Why Companies Fail

GM’s stock price has sunk by a third since its IPO. Why is corporate turnaround so difficult and rare? The answer is often culture—the hardest thing of all to change.

he American auto industry—an industry that’s been the proud symbol of America’s manufacturing might for a century, an industry that helped to build our middle class—is once again on the rise.” That’s what President Barack Obama told assembled reporters and officials on November 18, 2010, the day after the new General Motors went public, with the largest IPO in American history.

GM sold 478 million common shares at $33 each, as well as a sizable chunk of preferred stock, raising $20.1 billion. While the IPO itself didn’t fully recover the federal government’s post-crash investment in GM (some $50 billion), a complete payoff seemed possible if the stock price rose enough, allowing the government to sell off its remaining stake at a better price. More important, said sober analysts, the stripped-down cost structure, looser union contracts, and management shake-up that preceded the IPO would allow GM to finally shed its decades-old legacy of divisive labor battles and mediocre, gas-­guzzling cars. (As I reported in these pages in 2010, I, too, saw inklings of hope.)

In November 2011, roughly a year later, Treasury revised its estimate of the government’s likely loss upward from $14.3 billion to $23.6 billion. As of this writing, GM’s stock was hovering around $20 a share. The company was beset by reports that the batteries in its splashy new hybrid-electric car had an unfortunate tendency to catch fire. Meanwhile, sales of the Chevy Cruze, which was supposed to be the Corolla-killer, were slipping after a strong initial showing. Read more.......