3 Famous Automotive Companies That Almost Collapsed (But Didn’t!)

Written by Mike

Topics: Business

In a statement to Tesla’s employees, Elon Musk described the automotive sector as, “one of the toughest and most competitive industries on Earth, where just staying alive, let alone growing, is a form of victory.”

He went on to add that Ford and Tesla are the only American car companies that have never had to declare bankruptcy. For reference, there are around about 30 American automotive companies currently trading and approximately 1,700 already defunct.

The industry is vicious and uncaring to anyone who doesn’t quite meet the mark. No matter how much blood, sweat and tears have been poured into the design of a car, a few bad reviews will send consumers running for the hills.

The erratic and uncertain nature of the industry has caused many a manufacturer to go under. But the shakey ground doesn’t cause all businesses to lose their footing.

Here’s the story of how 3 famous automotive companies that stared down catastrophe and managed to avoid collapse.

General Motors

General Motors truly is a household name in the automotive industry. Producing and selling over 5 million cars across the states every single year, there was no way anything would stand in this giant’s way.

No one could predict the awful hardship of the 2008 global financial recession. The automotive industry was not shielded and neither were its biggest players.

To no avail, GM tried to steer itself to safety on the recession’s stormy seas.

After exhausting all their options, they finally declared bankruptcy on 1st June 2009.

An iconic American manufacturer like GM was not going to be crushed so easily. The company was saved by the government-backed Chapter 11 reorganisation and a $49.5 billion investment from the US Treasury.

GM pulled all its resources together and dropped several unprofitable product lines, like the Hummer and Pontiac, saving its efforts for more rewarding endeavours like Saab.

A strong, rejuvenated GM ruled the roost just one year later, a far cry from its time on the cusp of collapse.

Volkswagen

The world’s second global car manufacturing leader, Volkswagen, also almost faced defeat.

They sold 11 million cars last year, culminating in over $269 billion. But they faced a very rough patch a few years ago which could have been their demise.

One word: dieselgate.

In September 2015, the Environmental Protection Agency (EPA) uncovered that Volkswagen had been cheating on their emissions test.

Using something called a ‘defeat device’, Volkswagen were able to trick their car engines into emitting less pollution during the all-important emissions test so that it bore no reflection on real-life, day-to-day output.

Once the scandal came to light, it was found that some Volkswagen cars were puffing out 40 times more toxic fumes into the atmosphere than allowed, and it’s estimated that over 11 million cars were caught up in the affair.

Volkswagen customers took a stand, distancing themselves from this once trustworthy brand – share prices crashed from €253 in April 2015 to €92 in just six months. How could they ever recover from this?

Will Craig, the CEO of car leasing comparison site LeaseFetcher discussed the situation and the impact it had on him as a consumer himself:

“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!”

There was no escaping the facts for Volkswagen: their gambit had not paid off. They were a ticking time bomb.

Taking full responsibility for the ruse, out went the group’s chief executive, in came a new leader from Porsche, and a painful €6.7 billion was set aside for the mission to recall all affected vehicles.

Volkswagen managed to raise themselves from the depths of despair by ensuring that, going forward, they are completely transparent, emphasising their commitment to a green, electric future.

Tesla

It is no surprise that bigger, established players in the automotive industry were able to scrape by in the 2008 global recession. What about the relative newcomers?

Tesla was somewhat a fledgling on the market and the financial crisis thrust them closer and closer to bankruptcy.

Then came Christmas Eve 2008. Tesla was on the verge of going under until Daimler entered the picture.

With a $50 million investment from them, Tesla was rejuvenated, narrowly avoiding bankruptcy.

It was an incredibly close call for them: they closed the financing round on the last hour of the last day it was possible. It was a Christmas miracle!

About the Author

Tom Butcher is a freelance writer who recently escaped the world of print journalism. He covers a wide range of topics, including finance, business and motoring. You can follow his (new) Twitter feed here.

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