Sunday, February 15, 2009


6 companies born during downturns

Think a recession is a bad time to start a company? Imagine if the founders of these major corporations had thought the same...

1. Speeding around oil prices

Company: FedEx
Industry: Shipping
Founded during: The Oil Crisis of 1973

Picture: CEO Frederick Smith boards Federal Express Corp.'s first Falcon fanjet.

Entrepreneur Frederick W. Smith identified a pressing business need: important documents had to reach their destinations within one or two days. He incorporated a company called Federal Express in June 1971 and began operations in 1973 from Memphis International Airport. On its first night, in April, FedEx shipped 186 packages to 25 U.S. cities. But all was not well on the international front, and within months, several Arab states had embargoed oil exports to the United States. While this news could have been disastrous for a company that relied on petroleum-fueled transportation, Federal Express stayed alive and became profitable in July 1975, when oil prices finally leveled off.

Status today: 2008 seemed at first to be a deja-vu replay of the company's nascent years, as soaring fuel prices hurt operating costs. But when prices retreated, FedEx faced a new whammy: The weakening economy has reduced demand for prompt shipping. Average package volume for daily ground shipping dropped 2% year-over-year for the quarter ended Nov. 30. Warning that FedEx faces "some of the worst economic conditions in the company's 35-year operating history," CEO Frederick Smith took a 20% pay cut for 2009 as part of a sweeping cost-cutting plan.

2. Taking flight in the great depression

Company: United Technologies Corp
Industry: Aerospace
Founded during: In 1929, amid the Great Depression

Picture: With seating for 18 passengers, this fabric-covered transport of 1929 was an enlarged version of the Model 80 - the first true Boeing passenger airliner - of the year before.

The notorious year that the stock market crashed, spurring a 10-year global downturn, also marked the birth of an aerospace giant. United Aircraft and Transport Corporation began life as a holding company for airlines, airplane parts manufacturers and aviation companies such as Boeing.

Most industries floundered under the financial crisis, but the Golden Age of Aviation was in full swing and kept United Aircraft aloft. In fact, the company pulled so many other businesses under its umbrella during its initial years that it quickly smacked up against antitrust laws. In 1934, Boeing and United Airlines became separate companies and United Aircraft turned into what is now UTC, a diversified industrial manufacturer.

Status today: UTC reported $58.7 billion in revenue in 2008. Thanks to increased revenue at UTC's aerospace companies, profits were up in the last quarter of 2008. But orders were slow for products such as elevators and air conditioners, which is a big deal for the company that owns Otis Elevator and Carrier Corp. In the past year, UTC has laid off thousands of workers, and the company plans continue slashing in the early months of 2009 as it undergoes major restructuring.

3. Smooth riding through a panic

Company: General Motors
Industry: Automobiles
Founded during: The Panic of 1907

Picture: The first Buick of 1903.

Back in the days of President Theodore Roosevelt, before a central bank had been established, lending institutions were dependent on their own currency resources. This became a problem in 1907 when numerous large banks made a bid for controlling shares of United Copper Company. When the attempt failed, the public pulled their money from the banks, causing runs that led to the failure of many trusts and lending institutions. These events didn't deter William Durant, a leading manufacturer of horse-drawn vehicles, from trying his luck on a new technology called the automobile. He founded GM on Sept. 16, 1908 in Flint, Mich. That year, it became a holding company for Buick and Oldsmobile, which had been established several years. Historians consider the Panic of 1907, also known as the Banker's Panic, to have ended in June 1908, even though the market didn't reach pre-1907 levels until 1909. That was perfectly timed for GM, which went on to acquire many more companies in that rebound year.

Status today: Hit with a double whammy in 2008 from sky-high fuel prices and a terrible market, GM has seen its stock price fall 85% in a year. Its competitors aren't faring much better - in December, GM went to Washington with Chrysler and Ford to seek $34 billion in government loans. The company is currently under scrutiny: Iit must prove it can cut costs enough to be a viable recipient of the billions it needs to stave off bankruptcy.


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