Is There Really A Stigma Against Corporate Bankruptcy?

April 26th, 2010 by Reed Allmand

Cadillac, the luxury brand of General Motors Co. recently announced that it is distancing itself from the Detroit-based automaker to avoid the “stigma” of the parent company’s $50 billion U.S.-backed bankruptcy last year.

Cadillac is erasing the GM name from its marketing and dealerships, changing e-mail addresses to @cadillac.com from @gm.com and exiting companywide promotions such as the Red Tag Event, said Nick Twork, a spokesman. The separation strategy was “absolutely” driven by GM’s restructuring, he said.

“Cadillac, which has really turned itself around with new levels of quality and exemplary products, doesn’t want to be associated with something that will drag it down,” said John Grace, president of marketing consultant BrandTaxi LLC in Stamford, Connecticut. “With GM’s bankruptcy comes lower credibility in the ability to build quality products.”

While there may be some small stigma attached to corporate bankruptcy for some types of companies during their restructuring it really seems that Cadillac is overacting to this perceived “stigma” and failing to understand that it is because of GM’s bankruptcy that it even survived.  Consumers are not as ignorant as Cadillac’s corporate handlers would have us believe.  They are fully capable of understanding that a company who has filed for bankruptcy is very similar to an individual debtor who has fallen on hard times and needs a fresh financial start.  The true test of a company’s ability to thrive post-bankruptcy is their willingness to stand by their products and avoid making the same mistakes that pushed them into bankruptcy in the first place.