General Motors (US)

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General Motors has made a full recovery, more or less, from the unprecedented crisis which almost brought about the complete collapse of America's biggest car company in 2009. Until recently, the group was the undisputed global leader in the automobile market, with an extensive portfolio housing eight of America's most celebrated automobile marques as well as a large international footprint. As recently as 1980 almost one out of every two new cars sold in America were made by General Motors, and it enjoyed a similarly dominant position in other countries as well. Yet in the harsh automotive environment of the 21st century, GM struggled to maintain its lead in the face of brutal competition, especially in the US, from manufacturers offering more flexible, less gas-hungry cars. A catastrophic fall in sales across the whole market during 2008 left the group poised on the brink of bankruptcy and it was overtaken for the first time in its history as the global #1 by rival Toyota. The following year, GM finally accepted defeat and filed for Chapter 11 protection. A new and much smaller GM emerged from bankruptcy having shed the bulk of its huge debt burden as well as half of its car brands. Only one major problem remained: its long-struggling business in Europe. It finally found a solution to that dilemma too in 2017 with a deal to sell Opel and Vauxhall outright to French manufacturer PSA. It will also withdraw from India and South Africa. See full profile for current activities...

Background

Free for all users | see full profile for current activities: The bankruptcy of General Motors in 2009 brought to a close just over 100 years of prominence as an icon of American business. Indeed, at its peak in the post-war period, the company was in effect a symbol of America itself, a leader in technology, design, innovation and consumer choice. As GM's president in the early 1950s, Charles E Wilson, was reported to have said: "What's good for General Motors is good for the country". Yet by the 1990s, and even occasionally in the two decades before then, the company had increasingly became an emblem of everything that was wrong about the country. Inflexible, tied to inflated ideas of its past glory, unwilling to accept new ideas, and unable to integrate its multiple competing brands.

Sitting right at the heart of the General Motors monolith is Buick, founded in 1903, and the first company to manufacture automobiles in quantity. In the early years of the century, numerous manufacturers set up to cash in on the public's fascination with horseless vehicles, but most businesses struggled to stay afloat. William Durant, who had taken control of the small Buick car company in 1904, realised that the best way for manufacturers to ensure survival was to band together. He formed General Motors in 1908 in order to acquire the best of his competitors, starting with Oldsmobile, Pontiac (then known as Oakland) and Cadillac. Over the next two years he bought 17 other brands. But while a few of these purchases have become legendary brands, others were of no value at all, and Durant brought the company close to collapse through his reckless expansion. In 1909, with GM already $7m in debt, Durant's bankers refused to loan him a further $9.5m to buy Ford. Soon afterwards he was unceremoniously ousted from the company, although he was allowed to remain a director.

It didn't curb his enthusiasm for automobiles. In 1915, Durant set up a new manufacturing company, Chevrolet, followed by United Motors Service to make industrial components and car parts. Chevrolet became so successful that investors soon began to sell off their shares in General Motors to buy the new competitor instead. Durant bought the GM shares, and in 1916 he found himself back in control of the business he had founded eight years earlier. In 1919 he bolted on fridge maker Frigidaire (sold in 1979), and began to pick up enormously valuable government defence contracts when America entered the First World War in 1917. A year later Durant mounted one deal too many. Having merged Chevrolet and United Motors Service into GM in 1918, he then attempted to take the business private, buying up all of the huge new group's stock. The deal was unsuccessful, and Durant was again ousted by GM's shareholders, and replaced with new president Alfred Sloan. (As a result of subsequent reckless speculations, Durant was bankrupted in the Great Depression of the 1930s. Later granted a modest pension by General Motors, he spent his remaining years as the manager of a bowling alley until his death in 1947).

Durant may have been the visionary who conceived GM, but it was Alfred Sloan who made it great. His biggest challenge initially was to make sense of the jumble of different brands under his control. As a result he introduced a program of brand differentiation, primarily through pricing, promising "a car for every purse and purpose". He also laid down a policy of what he called "continuous improvement" (designer Harley Earl later called it "dynamic obsolescence"), changing the designs of the company's cars on a regular basis to avoid inertia, and to persuade customers to trade up to new models. In 1924, GM ventured abroad, building its first overseas assembly plant in Denmark. To grow its presence, the company adopted the same acquisitive strategy that had worked so well in the US, buying up the UK's Vauxhall Motors in 1925 (although the business operated more or less independently until the late 1980s), and Germany's Opel in 1929. Two years later the fledgling General Motors Australia operation merged with local business Holden's to form General Motors Holden's, (now Holden) makers of the first all-Australian car.

