Is General Motors Doomed? 5 Reasons Why, and How to Fix It

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The calls for General Motors’ (NYSE:GM) death have been hitting the headlines for many years, if not decades. As America’s largest auto maker, GM has had a particularly rough time over the past six or seven years, which saw them declare bankruptcy in 2009. After recovering from the brink of death thanks to the controversial government bailout, GM dropped several brands, including Pontiac, in an effort to consolidate and focus on its profit centers. The loss of Pontiac, tens of thousands of employees, and 40 percent of its dealer network reduced GM to a second tier vehicle manufacturer in the minds of many consumers.

Though the company has been able to recover from the tumultuous period five years ago, GM still finds itself in a hostile environment. Focusing on its core brands — Chevrolet, Buick, GMC, and Cadillac — has helped GM get back to its feet, but the ground beneath it is still in danger of collapsing. A variety of factors, including new competition and recalls, have contributed to the latest slate of difficulties for the company. Things have not been getting any easier for GM, and the truth is, it hasn’t really done anything to to help itself out either.

The way things look, General Motors seems doomed. A new CEO, revamped vehicle lineup, and a worldwide market look to have reinvigorated the company for the time being, but is it an indication things have turned around for the long haul? Here are five big factors contributing the GM’s death, and what it can do to fix itself.

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1. Failure to Innovate

General Motors was one of many vehicle manufacturers that saw fit to sit back and settle for its current engineering designs for many years. While consumer preferences were changing and new transportation technology was being developed, GM keep its sights set on maintaining profit growth as opposed to investing in its future. As The New York Times puts it, “G.M.’s biggest failing, reflected in a clear pattern over recent decades, has been its inability to strike a balance between those inside the company who pushed for innovation ahead of the curve, and the finance executives who worried more about returns on investment.”

While electric cars started to make their emergence into the market, GM sat by while Toyota (NYSE:TM) took the reins with the Prius, and Tesla (NASDAQ:TSLA) came out of left field and has started to change the way people think about cars and how they’re sold . Had GM rolled out the Chevy Volt or refocused its Saturn brand to better compete, it might have been able to avoid bankruptcy in 2009.

The next big thing in auto technology appears to be self-driving cars. Volvo has taken it upon themselves to be one of the first out of the gate in applying the new development, and others look to be hot on their trail. If GM was looking for a chance to be proactive and jump into the game, the advent of self-driving vehicles would be an excellent chance to innovate.

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2. Legislative Battles

GM has been under major fire lately with a slew of lawsuits resulting from mechanical failures and recalls. With more than 6 million vehicles having been recalled this year so far, CEO Mary Barra has had her hands full trying to keep the corporation’s image intact. At least 13 people have died as a result of faulty ignition switches in GM vehicles, and as a consequence, Barra was hauled before a congressional panel to answer questions and offer apologies.

Every minute GM spends in the courtroom is doing harm to the company by using resources and spending time better suited to building better vehicles are being exhausted. It also takes a toll on GM’s image in the eyes of consumers to see its CEO held up to a U.S. congressional probe.

Looking at things in somewhat of a positive light, perhaps the salvo of lawsuits and recalls are Barra’s way of “cleaning house.” However, if that is not the case, then GM has to clean up its act — and fast. A company that spends more time in a courtroom defending itself is not one consumers will trust, and in the end it will take its toll in declining revenues.

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3. Revamped Competition

The most notable competitor to hit the auto market over recent years is Tesla, an all-electric luxury vehicle manufacturer that has not only challenged the dealership model of sales, but raised the bar substantially for what consumers expect out of luxury cars. Vehicles are made-to-order as opposed to mass produced at Tesla’s factory, and sales appointments must be made in order to test drive its models. This has led to Tesla becoming the darling of consumers who appreciate the less aggressive sales approach and emphasis on quality products.

Tesla is more of a competitor to higher end manufacturers, not directly to more consumer-aimed vehicles built by GM’s four brands. GM will need to keep an eye on it, however, if Tesla starts to aim its sights towards more middle-of-the-road drivers, GM will need to take action.

GM is also seeing incredible competition from overseas car makers, as the growth of Hyundai and Kia from budget to premium auto manufacturers has turned up the heat. Toyota has also grown immensely in popularity as well, forcing GM to refocus its model lineup to better match up with its competitor’s smaller, more efficient models.

To keep up with constantly evolving rivals, GM needs to take notes on what has consumers so enthused with what companies like Tesla are doing. A focus on quality is the best approach to take, as seen with the success of Hyundai over the past decade.

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4. Recalls

Probably the biggest problem GM is currently facing is a salvo of recalls that encompass millions of vehicles. Negligence on the part of the manufacturer has resulted in driver deaths, which has greatly impaired the GM brand names in the public eye. This year has seen recall after recall be announced by the company, leading many to wonder just what exactly is happening in GM manufacturing plants.

What can GM do about its recall issue? As is the solution with so many of its other issues, a simple slow down and reevaluation of the company’s priorities is in order. As is the immortal dilemma of any corporation, GM must find a way to balance its thirst for profits with the ability to create safe and durable vehicles in a fast and cost-effective matter. Whatever methods are currently employed have obviously failed, so executives should go back to the drawing board immediately.

Send the message that GM is more comfortable jeopardizing its customers’ safety than spending $1 to fix a serious issue with its product does not project well in long-term growth for an already ailing business.

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5. Economic Inequality

Economic inequality is the final entry on the list, and by far the biggest curve ball. While the current world economic status can’t be blamed on General Motors, the fact is that the company will be on the front lines of the fallout. Consumer simply don’t have as much money or disposable income than they did ten years ago. Low job prospects, lower wages, and a rising cost of living have all played into this fact, and as a result, many people simply choose to forego owning a vehicle until they can find a more sound financial footing.

The millennial generation is also going to change the auto market, as study after study shows they simply aren’t interested in buying or owning a vehicle as previous generations. The “sharing economy” and an emphasis on public transportation, coupled with a keen interest in global climate change are some of the reasons behind the millennial rationale, and it’s hard to blame them for it.

The key for auto makers is to find a way to adapt to fit the lifestyle of millennials and the generations coming after them. If that means developing smaller, cheaper, and more fuel efficient vehicles, GM may wave goodbye to GMC models and rely heavily on models like the Chevy Spark or Sonic in coming years. What’s ultimately going to happen is yet to be seen, but with the current economic climate, GM will need to evolve to cater towards shifting transportation preferences. The issue of economic inequality is all-encompassing, and will effect all automakers across the spectrum. GM won’t be immune, and will need to take proper measures in preparation.

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