7 reasons GM is headed to bankruptcy

If just one big mistake had brought General Motors gm to its knees, maybe it could have been fixed and averted its march into bankruptcy court Monday.

But what put the huge company — it once sold more than half the cars in the U.S. market and now controls less than 20% — in such a hole was a series of missteps, an inability to change lanes quickly when the market or government veered … and a heaping dose of bad luck.

"If there was one decision that was the lynchpin … it would be easier to fix," says Laura Marcero, a restructuring expert at Grant Thornton. "But these are systemic problems pervasive in the industry for decades."

Now, GM is operating on $20 billion in government aid and will need billions more to reorganize. Over the weekend, GM put final pieces in place for a filing: a cost-cutting labor deal got union approval; the U.S. and Germany brokered the sale of its European Opel unit to Canadian parts maker Magna; and more than half its bondholders agreed to a deal to cut its debt.

Some would argue GM got here mostly because the sales-killing recession came just as it was about to turn around. "This has nothing to do with the management of the company over the years," says David Cole, chairman of the Center for Automotive Research. "When you take sales down to Depression-era levels in a high-fixed-cost industry like this, it's a killer."

Still, GM made some key missteps that hastened its decline. Here are seven of the biggest:

1. Not filing for bankruptcy sooner

Momentum toward a bankruptcy filing accelerated since the auto market collapsed last fall. But as far back as the North American International Auto Show in Detroit in 2005, then-CEO Rick Wagoner faced questions about whether GM would be better off filing for bankruptcy reorganization to cope with its labor costs, debt load and excess dealers.

Wagoner was then, and remained until his last days at GM, adamantly opposed to bankruptcy. He said it would drive away buyers and irreparably harm workers and shareholders. He believed GM could turn around: He was CFO in 1992 when GM teetered on the brink of bankruptcy, only to make a strong rebound.

But a bankruptcy filing in 2005, when the company was stronger and the economy was chugging along well enough to absorb job losses, could have been better for everyone, says Martin Weiss, president of Weiss Research. Weiss predicted GM would file for bankruptcy in 2005 and still believes it should have. "They could've been leaner and meaner to prepare for the tough times that were coming," Weiss says.

2. Driving incentives into the ground

Following the 2001 terrorist attacks, GM was praised for responding quickly and decisively: It offered consumers 0% financing on loans up to five years. When the newness of that deal wore off, the automaker piled on a $3,000 rebate.

And the deals kept coming. GM stuck with cash-back deals and low-rate financing for years, increasing rebates to $6,000 to $8,000 in some cases. But to afford the rebates, GM kept sticker prices high. It took GM until 2006 to realize it was damaging itself with the non-stop deals: Shoppers often wouldn't consider a GM vehicle because its sticker price was so much higher than the competition.

Jesse Toprak, executive director of industry analysis at Edmunds.com, says once GM started offering heavy incentives, it was stuck with them, because competitors weren't easing off on rebates, either.

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