Business Failures

There are a number of reasons why businesses fail. Businesses like automobile manufacturing have the advantage of making a commodity that is likely to be needed for a long time, maybe forever.  But what companies do with this opportunity determines who will survive and who will fail.

The Industrial Revolution required capital, ingenuity and tenacity on the part of Industrialists. They had to borrow money from banks and move quickly to get a cash-flow from paying customers.

The early history of automotive manufacturing is well known and it occurred at a time of great upheaval.

Electricity was invented in 1882 but didn’t became available in the US until the 1920s along with chlorinated water. John Rockefeller produced oil for lamps and had to move quickly to develop gasoline for automobiles to survive through the transition from gas lights to gasoline engines.

Steam Engine Cars were produced in the 1890s. The internal combustion engine had been invented in 1876. Cars were in use by the rich in the 1880s and 1890s, but were too expensive until Henry Ford invented the assembly line and brought the price down from $1000 to $500.  Ford built the Model T from 1908 to 1927. Many were trucks families bought to transport their goods.

Ford, GM and Chrysler emerged as the “big three” auto makers in the 1950s. As gasoline prices increased, foreign car companies offered smaller cars with better mileage.

Labor Unions, poor quality, higher gasoline prices and bad management were to blame for the decline of US auto manufacturers in the 1970s. By the 1980s, Japanese and German cars began to replace American cars in the US.

Chrysler was sold to Fiat in Italy.  Ford wasted money on driverless car and electric car technology. GM hangs on in the global market, but has never been an innovator.

 

In the private sector, executives are replaced when the Board or CEO believes that the executive will not be able to deliver needed results. It is rare for an executive to live through a large and obvious failure.

GE stock under Jack Welch rose from 1980 to 1999 to $58 per share. Jack retired and Jeff Immelt became CEO in 2000. During Jeff Immelt’s time as CEO from 2000 to 2017 GE stock fell and reached $17 per share by 2017.  GE recognized its failure in 2017 and replaced CEO Jeff Immelt and half of its Board of Directors.  Under Immelt, GE stock peaked at $33 in 2000 and dropped to $17 by 2017 and new sits at $12 in 2018.

In business, when sales slump, new products fail or don’t launch, costs are out of control and financial results are poor, executives and managers take action to correct these failures. 

The rules are simple. Don’t run out of cash.  Don’t run out of customers. Fill a current consumer demand. Don’t take any dumb risks.

Norb Leahy, Dunwoody GA Tea Party Leader