“The quality goes in before the name goes on.”

What a fantastic slogan.

Quality matters. Reputation matters. Innovation matters. But eventually… somebody still has to be willing to pay for it. And when customers decide they won't, the balance sheet doesn't care how good your slogan is (or was).

For decades, that wasn’t just Zenith’s advertising slogan, it was the company. Zenith built televisions like Americans expected televisions to be built: solid, reliable, innovative and designed to last.

They pioneered the wireless TV remote. They were leaders in stereo television and later helped develop technology that became part of the U.S. digital HDTV standard. Zenith was one of the great names of American consumer electronics. There was just one problem.

All that quality cost money.

And increasingly, consumers weren't interested in paying for it.

Japanese manufacturers such as Sony, Panasonic, Toshiba and others entered the U.S. market with televisions that were increasingly good—and could be produced at costs American manufacturers struggled to match.

The television slowly changed from something a family might buy once every decade into something consumers shopped largely on features, screen size and price, and more importantly, bought one every few years.

Zenith was still selling: "Look how well we built this."

The consumer was increasingly asking: "Yeah…but what about this other one with twice the screen and half the price?"

Zenith's consumer electronics business began losing money in the late 1980s. Its computer business, Zenith Data Systems, was helping support the rest of the company, but Zenith sold ZDS in 1989 for roughly $635 million, in part to raise cash, reduce debt and continue investing in next-generation television technology.

Think about that for a second. Zenith was helping invent the future of television… and sold that piece of business….while struggling to make money selling televisions in the present.

By the 1990s, the problem wasn't product quality. The problem was economics.

Zenith was competing in a consumer-electronics industry that had become global, brutally price competitive and increasingly driven by manufacturing scale.

GoldStar—today's LG Electronics—initially invested in Zenith and eventually acquired control of the company in 1995. The losses continued.

In 1999, Zenith filed Chapter 11 bankruptcy. LG ultimately acquired the remainder of the company, and Zenith emerged from the restructuring as a wholly owned LG subsidiary.

Unfortunately for Zenith, by the end, their slogan might has well been “The cost of old school manufacturing went in as their customers walked away”.

Too big to fail isn't a credit strategy. “They're too big to fail” isn't a credit decision. It's an assumption.

Make the decision to retain or transfer the risk intentionally—before the market makes it for you.

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