This year’s Fortune 500 proves that despite the down economy, there are three things American consumers simply cannot do without - oil, cars and drugs. While several big-name corporations continue to thrive, we look at 10 companies that experienced epic meltdowns during the past year (and what led to their undoing):
- American International Group: AIG lost almost $100 billion in 2008. The company overextended itself by agreeing to pay off tons of high-risk mortgages if holders defaulted on their home loans. When the economy went south, a lot of those homeowners had no choice but to default and leave AIG holding the bag. The takeaway: Don’t bet what you don’t have.
- Fannie Mae: As a government entity, Fannie Mae could borrow huge sums of money at very low interest rates, and it did so to the tune of 20 million mortgages. Unfortunately, when the housing crisis hit, borrowers ran for the hills and Fannie Mae was unable to pay back its loans. The takeaway: Never spread your business too thin.
- Citigroup: With losses of nearly $30 billion last year, Citigroup’s fall from grace could be chalked up to a $14 billion loss in mortgage loans. But the company lost another $10 billion due to businesses it had acquired while revenues were soaring. The takeaway: Specialization spells success. The more diversified a company becomes in this economy, the more it risks dwindling profits.
- Merrill Lynch: Like a lot of brokerages, Merrill Lynch was falling fast toward the end of 2008. That’s when CEO John Thain did something very smart - he arranged to sell the company to Bank of America. Then Thain did something very dumb – he demanded a huge bonus from his new employers and ended up losing his job. The takeaway: In a down economy, greed is not good.
- Ford Motor: Much like GM and Chrysler, Ford was bleeding profits at an unprecedented clip throughout 2008. But the company brought in a new CEO, it offered a better payment plan for union employees, and it focused on improving its public image – a move which has already paid off (a recent survey revealed that nearly one-third of customers who considered buying a GM or Chrysler during the past six months ended up buying a Ford instead). The takeaway: In these trying times people want to do business with (and work for) a company that values their loyalty.
- Time Warner: This media company lost roughly $13 billion in 2008. A lot of those losses have been attributed to the fact that the media world is shifting and the ripple effect has taken its toll on several industry giants. The takeaway: The future is now. Business is moving online, and those who can’t accept or adjust to that fact could suffer dire consequences.
- Delta Air Lines: The acquisition of Northwest Airlines and the announcement of more flights to international destinations made it seem like Delta was on a roll. But the fuel costs associated with those routes and the cost of acquiring a major competitor translated into major losses. The takeaway: Always consider all the long-term risks associated with any major business move in a down economy, no matter how tempting on the surface.
- Harrah’s Entertainment: The joint companies that bought Harrah’s in 2007 ended up taking a bath on their investment as consumers tightened their belts and cut out any unnecessary spending. The takeaway: Do as much research as possible before branching out into new markets. There are great opportunities to expand, but successful companies pick their spots wisely.
- Macy’s: When consumer spending hit the skids, it took several retail chains down with it. Macy’s lost $5 billion last year, but continued to generate some profits thanks to a brisk online business. The takeaway: Sometimes it’s not the brand, but the marketing channels that need to change.
- Coca-Cola: This soft-drink magnate was the victim of high fuel prices, as well as rising shipping and delivery costs in 2008. While Coca Cola has been fighting an uphill battle on those fronts for years, 2008 was particularly tough given the drop in consumer confidence. The takeaway: Always be on the lookout for unique ways to minimize ancillary costs without sacrificing the quality of your products or services.
Source: “The Fortune 500′s Biggest Losers” byTelis Demos.