The Economic Advisor

GM Fritz Henderson and Bankruptcy – Too Little to Late!

The GM bankruptcy sent shockwaves throughout the entire United States. General Motors was the symbol of American economic domestic power and innovation. Unfortunately, times change and so does market demands. GM had slowly fallen on hard times over recent years and the mismanagement of its executives also contributed greatly to the problems.

GM Fritz Henderson is the current CEO of General Motors. He assumed his position in March of 2009 after previous CEO Rick Wagoner went down in American business infamy when the President of the Unites States ordered he be fired from his position after GM filed for bankruptcy. Wagoner had attempted to restructure the company in the aftermath of receiving several bailouts and loans. It didn’t work and the task moved to GM Fritz Henderson. Henderson, however, could not reverse the downward spiral and this should come as no surprise. The management of the company had been questionable for years. GM Fritz Henderson previous worked for the company as Vice President so it is curious why someone so linked to the GM bankruptcy would be tapped to run the company.

But, what led to the GM bankruptcy?

The concept of planned obsolescence was a major factor in GM losing a great deal of money in the past decade. Planned obsolescence was a design concept that ensured a car would not last many years/miles in order to stimulate new sales of newer vehicles. In short, cars were purposely built not to last. This was a foolish notion because foreign import cars were known for their ability to last upwards of 200,000 miles. GM Bankruptcy shows planned obsolescence was a poor managerial concept.

Gas mileage was also an issue. GM cars simply did not get great gas mileage. One reason for this was that most GM cars were sports models or they were huge cars along the lines of an SUV. For a time, consumers loved the gas consuming vehicles. However, these solid sales were common during the era of low gasoline costs. When gasoline process skyrocketed, these large cars were not popular sellers. In time, GM simply could not move models.

There were additional problems GM faced and GM Fritz Henderson, Wagoner, and other executives were simply ineffectual in terms of their ability to handle these problems. The company was losing money from collapsing sales. Losses started to rise into the double digit billions. The company was quickly heading to insolvency.

These problems were compounded by various poor managerial decisions. Namely, a joint venture with Nissan and Renault proved disastrous. General Motors also poorly negotiated union contracts it was not able to afford. These problems further drained the company making a turnaround far too difficult.

How did GM Fritz Henderson, Wagoner, and others handle the problems? The answer to this is shrouded in mystery. A clear plan to reverse the problems with General Motors was never truly instituted. Attempts to sell the European wing of the company proved fruitless and further losses piled up. Eventually, the strategy arrived at was to accept a bailout loan from the federal government to avoid heading into bankruptcy court. The plan didn’t work and GM could not avoid bankruptcy filing. This essentially ended General Motors as far as it had previously existed and, ironically, it was also the start of GM Fritz Henderson as CEO.

The end of General Motors proved bittersweet. The GM bankruptcy allows the company to exist albeit in a radically different form. It has now been dubbed Government Motors and the name change truly is an end of an era.

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