Special Report

America’s Shrinking Corporate Giants

1. General Motors (NYSE: GM)
Drop in Sales: $59.5 billion
2006 Revenue: $195.0 billion
2010 Revenue: $135.5 billion
Pct. Change: -30.5%
Industry: automotive

The near-death experience of GM has been well-chronicled. The automaker had a whopping 50% share of the domestic market in the 1960s. That began to erode when gas prices rose and the number one U.S. car company was slow to move to four-cylinder engines. Japanese imports took market share away from GM because of their quality and fuel efficiency. By the start of the last decade, GM had to fight a two-front war against both the UAW and competition from Asia and Europe. The start of the Great Recession, which began in December 2007, was too much for GM to handle. U.S. car and light truck sales dropped from almost 17 million in 2005 to 10.4 million in 2009. GM declared Chapter 11, with government financing, on June 1, 2009.

The reasons for GM’s revenue drop are largely twofold. The first is simply the decline in its sales in both the U.S. and Europe. The other is that GM decided to shed units that were not profitable. It shuttered Saturn in the summer of 2009. Pontiac had been closed two months earlier. Hummer was shut down in early 2010. These closures may have contributed to higher profitability, but they cut GM’s overall revenue. Lately, GM has begun to grow again. In its most recently announced quarterly results — the third quarter of 2011 — revenue increased to $36.7 billion from $34.1 billion in the same quarter of 2010.

2. Ford (NYSE: F)
Drop in Sales: $47.9 billion
2006 Revenue: $176.9 billion (2005)
2010 Revenue: $129.0 billion
Pct. Change: -27.1%
Industry: automotive

Ford’s story is not that different from GM’s, with one notable exception — Ford never filed for Chapter 11. CEO Alan Mulally, hired in September 2006, was able to borrow $23 billion as he pledged most of Ford’s assets for the capital. Prior to Mulally’s arrival, Ford had already sold two of its troubled divisions, Jaguar and Range Rover, to Tata Motors (NYSE: TTM) for $2.3 billion. That transaction took place in 2008. Ford also was badly hurt by the incentives it had to pay to customers so they would buy its vehicles.

What is interesting about the rapid demise of Ford was that the company thought it was prepared for a drop in sales. In 2005, then CEO Bill Ford created a plan called “The Way Forward.” The program called for a reduction in the number of salaried workers Ford employed. It also called for a move away from heavy, fuel inefficient SUVs and a rapid move into hybrid vehicles. But Bill Ford did not do enough to anticipate what was probably an unforeseeable downturn in U.S. car sales and an inability to stop increases in labor costs. Ford was nearly destroyed by the recession’s downturn. Bill Ford lost his job as CEO, though he remains executive chairman.

Drop in Sales: $31.3 billion
2006 Revenue: $108.9 billion (2005)
2010 Revenue: $77.6 billion
Pct. Change: -28.7%
Industry: insurance

AIG was caught on the wrong side of the mortgage-backed securities collapse more than any other financial firm. U.S. taxpayers had to commit $182 billion to keep the massive insurance company afloat. Part of the decision to salvage AIG was because of its financial relationships with large banks, including Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC). The rescue was to protect against the destruction of a number of such firms as the credit crisis crested. The U.S. government took effective control of AIG in September 2008. It was the start of a process that led Congress to create the $700 billion Troubled Asset Relief Program (TARP), meant to aid a number of other Wall Street firms that were on the brink of collapse.

AIG was able to pay the government back by issuing stock, much of which the Treasury sold, and by selling off a number of divisions. The largest sales included the sale of American Life Insurance Company to MetLife (NYSE: MET) in early 2010 for $15.5 billion, the sale of AIG Star and AIG Edison to Prudential Financial (NYSE: PRU) for $4.2 billion in late 2010, and the sale of AIG Credit and 21st Century Insurance to Farmers Insurance Group of Los Angeles in mid-2009. Because all of these sales, as well as drops in revenue among its core divisions, AIG’s revenue fell 28.7% over five years.

4. Motorola Solutions (NYSE: MSI)
Drop in Sales: $27.5 billion
2006 Revenue: $35.3 billion
2010 Revenue: $7.8 billion
Pct. Change: -77.9%
Industry: telecommunications

Motorola was one of the most successful consumer electronics companies in 2005 and 2006, selling 130 million units of its RAZR handset from 2004 to 2007. By 2010 the company was broken into pieces. Motorola had been a strange conglomerate for years. It had its flagship cellphone business, but also a division that made TV set-top boxes and a unit that built infrastructure for telecom companies.

The menagerie of divisions became unwieldy when handset sales dropped precipitously when Motorola failed to follow the RAZR’s success with another product. The set-top boxes and infrastructure businesses had no synergy with handsets. The company’s management and board therefore decided to break the parent into two publicly traded companies and sell off the smallest division. Nokia Siemens Networks bought the wireless-network equipment division of Motorola in June 2010 for $1.2 billion. In the final separation of the parent company, Motorola Solutions kept the enterprise and infrastructure operations, while Motorola Mobility (NYSE: MMI) took the cellphone operations. Motorola Mobility recently agreed to be sold to Google (NASDAQ: GOOG) for $12.5 billion. The deal is expected to close early this year, pending regulatory approval.

5. Altria (NYSE: MO)
Drop in Sales: $17.9 billion
2006 Revenue: $34.8 billion
2010 Revenue: $16.9 billion
Pct. Change: -51.5%
Industry: tobacco

Altria used to make and manufacture all of the cigarettes under the Philip Morris brands. It also held a majority interest in Kraft. The company’s board found that there were very few economies of scale in the ownership of both food and tobacco companies, although each operated in the same geographical markets and each had large manufacturing facilities. Kraft (NYSE: KFT) was spun off to its shareholders in 2007.

The most significant change to Altria was when it spun off its international business and created a publicly traded company called Philip Morris (NYSE: PM). Altria kept the cigarette business in the U.S. When the deal was announced in mid-2007, Philip Morris International revenues were more than double those of the U.S. unit, with 2006 revenues of $48.26 compared to Philip Morris USA’s $18.47 billion. The logic behind the decision was that the U.S. business was highly regulated and was posting only modest growth, while the overseas business had more potential to continue to expand.

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