At the time, the group concentrated all of its marketing through one advertising agency, Campbell-Ewald. However, the Depression caused car sales to plummet, and GM struggled to protect its business. One way was to establish very distinct identities for each brand. As a result, in 1933, GM decentralised all of its advertising. Campbell-Ewald kept Chevrolet as well as the various non-car manufacturing businesses such as GMAC and Delco. Oldsmobile was placed with offshoot agency DP Brother. (The account was later inherited by Leo Burnett, when it acquired Bother in 1967). Pontiac and Cadillac went to MacManus, John & Adams. Meanwhile, General Motors also expanded into other fields of engineering, establishing substantial interests in aerospace, and developing weapons systems for the government during World War II. In the 1960s and 1970s it played a significant role in America's Apollo space program, and acquired IT services company EDS, as well as Howard Hughes' aerospace and defence business in 1985 to form Hughes Electronics. (Both were later sold).

In the 1980s and 1990s, GM developed a reputation for industrial labour problems. These began with a massive restructuring programme initiated in 1984, when thousands of workers were laid off and several factories closed down. (Roger & Me was Michael Moore's memorable 1989 documentary about his attempt to secure an interview with then-CEO Roger Smith to protest against the devastating effects of GM's closure of a factory in Flint, Michigan factory where 40,000 people lost their jobs.) Disputes have rumbled on ever since, reaching a new climax in 1998 when a national strike brought production in North America to a halt for eight weeks, at a cost of almost $3bn.

During the 1990s, the company increased its focus on automobiles by spinning off subsidiary businesses. National Car Rental was sold off in 1995; EDS in 1996; automotive parts maker Delphi Systems in 1999. In 2001, the group agreed to sell what was then its third-biggest division, Hughes Electronics, to rival broadcaster EchoStar. However this deal was later blocked by regulators. It was acquired by News Corporation instead in 2003. GM Defence, which made light armoured vehicles and turret systems, was sold to larger rival General Dynamics in 2002 for $1.1bn.

In the mean time GM also expanded its portfolio of brands. Perhaps the most ambitious attempt was through the creation of a brand new car designed to deflect intense competition from Japanese imports. Saturn Corporation was founded in 1985 as a separate operating unit, working outside the main GM structure, and a different working contract was agreed with its workforce to allow greater input from them into the decision-making process. The first S-series subcompact sedans, stationwagons and coupes went on sale towards the end of 1990, supported by a quirky, folksy campaign from ad agency Hal Riney & Publicis which placed particular emphasis on customer service, promising friendly dealers and transparent no-haggle pricing. The initial response from customers was positive, and sales peaked at 284,000 units in 1994, but sales gradually declined over the next few years as GM turned its attention elsewhere.

It had acquired an initial 50% share in Swedish carmaker Saab in 1989, and purchased the remaining shares a decade later, as well as holdings in a variety of Japanese manufacturers. Later came long-running negotiations with failing Korean group Daewoo over some sort of rescue package for its Daewoo Motors subsidiary. In 2000, GM announced a wide-ranging strategic alliance with Italian carmaker Fiat after almost a year in secret negotiations. The two groups established the framework for the creation of several jointly owned production and development facilities in Europe and swapped shareholdings, with GM getting a 20% stake in Fiat in return for 5% of its own shares. In addition GM negotiated the right of first refusal to buy the rest of Fiat, but in return conceded a "put" option which would allow the Italian group to force GM to acquire all its shares at a future date. This was later to prove an expensive mistake on GM's part.

At the end of 2000, GM added to the growing pessimism in global industry, saying it would cut around 10,000 jobs in North America and Europe in response to increasingly difficult market conditions, especially in Europe. The carmaker also said it would gradually phase out its oldest brand, the Oldsmobile. It was obliged to spend more than $1bn to compensate Oldsmobile dealers for their loss of future earnings. Reacting to a poor record for reliability, the company also began a high-profile campaign to improve quality across all its models by introducing new systems for control and monitoring during the production process. GM's finances took another hit in 2002 when it wrote off $2.2bn of value relating to its stake in the now struggling Fiat. Soon after the cementing of their alliance in 2000, performance had slumped dramatically at Fiat's car manufacturing business, making GM increasingly unhappy about the prospect of being forced to buy out the business. GM's 20% shareholding in Fiat was reduced to 10% in 2003 when it declined to take part in Fiat's recapitalization. Also that year GM was able to persuade Fiat to postpone the potentially devastating "put" option by a year to January 2005. But in December 2004, with that deadline now looming, the two sides went to court after GM attempted to argue that the original deal had been invalidated by contract violations. Finally in 2005, GM agreed to pay Fiat E1.55bn to be released its obligations. The two companies' joint ventures were subsequently unwound.

In the mean time, GM launched an aggressive marketing push in the US which helped the company build market share at the expense of traditional domestic rivals Ford and Chrysler, both now wrestling with production problems and disappointing sales. But in early 2004 GM's long-running campaign to publicize the improved quality of its own vehicles suffered a blow when the group was forced to recall 1.8m vehicles in North America as a result of a potential safety defect that could cause fires. A dramatic fall in sales for many of its brands towards the end of 2004 and in the first months of 2005 led to a major restructuring in May and June. The group announced plans to cut around 14% of its North American workforce over three years. It also ramped up promotional marketing in the US, offering substantial discounts on all models, equivalent to those offered to its own staff. The Employee Discounts for Everyone campaign was introduced in June 2005, and led to sharp rise in sales, although the scheme created substantial dents in profitability. The scheme was quickly copied in July by Ford and DaimlerChrysler.

