BUS 640 Managerial Economics
Dr. Brian Shaw
General Motors Demise Every American has seen the downfall of many automobile industry giants and General Motors topped the list in 2009 after filing bankruptcy due to bad decisions made by their executives. More specifically the bad decisions of their Chief Executive Office, Rick Wagner. Many companies have had leaders that made crucial decisions for them and ended up losing the company, causing many people to lose their jobs, lose their pensions, and causing an uproar with the American people. This paper will discuss the company of General Motors, who they are as a company, the actions that led to bankruptcy in 2009, and the company they have become since then.
Background of General Motors General Motors (GM) was founded in September 1908, by a man named William “Billy” Durant (Company: History and Heritage, www.gm.com, 2013). The company started out by selling horse drawn vehicles and once it started making automobiles it only had the Buick Motor Company. The following is a timeline of important events that occurred in the General Motors Company:
1908: General Motors was founded
1920’s: GM added more selection to their vehicle list
1942: GM delivered more than $12 Billion worth of material during the war
1971: GM pioneered the use of engines that could run on low lead or unleaded fuel
1973: GM was the first to offer airbags
1982: GM marked its largest single production expansion outside of North America with the opening of the new complex in Zaragoza, Spain
2008: A major recession and global credit crisis drove car sales to near depression levels and dried up private sources of capital
2009: GM filed for bankruptcy
2010: GM emerged as a new company that only offered four brands: Chevrolet, Buick, Cadillac, and GMC
The Road to Destruction According to Sonnenfeld (2009), Roger Smith, the CEO of GM from 1981 through 1990, had a disastrous attempt to restructure GM. Roger Smith had many ill attempts to make GM better as a company only to fail in the end. Smith ignored the effort to respond to increasing Japanese competitors in the smaller car market and resulted in the introduction of the unpopular, unattracted x-cars (Sonnenfeld, 2009). Not only did Roger Smith ignore the competitor’s entry into the small car world, he clustered many units together into two categories, big car and small car, and this was supposed to spark efficiencies and cross-divisional unity, but resulted in internal sparring and too many lookalike cars with various name plates. This gathering of divisions was disastrous to the luxury market (Sonnenfeld, 2009). Along with the bad decisions of Smith as Wagner took over, it is said that he had a chance to make it all better because he was intelligent, a car enthusiast, and had been in the business for a long time, but decided to take the steps of Smith and ultimately cause GM to file bankruptcy in 2009. In 2002, Wagner ignored urgent trends to focus on car development while reaping 90% of profits from pickups and SUV’s (Sonnenfeld, 2009). Wagner ended up keeping the divisions tightly held together and did not premier any new looking vehicles that were to customers satisfaction. According to Brown (2011), GM never fired or let any employees go when they did wrong; they would keep them on until they were able to retire. Many would think GM was a great place to work because they did not let you go if you did something wrong. All good businessmen and women know that if an employee does wrong, the company ends up paying for it two-fold.
Government Regulations Stewart (2012) states that the government owns less that 30% of GM. With the government owning a portion of GM raises the question in people’s mind, are we paying taxes to run the government or to run businesses in America. The government also has an agency that