The bankruptcy of General Motors contains
lessons for us all as GM has gone from being the dominant corporation in the
world to the bottom of the heap. King Solomon taught, “Take my instruction,
and not silver, and knowledge rather than the choicest gold” (Proverbs 8:10
NASB).
All
bankruptcies are painful, and this has and will hit many people hard, but we
can learn much from this tragic situation.
#1—Most change happens over a long period
of time. Absalom
led a revolt against his father and forced King David to flee Jerusalem. To the
casual observer, the revolt sprang up suddenly, but in reality Absalom had been
working for a very long time to turn people against his father (See 2 Samuel
15:1-12). The hearts of many people were turned, one at a time, over several
years.
The point is, when we see changes in our
business environment, we need to take action. David could have restrained
Absalom easily if he had taken action earlier, but he waited and ended up fighting
a major battle later.
Over time, GM’s market share steadily
declined. No single year or event shaped this trend. It was just a gradual
decline, and relatively small changes were made: Saturn was introduced, foreign
car makers were bought and sold, and a plunge into technology with the purchase
of Hughes Electronics and EDS created excitement but never stemmed the decline
in market share and sales.
Giles Bookstore had been in the same
location for 30 years and earned a stable profit. However, over the past five
years other businesses started moving away, which resulted in a steady decline
in foot traffic and a corresponding decline in sales and profits. Joe Giles
didn’t want to move. He tried more advertising, a store remodel, sale
promotions, and sharper displays … but sales continued to decline. The fact was
that the bookstore relied on foot traffic and foot traffic was just not there.
Joe needed to invest in a new location that would gain an increase in traffic
rather than continuing to invest in a location that was on its way down.
#2—We can easily be in denial.
Over the years as market share eroded
little by little GM gave a lot of reasons, but denied the reality the continued
market share loss needed to be fixed, not explained away each year.Late last year General Motors announced
bankruptcy was not an option and would not happen, more denial.
Likewise, Giles Bookstore failed to grasp
the reality that customers were moving away and that traffic was slowing down.
The extra efforts helped a little bit, but it was not enough to offset the
customer decline. King Solomon asked, “How long will you fools fight the
facts?” (Proverbs 1:22 NLT).
Both General Motors and Giles Bookstore
failed to understand that far more radical change was needed. If either
business truly grasped the facts of the declining business model over many
years, far more radical action would have been taken.
#3—Deferring costs may hurt more than help.
General
Motors agreed over the past half century to pay very generous retirement
benefits to employees. In the early years this seemed like an easy way for the
company to settle contract negotiations. The labor unions claimed the great
benefits won and GM avoided paying out the money until a future date. However,
the massive pension and healthcare costs became a legacy cost that would be a
millstone around the company’s neck.
Giles Bookstore also started deferring
expenses by not doing building maintenance, cutting back on inventory, and not
upgrading their computer system. This created additional problems that made the
bookstore even less efficient. Roof maintenance was ignored, causing major leak
resulting in $75,000 worth of damages. All costs, whether paid today or in the
future, are real and should be carefully considered.
The current challenging economy helped push
GM and Giles Bookstore over the edge and into bankruptcy, but the events that
forced bankruptcy could have been altered if management had acted earlier.
As a native Detroiter and recent GM vehicle
purchaser, I take no delight in the misfortune of General Motors or its
employees, retirees, shareholders, bondholders, and others who have lost a
great deal. While management, government, the United Auto Workers and others
share the responsibility for this failure we can learn key lessons from the
tragic situation that apply to our businesses.
