The Worst Corporate Failure of 2009 Revealed
It is said that the only two certainties in one’s life are death and taxes. You might, through some clever accounting and creative domiciling, mitigate the curse of the latter but, so far as we know, nobody escapes the grave. Empires…pop divas…authors of books starring Holden Caulfield; on a long enough timeline, we’re all reduced to fleeting moments in the imagination of another time. As Jim Morrison once famously observed, “No one here gets out alive.”
But we are not here today to bemoan the inevitability of death. Rather, to celebrate it. (Not our own, of course…that would be morbid.)
No, fellow Reckoner, we are here today to celebrate the death of a corporate giant…an ill-fated, poorly adapted industrial dinosaur that, last year, finally found a tar pit of its own.
Readers will recall that we’ve recently been pondering the nominations for this year’s Daily Reckoning Financial Darwin Awards. In short, it is our chance to thank those companies that were kind enough to remove themselves from the corporate gene pool, either through Kamikaze-like dedication to self destruction or, more often, through a stubborn refusal to change with the times. It is, after all, in the fertile aftermath of such creative destruction that the cycle of free market capitalism blooms anew.
Readers wrote in from all over the country and, indeed, the world, with nominations for this year’s award. By the time we got around to tallying the votes this past weekend, our DR inbox was brimming with so many accounts of idiocy and uncompromising incompetence that we briefly considered nominating it for a government post.
And, as you might expect, there were nominations aplenty for just about every level of government…from the usual partisan politician bashing to the lever-pulling loonies at the Fed and the Treasury.
Much as we’d like to give them all their due recognition, we had to cull the field a bit.
“On a sheer vote count, Ben Bernanke won hands down,” we noted in the Weekend Edition. “Alas! We regret to inform that he must be disqualified from this particular competition. Remember, we are here to praise the extinct. But Bernanke is not extinct; he is thriving…like a cockroach in the fallout of a nuclear blast. His prognostications might have been way off the mark…he might have forecast a period of ‘Great Moderation’ during the bubbliest decade in history…and he also did more to rescue hideously mutated financial species from extinction than any central banker in history. However, Bernanke was just ushered in for his second term. In Darwinian terms, he is adapting to the Big Government era, toxic as it is, as well, if not better, than just about anyone else in the ecosystem.
“Nor can we bestow this year’s Financial Darwin Awards on any of the financial mutations or extinctions that occurred in 2008 and before,” we continued. “So, as much as we empathize with the fellow who wrote in to raise a hand for ‘the year 1913, for spawning the Fed,’ we simply must impose some parameters.”
[If you’d like to see a brief list of those honorable mentions that fell short of qualifying for this year’s grand prize, check out the Weekend Edition here.]
In the end, and notwithstanding the exceedingly strong field, the choice was rather easy. We are pleased to bestow this year’s Daily Reckoning Financial Darwin Award on a company that, through a lethal combination of union concessions, bloated bureaucracy and an unrivaled dedication to fiscal and automotive inefficiency, last year became the largest industrial bankruptcy in American corporate history.
The award goes, if you haven’t guessed by now, to General Motors – also known, since July of 2009, as Motors Liquidation Company.
Reading through the history of this once mighty American icon is a bit like watching a car wreck in slow motion…
After William Crapo Durant founded the company back in 1908, GM went through a series of high profile management evolutions, including the twice removal of Durant himself, the second time for good. Nevertheless, the early years for GM were, by and large, years of innovation, of expansion and seemingly unstoppable growth. The twenties saw a slew of acquisitions for the Detroit company, including the German automaker, Opel, and Britain’s Vauxhall. Market share grew enormously, both domestically and abroad. The wind and the ingenuity of the can-do American was behind her.
Then in 1937, something curious happened. Workers in GM’s Fisher Bay Plant in Flint, Michigan, sat down. They weren’t standing up again, they told managers, until their demands were met: better work conditions, hours and benefits. It seemed reasonable enough, said many. General Motors is large enough. It can afford a few extra bob for the poor souls on the production lines in Detroit. And so the first battle with the union was fought: United Automobile Workers – 1; GM – 0.
But by the time the score could be tallied, much less properly understood, WWII had rolled around. General Motors stopped making cars for American people and began making tanks for Allied soldiers. As history would have it, GM found itself on the winning side this time and, by the time its factories were again pumping out Chevys and Caddys, they were the biggest game in town. By 1954 GM’s share of the American market, then the largest in the world (before China overtook it last month), stood at a whopping 54%. One in every two cars started in a GM factory.
Through the ’60s and early ’70s, GM cruised along. In 1961 she sold more than half of all the cars AND trucks in the US. With the introduction of the GTO Pontiac Tempest in 1964, Detroit’s darling set about ushering in the era of the muscle car. Then something else happened: the energy crisis. All of a sudden people didn’t want a V8 engine in a medium sized American body; they wanted a four-cylinder engine in a small-sized Japanese body.
A continuation of that shift through the ’80s saw GMs market share in the US drop from 45% to 35% and, for the first time in 59 years, the company actually reported a net loss.
Then, in 1990, those workers sat down again. By the time they stood up again, GM had signed a contract guaranteeing nearly full wages and benefits for workers, whether or not they showed up at work. UAW – 2; GM – 0. Later that same decade, in ’98, the workers scored their 3rd victory. After seven weeks of UAW protests, it was three strikes and you’re out for GM.
General Motors might have been conceding ground to its union workers…but it would be damned if it was going to look like a sissy to its competition. In 1999, GM bought Hummer, making every mom’s dream of driving a military vehicle closer to a reality. SUV sales peaked in 2002…but GM pressed on with its giantmobiles, rolling out new Surburbans and Escalades even as market sales dwindled and the price of oil marched higher and higher.
At a time when it most needed to adapt, GM stuck to its guns. But by then it was unable to move. The more it struggled, the deeper it sank into the tar pit. Finally, investors began fretting about legacy costs and, in 2005, credit agencies downgraded both GM and Ford.
By the time it became eligible to contest this year’s Daily Reckoning Financial Darwin Awards, GM was at Washington’s door, begging for handouts, bridging loans and credit extensions. Bush gave more money. Obama gave more time. But the ride was over. Shares of GM, which had peaked in 2000 at around $94, fell to 75 cents. What was once the richest company on the Fortune 500 was now a penny stock awaiting bankruptcy.
Much has happened since then…GM sold Hummer to China and Saab to the Swedes…dealerships across the country were closed by the hundreds…and yes, tens of thousands of GM workers now cash food stamps in Detroit.
Ideally, marketplace extinctions would occur quickly and quietly, with little or no life support financing from the poor ol’ American taxpayers. Alas, it was not to be the case for GM. General Motors Corporation is now General Motors Company…and the majority owner is the government of the United States of America.
Congratulations to Washington. Commiserations to taxpayers.