The Stories of Second Chance

We make mistakes in life, some of which may bury us forever. Nevertheless, it is comforting to know that life is full of stories of second chance. I can point to three of the world’s biggest companies that went through glory, near death, and re-birth: IBM, Apple and General Motors.

IBM plunged into a big crisis in the early 1990s due to the decline of the mainframe and its debacle with the new personal computer venture. There were rumors that it was about to break up and be sold by pieces. With the appointment of a new CEO, Louis Gertsner, the company gradually shifted production from hardware to software with emphasis on management systems. The IBM turnaround has since become a great success.

Apple suffered a similar fate around the same time due to mismanagement and competition from Microsoft and other hardware companies. When Steve Jobs came back to take the helm, the company was not far from bankruptcy. Jobs began the process of re-inventing the company by incorporating his visions and sense of style in product design. This propels Apple to the top position of the world’s biggest companies. Apple’s legendary story is well known, and represents the greatest comeback in corporate history.

General Motors (GM) used to be the world’s top company in terms of sales and employment until the first oil crisis struck in 1973. Since then the company started on a path of slow decline until bankruptcy in June 2009.

GM’s previous failures are also well known. In short, three big reasons led to its downfall: inability to produce fuel-efficient cars, inability to contain costs, and competition from foreign countries especially Japan. The average GM worker was reported to cost $75 per hour in 2008 compared with only half the cost for a Toyota worker. In addition, over half of the cost of a GM car was attributed to health care and retirement benefits for its employees. This prompted some executives to ask whether GM is in fact a health care company.

The filing of bankruptcy in 2009 provided for a new beginning. Besides simplifying its structure and reducing employment, its debt has been greatly slashed from $95 billion to $17 billion. It has also negotiated a new contract with the auto labor unions for a more reasonable wage and benefit scheme. This puts the company back on a competitive footing. Its products now attract more customers especially in the Chinese market. It remains to be seen how GM manages to succeed in the intense competition of the auto industry.

After the Initial Public Offering (IPO) of the new reconstituted GM, the US government turned out to be the biggest beneficiary. As an exchange for bailout money, the US government took over 66% of all GM stocks. After the IPO, the government has sold back close to half of its GM stock holdings to private investors, reducing its share to 37%. The cash return for the GM bailout has turned into a handsome profit for the government, thus justifying the reason for bailout, which was heavily opposed by the Republican Party in Congress.

(January 2012)

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