Why GM failed: 1. Bad financial policies


Why did General Motors (GM) fail? The first reason is bad financial policies. As I posted, for too many years GM used cheap cars as razors to sell consumers a monthly package of razor blades -- in the form of highly profitable car loans. GM has been a finance company that happened to sell cars.

In 2005, GM limited its $6 billion in vehicle operating losses due to the $2.2 billion it made financing those vehicles. Naturally, the two Harvard MBAs who drove GM to bankruptcy -- Rick Wagoner and Fritz Henderson -- both rose up from GM's finance division -- rather than its vehicle design operation.

But financial engineering ended up driving GM into bankruptcy years ago -- a look at its balance sheet over the last decade reveals that GM has been bankrupt -- in that its liabilities have exceeded its assets -- since 2006. And this condition has gotten worse every year from a negative net worth of $5.4 billion in 2006 to a negative $91 billion net worth in the first quarter of 2009.

Originally published