Why GM failed: 2. Uncompetitive vehicles

Why did General Motors (GM) fail? A second reason is its uncompetitive vehicles. As I posted in early 2006, comparing GM vehicles to those of Toyota Motors (TM) revealed that people were willing to pay more for Toyota vehicles than for GM's since Toyotas were better designed and built so they had higher quality, cost less to own, and lasted longer. GM resorted to cutting price on its inferior vehicles and it had higher costs so it was squeezed on the revenue and cost sides of its income statement.

Back in 2005, Toyota cars – particularly Lexus -- topped the initial quality surveys year after year. And people were willing to pay for that quality. For example, Toyota charged 14 percent more for their average vehicles ($24,500) than GM ($21,000).

Toyota also built cars faster and at lower cost. Toyota could build a car 7 percent faster (in 21.63 hours) than GM (23.09 hours). Moreover, Toyota enjoyed a $300 to $500 per vehicle cost advantage over GM. Part of this advantage was in health care costs. While GM complained about its $1,500 per vehicle health care charge, Toyota made most of its cars in countries where government picked up much of the health care bill.

Even though it charged higher prices, demand for its cars was so high in 2005 that Toyota was operating at full capacity and it appeared poised to take over the North American market share lead in 2006. Meanwhile, Toyota earned an average of $1,488 per vehicle in profit, while GM lost $2,300.

For all five reasons why I think GM failed, click here.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

Read Full Story
  • DJI27065.91-10.91-0.04%
  • NIKKEI 22522001.3213.030.06%
    Hang Seng26790.24-334.31-1.23%
  • USD (PER EUR)1.110.00680.62%
    USD (PER CHF)1.01-0.0003-0.03%
    JPY (PER USD)108.140.05900.05%
    GBP (PER USD)1.250.00850.68%