The sinkable General Motors

Jen@CBJ — June 2, 2009

When news came in that 100-year-old General Motors was filing for bankruptcy, I can’t say I was altogether surprised. Though plenty were hoping for the Disney ending, the market had spoken long before the announcement last week.

As I read through various GM obituaries, I came across an interesting comment from Stephen Pope, chief global strategist at Cantor Fitzgerald in London. He said the bitter reality of the bankruptcy “is a bit like the Titanic sinking.” In my opinion, he couldn’t have made a better comparison.

It’s the classic tale of hubris, the fall that cometh after pride. And if we look to history, we should know this is what happens when humans get a little too arrogant.

Like the “unsinkable” Titanic, GM was a company marvelled for its size. For over seven decades, it was the global sales leader, year after consecutive year. The growth seemed sustainable until the markets changed direction in the mid-2000s. After redirecting resources to develop a range of light trucks and SUVs, fuel prices increased dramatically and An Inconvenient Truth tagged along.

What did consumers do? We bought smaller cars. And while other car companies (i.e. Toyota, Honda) moved quickly to cater to the new compact trend, GM was slow to react. In fact, they stayed the course, offering the same trucks and SUVs only with better fuel economy.

And that’s where they made their critical mistake. GM believed they didn’t have to follow market trends, that consumers would buy GM vehicles no matter what. They got too proud.

So, here we are. Thousands have lost their jobs, employment insurance is through the roof, U.S. and Canadian governments are stepping in and the economy is feeling the pressure.

At the risk of sounding insensitive, what did GM expect?

Unlike most cautionary tales, not all is lost for General Motors. The company has been declared “too big to fail” and spared its due demise. Receiving a multi-billion-dollar aid package, GM will undergo rigorous restructuring to come back to the market as a profitable and competitive company.

There are lessons to be learned here, but I’m not exactly sure what they are, which throws a wrench in my conclusion. I’d like to think that GM is another example of how overconfidence is its own revenge, but it seems the only ones who were hurt in this situation are the frontline workers.

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