GM's CEO: Bankruptcy Possible Before 60-Day Deadline

GM and Chrysler are both on the brink of filing bankruptcy. The Obama administration is trying to help them out but are not exactly bailing out the auto makers. The government wants GM to carve out its recovery path before it can promise more money. Maybe the Obama administration had a bitter experience of bailing out AIG unconditionally. Maybe the government wants to be more proactive on how they control the money before even promising to give the money. Not a bad strategy.

So what happened to GM and where are they? Here is a short history lesson.
General Motors Corporation (GM) was founded in 1908 and it is world's second-largest automaker after Toyota, ranked by 2008 global unit sales. GMs cars and trucks include Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Hummer, Poniac, Saab and Saturn. The company went through its own ups and downs. In 1990s the US economy was on the rise and GM gained a huge market share by producing enormous sale of light trucks and sport-utility vehicles. In 2004, GM redirected resources from the development of new sedans to light trucks and SUVs. The SUVs were gas guzzlers but still very popular and kept the automaker revenue high. However in 2008, there was a rapid rise in gas price that resulted in steep drop off sales of SUVs. The declining sales of SUV caused the GMs profit margin and the GM stocks started sliding down. The stocks that were in the range of $20 slid to $2.5. The financial crisis, namely the recession that shook the Wall Street also shook GM and Chrysler. It became evident that they would need an external helping hand to keep them from sinking. The federal government loaned $13.4 billion to the struggling automaker so that they can continue floating. Recently, Obama administration evaluated the company's status and gave it a failing grade for its efforts to come out of the crisis. Government is not ready to give more taxpayers money to bailout unless the company shows promising signs of recovery in terms of restructuring the products, finances and the management. The Obama administration has given a grace period of 60 days for the GM to come up with radical changes else it may have to face bankruptcy. As the first step, the GM CEO Rick Wagoner stepped down to give way to changes that could be brought by a new vision and new direction by a new person, the next CEO, namely Fritz Henderson. Fritz understands the urgency of the situation. He has a great challenge of saving the company from bankruptcy.

The first thing that comes to my mind is that how come GM along with Chrysler is so badly affected while Ford and other international automakers survived or rather holding on even in these bad economic times. What did GM do that pulled its stock so down? Well, lot of mistakes. They were stuck in improving the existing models. They spent more time and energy in changing the looks and interiors of the vehicles and in the process lost the hybrid car market. It is sad but true that GM was a pioneer of the hybrid cards. It was ahead in the game a decade back. The GM engineers built the EV1, the first modern production electric vehicle that was introduced in 1996 in limited "lease only" agreement. The EV1 had bunch of issues - the technology was new, the market was not ready and the innovations around the hybrid cars like the batteries etc were still not mature. The cars performed badly. The EV1 were not profitable and therefore GM discontinued it in 1999. This was one of the worst decisions taken by GM - axing the EV1 electric-car program and not putting more resources into the hybrids. Instead, GM redirected its resources towards SUVs. Yes, SUVs made more profits at that time but it fell through when the gas prices rose.

Great companies are built on creating new markets, not incresing market share in existing ones. This was the vision of Tata's when they decided to put a car for a price of $2500 or less on the roads of India. India's no. 1 requirement was cheap car - less power, less speed but more efficient was the motto. Today, the Tata Nano is a reality - a car that the middle class in India can afford. GM needs to learn a lesson from the Tata's, think ahead, envision the 21st century auto requirements and build a futuristic car. If GM has to emerge again and raise up, they have to build something new, something different, something that is more aligned with today's needs - a cleaner, safer, hi-tech, fuel efficient car!