Page 99 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

new economic realities and shook up whole industries. Even in
the worst of times, though, some well-run companies not only
survived the crisis in good shape but also thrived in its after-
math.
Many companies that outperformed their peers in the Great
Depression continued to do so for many years afterward—and
by a substantial degree. There is no more dramatic an example
than the U.S. automobile industry, with General Motors (GM)
and Chrysler building the foundations for four decades of
future success. In Chapters 4 and 5, we offer a detailed descrip-
tion of the defensive and offensive strategies that underpinned
the success of high performers during past downturns. To set
the scene, though, let us look at what happened to U.S. auto-
mobile manufacturing during the Great Depression.
Like today, the automotive industry was among the most
adversely affected in the crisis. From 1929 to 1932, sales of new
automobiles fell by 75 percent—and automobile companies had
a combined loss of $191 million in 1932 ($2.9 billion in today’s
money), or 25 percent of industry sales. This compared with
profits of $413 million in 1929, or 14 percent of industry sales.
The highly profitable luxury end of the market virtually disap-
peared. The lower-priced segment grew from 40 percent of
sales in 1929 to 80 percent of sales in 1933 and remained at 60
percent through the upturn and beyond. As a result, half the
automakers closed down.
Although it may seem ironic to look to the U.S. automobile
industry for examples of how to thrive in a damaged econ-
omy—given its performance during the Great Recession—the
truth is that the performance of Chrysler and GM during the
1930s stands out. GM delivered a profit in every year of the
Great Depression, and Chrysler incurred a loss in only one year.

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