April 8, 2009, 5:00 am

Is The Economic Crisis Responsible For The Fall of Automakers like GM and Chrysler?

by: The Financial Blogger    Category: Investment, Market and Risk
email this postEmail This Post Print This PostPrint This Post Post a CommentPost a Comment

car-flying-off-cliffI was following with great attention Obama’s reaction towards giant car makers GM and Chrysler last week. He said that the result of their current financial situation was due to bad management over several years. During one of my MBA class, we look at marketing analysis done for GM back in the 70’s showing that they were heading the wrong way and changes must be applied to remain competitive in the car industry. Did GM listen to them? Nope! They are not even listening to Obama in the light of their plan that was rejected by his administration.

So I am wondering: Is the economic crisis really cause the fall of well known automakers? Or is it just that their business model was not viable over the long run?



Back in early 2002, after the World Trade Center attack, several plane companies required government help. They claimed they were suffering from the terrorist attacks and that less people wanted to fly at that time. On the other side, we knew a while ago that a lot of these companies were operating in a non profitable business model for a while. They were surfing on the trust of their shareholders and creditors until something major happened.

In both industries, several players didn’t adapt to the new reality and were losing money years after years. Nobody really cared because the economic situation was good and we all though they could somewhat solve their problem while people keep buying. It’s like driving cars with a hole in the gas thank and thinking that as long as we gas every 20 miles, we will be fine. The problem is that we hit a hill that we have to climb and we are out of gas…

The car industry is not doing well these days as people prefer to stick with their old (but less expensive!) car since they are unsure about the economic situation. They don’t think it is a good timing to spend more money while they see on the news that companies are cutting right left and center.

GM and Chrysler are trying to draw the attention to the global economic crisis, to the mess on Wall Street but they forgot to close the door hiding their own mess… Unfortunately for them, it is now time to clean up and pay for the past 20 years of bad management and wrong product manufacturing.

When I think about it, recession is a blessing as it gives the market the opportunity to clean up bad companies that destroy wealth of shareholders. However, it is very sad to think that several employees will have to pay the price for greedy and unconscious CEO’s of this world. Since we are in the middle of the Trillion Dance, maybe Obama will buyout GM and become the most important government and carmaker of the world?

Image source: listverse

Similar Posts:

You Want More? Sign-up! ->
TFB VIP Newsletter


If you liked this articles, you might want to sign for my FULL RSS FEEDS. If you prefer to receive the posts in your email, subscribe CLICK HERE


Comments

Spot on, thank you
“When I think about it, recession is a blessing as it gives the market the opportunity to clean up bad companies that destroy wealth of shareholders”

Yes this is an excellent time to detox the system and its unfortunate to see companies go down but they put themselves in this situation probably by cutting corners before.

[…] GM and Chrysler having serious financial difficulties and the car market sales going down from months to months, the price of new cars have been dropping […]

[…] Financial Blogger presents Is The Economic Crisis Responsible For The Fall of Automakers like GM and Chrysler? posted at The Financial Blogger, saying, “recession is a blessing as it gives the market the […]

Someone, I think it was Gather Little by Little wrote that GM and Chrysler have been making far more cars than what the market was buying. And this is before addressing the issue of whether the cars they made were preferred by the public.

Seems to be gross mismatch. I really wonder how they managed to get away for so long.