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How 3 Famous Automotive Brands Avoided Catastrophe

4 October 2018 No Comment

The automotive industry a ruthless space where multinational conglomerates fight tooth and nail for razor-thin profit margins. If a brand starts slipping behind in the sales charts or it feels the power of its badge waning, it’s nigh impossible to avert the collapse and return to a position of strength.

But a handful of automotive brands have done just that. They’ve stared collapse in the eyes and narrowly avoided certain failure.

In this article, I’m going to look at three famous car brands that teetered on the edge of collapse but (somehow) managed to turn things around and get back on the right track.

General Motors

General Motors is one of the Big Three American car manufacturers alongside Ford and Chrysler. Collectively, the Big Three controlled a huge swathe of the global car market. They were an indomitable force and no intelligent person would have bet against them failing.

But they almost did.

When the 2008 Global Financial Crisis rolled across America, it hit the US automotive industry hard. With millions of people evicted from their homes, buying fancy new cars was the last thing on anyone’s mind.

Car sales plummet and GM was left with hugely expensive factories and no orders coming in. The company was swiftly headed for the point of no return. GM reacted swiftly, slowing production, idling facilities and laying off vast swathes of its workforce.

Unfortunately, that wasn’t enough and the company filed for Chapter 11 reorganisation bankruptcy. Since GM was so important to the economy, the US Treasury stepped in and invested  $49.5 billion into GM and $17.2 billion into its former financing company.

With fresh money, GM set about streamlining its business, ditching unprofitable brands like Saturn and Hummer and selling off some profitable badges like Saab.

Fast forward one year and GM had righted a lot of its wrongs and returned to profitability.

Volkswagen

Volkswagen is the second largest car company in the world with Toyota just beating the German giant to the number one spot. However, it’s still mind-bogglingly large. Last year, the Volkswagen Group sold close to 11 million cars, netting them a cool $269 billion — about $50 billion more than the entire GDP of Finland!

With a strong commercial base and a diverse portfolio of badges, it’s tough to imagine a scenario where Volkswagen gets anywhere near collapse.

Well, when you falsify your emissions tests, defraud all your customers and have to recall millions of cars, that’d push most brands to the brink.

The Volkswagen emissions scandal — or ‘dieselgate’  as it would later become known — broke in September 2015. EPA testers discovered that Volkswagen had artificially lowered the emissions in its cars during official tests by activating what’s called a defeat device.

When the dust settled, Volkswagen admitted defeat devices were active in over 11 million cars!

Understandably, customers were furious and that, combined with the media furore, caused the Volkswagen Group’s share price to plummet from €253 in April 2015 to €92 in October.

Will Craig, CEO of car leasing comparison site, LeaseFetcher, spoke to us about dieselgate and how it affected him.

“I was driving a Volkswagen Golf at the time because I thought it was a sensible and safe family car. When I found out it was spewing toxic gases into the air, I felt genuinely sick. It wasn’t just a company bending the truth slightly, this was a company lying to my face. Suffice to say, I won’t be buying another Volkswagen any time soon!”

Volkswagen averted a prolonged scandal by admitting their fault as soon as possible. Chief executive, Martin Winterkorn, resigned almost immediately and they replaced him with an outsider from Porsche. The company also set aside an eye-watering €6.7 billion to support their enormous recall efforts.

Volkswagen has learned from its mistakes and they want to undertake a green rebrand to reclaim that consumer trust. The future of Volkswagen is electric.

Tesla

Back in 2008, Tesla was about as far from a household name as you could get. Yes, it had been going for five years but their first car — the Tesla Roadster — hadn’t even launched yet! It was a niche brand for a very niche audience.

A two-year recession in the US and a global financial crisis was probably the last thing it needed. Unfortunately, that’s exactly what it got.

While some companies like General Motors were deemed important enough to receive government bailouts, little Tesla was not one of them. With enormous debts, an unfavourable economic climate and dwindling cash reserves, Tesla was headed for bankruptcy.

What they needed was a Christmas miracle and that, thankfully, was what they received. On Christmas Eve 2008, Daimler invested $50 million dollars into Tesla for a 10% equity stake, giving the grant enough cash to keep going.

Tesla’s founder, Elon Musk, noted that the company closed the round on the “last hour of the last day that it was possible.”

About the Author

Tom Butcher is a freelance writer, covering a wide range of topics, including finance, business and motoring. You can follow his (new) Twitter feed here.

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