Despite its best attempts, comparatively little progress was made over the following months by GM, although it did secure a landmark agreement with US unions to increase job cuts to 35,000 workers, and bring forward the timing of those cuts by two years to the end of 2006. The sharp rise in fuel costs in 2006 kicked off a steep decline in sales of these models, just as it had in the original oil crisis of the 1980s which first gave Japanese manufacturers a toehold in the US. GM countered by slashing prices of all its cars, but although this served to shift inventory it also eviscerated profits. In summer 2006, the company was presented with an even more daring proposal by its biggest shareholder, activist investor Kirk Kerkorian, to become part of the global manufacturing alliance between Renault and Nissan. Kerkorian was convinced that Renault-Nissan chief Carlos Ghosn could work the same magic he employed at Nissan to rescue GM. The US group agreed reluctantly to consider the plan, and several discussions took place with Renault. Talks eventually ended in October 2006 when it became clear that no satisfactory agreement could be reached.

In September 2007, negotiations with the main United Auto Workers union over a restructuring of GM's healthcare and pension liabilities broke down, leading to a strike by around 74,000 workers. It was the first such action at GM since 1998. Ironically the strike was caused not by the main topic of healthcare payments, but a side issue of job security for UAW workers in future restructurings. The walk-out successfully focused both sides' attention, and a truce and agreement was reached after two days.

By 2008, the worsening economy replaced oil prices as the principal negative factor affecting new car sales. GM announced plans to cut several factories where it mad trucks and SUVs and also said it would attempt to sell the Hummer business. The latter brand, a poster child for the gas guzzler segment, has been the hardest hit of the group's brands since 2006, with sales halving in just two years. By the end of the year the group warned that it would be forced to file for bankruptcy unless it was granted emergency funding by the government. At the 11th hour, GM and Chrysler, which was experiencing the same woes, were granted assistance in the form of a $17bn short- term loan. Both companies were given until the end of March 2009 to come up with a plan which would justify furher investment. In December the company also announced that it would sell or close Saturn, Pontiac and Saab.

A deal was agreed to sell family brand Saturn to US dealership group Penske Automotive for an undisclosed sum. However, that arrangement collapsed in October 2009 and Saturn was shut down. A similar arrangement was struck to transfer Hummer to a Chinese company which specialises in construction equipment, Sichuan Tengzhong Heavy Industrial Machinery Co. That too collapsed in February 2010. Saab was a little more fortunate, though it too came close to liquidation. GM initially struck a deal to sell that business to Swedish company Koenigsegg, which specialises in ultra-luxury supercars priced at around €1m per vehicle. However that deal fell through at the end of November 2009. One of the Chinese backers, Beijing Automotive, acquired some of Saab's technology and vehicle designs, but not the brand name. At the very last minute, however, the Saab name and factory in Sweden were finally sold in January 2010 to Dutch manufacturer Spyker for around €74m. The Swedish government agreed to underwrite a €400m loan from the European Investment Bank to support the business. That deal closed in February 2010.

Yet at the same time, GM's restructuring outline to the government was deemed insufficient and as a result, chairman & CEO Rick Wagoner and most of the board were ordered to step down. Wagoner was replaced as CEO by Fritz Henderson, previously COO, and before that president of GM Europe. The company was then granted enough cash to hold out until the end of May, by which time the revamped senior team was charged with delivering a more rigorous plan or begin a "quick and surgical" bankruptcy.

Yet the complexities of GM's huge mountain of debt made any non-bankruptcy plan virtually impossible, and the giant finally filed for Chapter 11 at the beginning of June. In a lightning restructuring lasting just 40 days, the group shed 12 factories in the US, and thousands of jobs, as well as several international subsidiaries. This allowed a much leaner company to emerge from bankruptcy in mid-July 2009, with the US and Canadian Governments as its dominant shareholders. The US Government had almost 61% of equity in return for providing a further $30bn of funding in loan and equity. The government of Canada injected a further $9.5bn in exchange for almost 12%. The healthcare trust for GM's main labour union, the UAW, held a 17.5% stake, while secured bondholders took the remaining 10%. Ordinary shareholders were more or less wiped out.

The group's entire management structure began a rolling overhaul in July 2009 following emergence from Chapter 11. A key goal of the slimmed-down company was to reduce senior manager numbers. As a result, several posts were eliminated or combined. At the end of the summer, GM's new board asked Henderson to step down, feeling he was too closely associated with the company's old ways. Chairman Ed Whitacre stepped in, initially as interim CEO. That title was made "permanent" in early 2010, but only a few months later Whitacre himself announced plans to step down in preparation for GM's IPO. He was replaced as CEO by Daniel Akerson, who took on the role of chairman as well to Akerson at the end of the year.

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