Change it!

Introduction

The fourth largest failure in US corporate history (Time.com, 2009b), worlds’ largest automaker for 77 years (Strott, 2009) and one of the two long survived members in Dow Jones Industrial Average (Dow Jones, 2009); on June 1, 2009 General Motors (GM) has filled bankruptcy protection and Dow Jones has changed its composition to exclude GM. (For those who keen I have given references for complete bankruptcy filing documentation and the Dow Jones press release.)

What is bankruptcy protection? What causes this massive failure? And most importantly what can we learn from GM? Here’s my short literature review on GM.

Bankruptcy: it is ‘The End’?

Is this the end of GM? What will happen to GM after bankruptcy filing? Bankruptcy protection is governed by Chapter 11 of US Bankruptcy Code and it is a protection and time delay for a company from its creditors to reorganize the business. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court (US Securities and Exchange Commission, 2009). So, this is not a liquidation which is covered under Chapter 7. More precisely, this is a Prepackaged Bankruptcy where the reorganizations are planned before filling bankruptcy protection.

Milestones of Failure

Why GM failed? This is where one can learn a good corporate lesson of innovation and organization. Time.com (2009a) has given a good analogy of GM’s way towards failure. Let me quote some (it is little longer, but worth quoting) interesting points from it.

‘The company (GM) has never quite mastered the art of building smaller cars that could excite the public — and protect the company from spikes in gas prices … GM does diesel, badly. … The expensive add-ons (i.e acquired Hughes Aircraft and EDS) were never integrated into GM and created immense distractions for GM executives, such as a very public spat between Smith and EDS founder Ross Perot at a time when Toyota and Honda were pushing deeper into the American market. … GM has always had reputation for being a company run by a powerful bureaucracy. … American brands such as Chevrolet languish and innovation inside the company is stifled. GM loses crucial momentum in product development and design, and shelves investment in fuel-saving technology. … (In) 1998, GM acquires Hummer from AM General, setting the company up to become the ultimate symbol of the gas-guzzling culture in the U.S., just as Toyota moves to launch the Prius. … Convinced gas prices will remain low and it can expand its share of the profitable market for big SUVs GM launches a new wave of redesigned and re-engineered full-sized SUVs, such as Chevy’s Suburban and Cadillac’s Escalade, in early 2006. The emphasis on big sport SUVs has pushed development of new, more efficient passenger cars and engines into the background.’ (Emphasis is mine)

This shows how obvious the failure was for GM. It was lacking innovation, integration, adaptability, efficiency and all what we learned as necessary for a successful ‘contemporary organization’. ‘Over its history GM has made its share of bad products. Some were poorly built, some were badly executed, (and) others suffered from lousy timing’ says Peter Valdes-Dapena (2009), a senior writer of CNN Money.com.

End note

GM may survive but not with the same prestige and the image it had earlier (Flint, 2009) and some say it is no longer ‘General Motors’ rather ‘Government Motors’ (Taylor, 2009). I see there was long lack in innovation in the auto industry in US from the very birth. This famous quote of Henry Ford is a clue.

 ‘Any customer can have a car painted any color that he wants so long as it is black (Ford, 2005, p. 72).’

Failure of GM shows the importance of efficiency, innovation and adaptability as Child (2005) pointed-out.

Bibliography

Child, John (2005), Organization: contemporary principles and practice, Malden, MA: Blackwell Publishing.

General Motors (2009), Bankruptcy Filling Documentation [Online], Available from: New York Times at http://graphics8.nytimes.com/packages/images/nytint/docs/general-motors-bankruptcy-filing/original.pdf Accessed: 1 June 2009.

Dapena, Peter Valdes (2009), GM’s junk heap [Online], Avalilable from: http://money.cnn.com/galleries/2009/autos/0905/gallery.gm_problem_cars/index.html  Accessed: 1 June 2009.

Dow Jones (2009), Press Release – Dow Jones to change composition of the Dow Jones Industrial Average [Online], Available from: http://www.djindexes.com/mdsidx/html/pressrelease/press-release-archive.html#20090601 Accessed: 1 June 2009.

Flint, Jerry (2009), GM’s Humpty Dumpty Problem [Online], Avalilable from: http://www.forbes.com/2009/05/29/gm-bankruptcy-detroit-business-autos-washington.html  Accessed: 1 June 2009.

Ford, Henry and Crowther, Samuel (2005), My Life and Work, Cosimo Inc.

Time.com (2009a), General Motors: 10 Milestones on the Road to Bankruptcy [Online], Available from: http://www.time.com/time/specials/packages/article/0,28804,1899913_1899931,00.html Accessed: 1 June 2009.

Time.com (2009b), Top 10 Bankruptcies [Online], Available from: http://www.time.com/time/specials/packages/article/0,28804,1841334_1841431,00.html Accessed: 1 June 2009.

Strott, Elizabeth (2009), Toyota takes sales crown from GM [Online], Available from: MSN Money at http://articles.moneycentral.msn.com/Investing/Dispatch/Toyota-takes-sales-crown-from-GM.aspx Accessed: 1 June 2009.

Taylor, Alex (2009), Meet the new, government-owned GM [Online], Available from: http://money.cnn.com/2009/05/29/news/companies/gm_fuzzy.fortune/index.htm?postversion=2009060108 Accessed: 1 June 2009.

US Securities and Exchange Commission (2009), What Every Investor Should Know … Corporate Bankruptcy [Online], Available from: http://www.sec.gov/investor/pubs/bankrupt.htm  Accessed: 1 June 2009.