1. Do you think the primary cause of the failure of the two companies that led to the bailout was a management failure, a worker failure, a shareholder or customer failure, some other reason, or a combination of the above? Why is that the case?
General Motors was founded by William “Billy” Durant on September 16, 1908 and has several brands under names such as Chevrolet, Cadillac, and Buick. Chrysler was founded by Walter Chrysler in 1925 and it also has many brands such as Jeep, Dodge, Ram, and Fiat. These are two of the biggest American carmakers in the United States and their demise was hard to comprehend. I think there are many reasons that collectively led to the failure of both GM and Chrysler.
One of the causes for the demise of both companies was management failure. Management is supposed to lead by making the right choices for themselves and their customers. Management failed to set up financial policies that would benefit their companies in the long run. The financial meltdown of Wall Street led to a national crisis, which made GM and Chrysler unable to borrow money to keep them afloat.
The financial meltdown trickled down to consumers who were not able to get loans either to purchase or lease cars. The financial meltdown and car sales having been at their lowest point in a decade is the reason that GM and Chrysler had to file for bankruptcy.
GM and Chrysler’s management also failed to anticipate the rise of energy prices. Gas prices skyrocketed to almost four dollars a gallon and with the fragile state of the economy, it made people very conservative about their driving. The rise of gas prices was almost like a death sentence to Chrysler and GM. They have relied on the sales of sport utility vehicles or SUVs as their main source of income.
The sport utility vehicles carry an already high price tag and when you add the gas prices you get vehicles that nobody wants to purchase. People wanted to get rid of their SUVs because they just cost too much money to operate. Customers switched to smaller more fuel-efficient vehicles because it became more of a necessity than a choice. Unfortunately GM and Chrysler were not ready to meet the new demand for fuel-efficient vehicles. The cars that GM and Chrysler had on the market were not as fuel efficient as their foreign counterparts, which made the financial stability for the American carmakers uncertain at best.
GM and Chrysler’s management failed to acknowledge competition and innovation. Carmakers like Toyota have for many years tried to stay innovative and ahead of the competition by taking risks and investing in research and development. Toyota developed one of the best selling cars in American history called the “Prius”, which is a very fuel-efficient car. On the other hand GM and Chrysler are just starting to develop electric and hybrid cars. Unfortunately foreign carmakers have the market cornered because neither GM nor Chrysler succeeded in forecasting the needs and wants of the American People.
GM and Chrysler still have a bad reputation for the quality of their cars. Nowadays when people think of reliable, fuel-efficient and quality cars most people think of foreign carmakers. GM and Chrysler are trying to change the perception of the quality of their cars, but when a company takes this long to try to change it is very hard to win back some of their customers. I would personally hesitate to buy a car from either company because of what friends and family have said about the problems they have encountered with their cars.
I believe it is the management of both companies’ fault that led to their financial demise. Like any other company in the world, it is the people at the top who have the control, knowledge, and resources to make the tough choices and right decisions. I just do not see how it could be the fault of workers who just follow orders and have no say about the management of the company. It cannot be the fault of the customers because most people would not buy a product of poor quality or from a bankrupt company.
One of the largest shareholders for GM at the time was Jerry York. He begged the board of directors to take drastic measures to save the company and they decided to ignore him. Now, they are doing some of the things Jerry York suggested because the federal government is forcing them. According to my research, most people feel that it was the poor management that led the American carmakers to bankruptcy and the need for the federal government to bail them out.
Seven reasons GM is headed to bankruptcy http://www.usatoday.com/money/autos/2009-05-31-gm-mistakes-bankruptcy_N.htm
After 101 years, why GM failed http://www.bspcn.com/2009/06/01/after-101-years-why-gm-failed/
GM in Crisis—5 Reasons Why America's Largest Car Company Teeters on the Edge http://www.popularmechanics.com/cars/news/industry/4292379