General Motors - countdown to collapse
The decline of the great carmaker
As General Motors careers towards the biggest bankruptcy collapse in
American corporate history, we look back at the long and sometimes
glorious history of the classic US carmaker.
William "Billy" Durant founded General Motors in 1908 in Flint,
Michigan, at the dawn of the US car industry. Durant had previously
manufactured horse-drawn vehicles, before acquiring a stake in the Buick
Motor Company and turning the struggling carmaker into a major player.
Durant's vision was to assemble a series of carmakers under a single
company, with each one targeting a particular part of the market, rather
than competing directly with each other. Durant doubled GM's stable of
companies to two in November of 1908 by acquiring Oldsmobile, before
buying Cadillac, Cartercar, Elmore, Ewing, and Oakland in 1909.
Two more brands, Welch and Rainier, were added, before Durant was ousted
from the company in 1910 by its bankers following a battle over the $1m
debt pile built up during its acquisition spree. Durant went on to
co-found Chevrolet, before buying a large stake in GM and returning as
president in 1916. In 1919 the company started building its landmark
headquarters in Detroit. With more Americans keen to own a car, it set
up the GM Acceptance Corp (GMAC) to allow customers to buy a vehicle on
General Motors expanded internationally through the decade, opening its
first European assembly plant in Copenhagen in 1923. Two years later it
bought Vauxhall Motors and in 1929 it bought a controlling stake in
Opel. These two divisions are the core of General Motors Europe today.
The company also set up operations in Argentina, France and China. It
also overtook Ford for sales, partly due to GMAC's success in persuading
people to acquire a car with only a downpayment.
Political upheaval touched GM in December 1936 when the newly created
United Auto Worker union called employees in Flint out on strike. The
industrial action spread, leading to violent clashes between workers and
the police, and ended in February 1937 after the company agreed to
recognise the UAW.
With the second world war raging, GM turned its manufacturing operations
over to producing airplanes, tanks and trucks for the Allied war effort.
Churchill tanks were made at Vauxhall, and Franklin D Roosevelt called
the Detroit area the "arsenal of democracy" in recognition of its rapid
conversion from making cars to armaments. But Opel's factories were used
to produce equipment for the German war effort, and some historians have
questioned GM's assertion that it had no control over operations at Opel
GM's range became sleeker and curvier, sporting tailfins and chrome
trim, during a decade of technological innovation. It started offering
power steering, power brakes and front suspension, and launched the
Chevrolet Corvette – the "first production sports car" – in 1953 for
$3,498. In 1954, its US market share reached 54%, and it made its 50
Facing pressure in its core US market from smaller vehicles from Europe,
GM tried to compete by offering the Chevrolet Corvair in 1960. But the
car was plagued by safety fears, especially after consumer champion
Ralph Nader published "Unsafe at Any Speed" – an investigation into auto
safety that led to congressional hearings. With sales flagging, the
Corvair was dropped in 1969.
The car industry was rocked by the impact of the energy crisis in 1973.
Gasoline prices soared after Opec hit America with an oil embargo, and
this forced GM and its rivals to start making smaller, more
Competition from overseas and questionable management decisions at home
meant GM made its first loss since the 1920s. Dogged by production
problems, labour disputes, and design flaws, the company sent managers
to Japan to learn new business practices, but it struggled to change its
own production cycle and its market share shrank. Chief executive Roger
B Smith tried to streamline operations, but his consolidation left GM in
a terrible state and cost tens of thousands of jobs. He was lampooned by
Michael Moore in a documentary called Roger & Me, and CNBC recently
ranked Smith 13th on a list of the worst American CEOs of all time.
GM flirted with bankruptcy after falling sales pushed the company into a
$4.45bn loss in 1991. President Robert Stempel, Roger Smith's
replacement, decided to close 21 factories and lay off 24,000 workers.
He was later succeeded by Jack Smith who rebuilt profitability by making
further deep cost-cutting and shaking up the management. His measures
sparked another strike in Flint, which lasted seven weeks.
Rick Wagoner became CEO in 2000, and cut 10% of white collar staff. Tens
of thousands of workers took early retirement or redundancy as GM tried
to slim down. But in 2005 it made a loss of $8.6bn, forcing a new drive
of cost-cutting and factory closures. In 2006, President George Bush
refused to help with GM's immense pension obligations, and activist
investor Kirk Kerkorian failed to orchestrate an alliance with Nissan
and Renault. It lost its crown as the world's biggest carmaker to
Toyota, and by 2007 its losses soared to $38.7bn. The oil spike of 2008
was another heavy blow, followed by the global economic downturn, and by
the summer of 2008 the company was desperately cutting costs by $15bn to
try and conserve cash as sales plummeted.
By October 2008, GM and rival firms Chrysler and Ford were deep in a
fight for survival. Their shares tumbled on Wall Street as traders lost
faith in their ability to avoid bankruptcy, prompting another global
stock market wobble. With houses in Detroit on sale for $800, GM was
refused a request for $10bn of government aid. In November, GM admitted
it would go bust unless it was bailed out or taken over.
After winning the presidential election, Barack Obama began the process
of trying to rescue the American car industry, as the Big Three pleaded
for help. They were eventually given a $17bn bailout, but had to come up
with viable restructuring plans by March 2009.
With car sales hitting a 26-year low, GM promised US politicians that
yet more jobs would be cut, as it joined Chrysler to ask for $37bn of
funding. In Germany, union leaders began pushing for GM Europe to break
away before its parent company – which reported a $31bn loss for 2008 –
In March, it emerged GM might have just 30 days left, and at the end of
the month President Obama ousted Wagoner from the company. His departure
was the price for another financial lifeline, but Obama also declared GM
and Chrysler may both have to go bankrupt.
By April, Italy's Fiat had emerged as a surprise contender to buy Opel
and Vauxhall, and to also take a major stake in Chrysler. But as rescue
talks continued, it was clear bondholders in both companies were
unwilling to see their loans wiped out. Obama savaged Chrysler's
creditors for forcing the firm into bankruptcy.
Facing a deadline of 1 June, GM spent May cutting its dealer network and
searching for a buyer for its European arm, as its shares hit their
lowest point since the Great Depression.
Fiat, the Canadian parts supplier Magna International, and US private
equity firm Ripplewood Holdings, all told the German government they
were interested in taking control of Opel. Union leaders feared heavy
losses at Vauxhall, after it emerged Magna would safeguard German
factories but make cuts in the UK.
On 27 May, GM's bondholders pushed the company to the brink of
bankruptcy by refusing to convert $27bn of debt into shares, and talks
over the sale of Opel broke down in the early hours of 28 May without
agreement. Vauxhall's operations had already been transferred to Opel,
leaving 5,500 Vauxhall workers in limbo.