The Decline and Collapse of General Motors

The Decline and Collapse Of General Motors ntroduction General Motors (GM), who once dominated the automobile industry, has now plummeted, almost to the point of extinction. Throughout the 1940’s to the 1970’s General Motors (GM) had dominated the automobile industry. By the 1980’s, GM was suddenly facing a shift in the economy and consumer demands. GM’s Earlier Successes In the 1950’s, GM agreed to pay their workers well, by signing groundbreaking long-term employment union contracts which included: •workers to be the highest paid in America pay rates were automatically increased with the rate of inflation •workers were paid during shutdown periods •extensive health coverage •strong retirement benefits •substantial pension plans •full benefits for long time employees This benefited GM because it ensured that workers returned to work after shutdowns for model year changes. In the business world, GM was known for its large distribution, multiple brands, product lines and designs. To consumers of GM cars, it was all about speed and comfort. GM quickly became the leader in the automotive industry, with a market share exceeding 50%.

What Went Wrong External Factors Gas Prices Unexpectedly oil prices skyrocketed, increasing from under $1. 00 a barrel in the 1960’s, up to $18. 00 per barrel in the 1970’s. In turn, gas prices had also risen from . 12 cents to $1. 00 per gallon during this same time period. That’s an 88% price hike. By 1973, consumers were looking for alternatives in saving money at the gas pumps; they started buying more fuel-efficient cars. During that time GM was still producing large vehicles with eight-cylinder engines, “gas guzzlers”, because they could earn much higher profits on these than on smaller vehicles.

The cost to consumers to fill the gas tanks had caused sales to drop on these large trucks and SUV’s, and GM started losing its market share to foreign competitors. Foreign Competitors Once thought of as a none-threatening competitor, Japanese auto-makers took advantage of this shift in consumer demand. When their sales increased, Japanese manufacturers accepting a low profit margin reinvested the money back into the company to improve the quality of their products. Unlike, GM who hadn’t figured out how to sell smaller cars at lower prices, and still make a profit.

Soon, they became the market leaders in the auto industry, filling the niches GM left open. Internal Factors Corporate Culture GM had always been known for its ingenuity and versatility in developing many of its brand named vehicles which made them so popular. Its marketing strategy was to have the largest distribution and selection of vehicles on the market. At GM’s peak of rapid growth, investors received generous portions of profit, employees were compensated extremely well for their work, and consumers received vehicles at modest prices.

GM dominated the market for forty years, some of which were during times of economic hardships, and they weren’t willing to change their formula for success. High-Priced Cars GM had agreed to pay its employees according to their contracts, but in the 1970’s the rate of inflation skyrocketed above 10% per year. GM was forced to pay automatic increases, driving wage rates to new levels, and driving their car prices to new heights. With the economy slowing down, GM closed down its plants. The impact of its employment contracts that had caused them to pay workers, who weren’t working, boosted the price of their cars even more.

Disgruntled consumers bought more foreign cars. GM tried to bring back its loyal customers by introducing the Chevrolet Vega, but with its low profit margins, it was soon taken out of production. GM’s New Tactics In an effort to regain GM’s market share, Chairman Roger Smith, made the decisions to shut down several of its factories, which devastated some Midwestern towns. Smith opened a new GM division that would compete with Japanese imports. The new division leaders were allowed to negotiate new labor contracts with its employees, design entirely new cars, and open new dealerships.

GM was given the opportunity to make radical changes and regain its market leadership, they failed. The Saturn was introduced, but has recently closed its doors. Adam Hartung (a business advisor), says GM could have avoided its present dilemma. According to Hartung, Smith shouldn’t have opened a new division separate from the main firm. Instead he says Smith should have focused on making dramatic changes within the existing company’s labor structure, dealer structure, and vehicles, by imitating its competitors. GM’s Demise

It was GM’s arrogance that led this company to their present demise. GM had monopolized the auto industry for so long, they thought they were infallible; believing that its competitors would never have the resources or capability that they had. GM never considered shifts in the environment (gas prices and a declining economy) and consumer demands for quality and fuel-efficient automobiles. Too busy with their own internal problems, like employee contracts that forced them to focus on high profits; they had ignored and underestimated their competitors.

GM has lost its share of the market. Had they focused on the innovation they had when the company was first established, they may not be in the situation they are in today. It appears that they had drifted away from their mission to become and stay the leader of the automotive industry, now their paying the price. Recently, GM’s stock price had fallen from $96 per share, to . 80 cents a share. Conclusion To avoid such harsh repercussions, GM should have had a contingency plan for emergencies, should unforeseen circumstances arise they would have an alternative plan.

Every company must adapt quickly to sudden changes in the environment especially during down-turns in the economy if they are to survive. Implementing new strategic plans should have been considered. Had they planned for changes in the environment they could have renegotiated the employment contracts. Monies would then be available for repositioning and restructuring the company. Innovation would be alive and well, and by reducing its cost of doing business, the prices of its cars would once again be affordable to its loyal consumers. http://www. thephoenixprinciple. com/ebooks/thefallofgm_adam_hartung. pdf

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