What Went Wrong?

What brought a company low that at one time embodied the cool of Apple, the financial heft of Microsoft, and the marketing savvy of Toyota? At one point, every other car sold in America was made by GM. In a word, protection.

When Alfred Sloan organized Billy Durant’s hodgepodge of brands, he created a car for every purpose. The entry-car was a Chevy. As customers went upscale, they could ascend through Olds and Buick to eventually land a Caddy, and never leave the GM family. Any business student will tell you this is classic niche marketing, combined with price optimization. Why didn’t the model last?

Well, times change. A trade war in chickens led the US to impose tariffs on imported trucks. Capital was diverted to this more lucrative market, and GM’s “auto ladder” languished. In the end, so many resources were focused on the profitable light truck market that when fuel prices spiked again in 2008, the company couldn’t adjust..
So government protection diverted assets that should have gone to strengthening a diverse product lineup. Sure, management made bad decisions. But they were encouraged to do so by bad policies.

Douglas R. Tengdin, CFA
Chief Investment Officer
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