Tuesday, Jun. 02, 2009

Engine Troubles

GM stood atop the FORTUNE 500 nine years ago; it now stands on the brink of bankruptcy court as sales have decline and cash has become scarce. On Wednesday, GM announced that its unsecured bondholders had rejected the company's offer of a debt-for-stock exchange, so even though the United Auto Workers struck a deal with management last Thursday, bankruptcy still looms as the probable course.

How did such a once great company become so desperate? Perhaps the better question is, How did GM's well-paid management fritter away a treasure chest of brand loyalty and corporate wealth? There's not a single bad decision or misguided executive we can point to and say, "But for that, GM would still reign supreme." GM's is a long-term management failure with a litany of losing moves over the decades, from the Chevy Corvair to the acquisition of Hummer — a rolling insult to the environment — that have collectively destroyed GM's balance sheet and sent its customers wandering.

GM didn't just underserve customers; it overserved its workforce, lavishing lush pay, perks and future benefits on its management and employees even as its franchise began to fray. No doubt, the recent economic turmoil has exacerbated GM's descent. But long before the subprime-mortgage crisis and the recession, GM had failings — in leadership, in design, in strategy and in the self-discipline required to keep labor contracts affordable.

For investors, GM has been a wreck. Money parked in GM stock in 1998 provided a -22% annual rate of return over the subsequent 10 years, a bone-crushing performance that would shrink a $100,000 investment to less than $10,000. Then came the coup de grâce in 2009 — as the crisis deepened, GM's stock went to $1. GM's stockholders had lost nearly every cent they invested.

Click through for a blow-by-blow analysis of GM's greatest missteps, from the face-off with Ralph Nader to the acquisition of Hummer.

See the best cars from the 2009 Detroit Auto Show.