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Lessons drawn from GM bankruptcy
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21:51, June 02, 2009

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General Motors, one of the once dominant "Big Three" American automakers, on Monday filed for Chapter 11 bankruptcy in the largest such case in U.S. industrial history.

Why did the 101-year-old manufacturing icon, which had been the world's largest automaker for 77 years and had weathered numerous market fluctuations over the past century, succumb to bankruptcy so easily?

Many analysts believe that even before the financial crisis dealt GM a fatal blow, the manufacturer was sailing in troubled waters. They say that mismanagement, insensibility to market demand and customer needs, failure to innovate, and high production costs had already robbed GM of its ability to recover.

Compared with its Japanese competitor Toyota, GM just made too many mistakes for too long, according to an article in U.S. magazine Business Week.

Bad management is largely responsible for GM's fate. Company managers seem to have wasted too much money while Toyota, which overtook GM as the world's No.1 automaker in 2008, invested heavily in technology and vehicles.

Some say GM's failure was partly due to legacy expenses such as the high cost of pensions and health care that Toyota does not pay. Others, however, argue that GM might have solved those problems had its executives planned for them years ago and used their money wiser.

During the 1980s, rather than seed its pension fund or invest in better car models, Chairman Roger Smith spent 80 billion U.S. dollars on automation that did not correct GM's quality problems. He also invested another 8 billion in Hughes Aircraft and software maker EDS.

Had GM executives spent the 88 billion on cars instead of other things, the company might not have had to blow its savings on restructuring costs.

If it could use the money today, GM could strengthen its pension fund, seed a plan for retiree health care benefits, and have a larger research and development budget to produce electric cars and improve its passenger-vehicle lines.

Unlike Toyota, which for years has focused on making cars in line with market and customer needs, GM had been turning away customers with vehicles largely viewed as poorly designed and built.

Competitors like Toyota introduced environmentally friendly cars and budget vehicles for emerging countries when they aimed to take the industry lead.

GM, meanwhile, stuck to producing SUVs that helped it dominate in a low-oil-price era but caused trouble as fuel prices soared.

Analysts say that among the many factors that contributed to GM's bankruptcy filing, its failure to innovate may have been the most harmful.

Even without such problems as staggering debt and health and pension burdens, it was still almost impossible for GM to rise to its previous glory because of that lack of innovation.

Today's GM does not have the economy vehicles that could help it win back the mass market nor does it possess the new energy technology needed to lead the car industry in the future.

A new GM reborn after the bankruptcy of the old GM, then, carries the hope that the automaker will emerge as a smaller but more competitive company.

Source: Xinhua

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