM’s market share steadily declined; from about 45 percent in 1981 to about 35 percent in 1989. Between 1980 and 1992, GM racked up losses of almost $30 billion. And still, the highly paid executives didn’t catch on.

Old Thinking in the Executive Suite

By the start of the new century, GM and its fellow North American manufacturers only dominated one sector of the market – the big sport-utility vehicles. The profit-margin on these huge cars is high, so GM focused most of its attention on the SUV. U.S. automakers could earn $10,000 or more in profit from the sale of a big SUV, compared with a few hundred dollars when they sell a compact car. So, GM followed the money.

Once again, the company was blind-sided by gasoline prices. In 2005 and 2006, sales of SUVs dropped by up to a third. Fewer people were willing to pay the more than $100 it cost to fill up a Chevrolet Tahoe.

Sales in 2008 went into free-fall. Bloomberg News reported that in February 2009 the company’s sales were 53% down from 2008, and its market share was now only 18%.

On March 6, 2009 GM shares trade at a low of $1.27 US. According to the Centre for Research in Security Prices at the University of Chicago this is the lowest price for the stock since May 4, 1933.

The copyright of the article The Decline and Fall of General Motors in Business Management is owned by Rupert Taylor. Permission to republish The Decline and Fall of General Motors in print or online must be granted by the author in writing.

William C. Durant