General Motors Organizational Change Changes

General Motors

Organizational change

Changes at General Motors: The New GM

Changes at General Motors: The New GM

'as GM goes, so goes the nation.' This famous statement by the president of General Motors in 1953 has become an iconic cliche of American history. However, its meaning has changed over the years, with the changing fortunes of America. During the 1950s, the prosperity of GM and the ubiquity of American cars across the globe were seen to epitomize American manufacturing success. Today, GM has been forced to adopt a far leaner business model, and has had to weather considerable negative publicity generated by its need to be 'bailed out' by the federal government in the wake of the 2008 credit crisis. "For most of the 20th century, General Motors was the biggest company in the most important industry in the world. It not only led in automotive innovations, but helped define the new breed of massive, bureaucratic multinational corporations that shaped the post-war economy" (GM company information, 2011, the New York Times).

GM's bureaucratic inflexibility, however, was to become GM's undoing. "GM's culture shows little tolerance for dissent, little appetite for making hard decisions and an insularity that has made it seem sometimes 'tone deaf' to broader societal concerns such as the environment," stated Rob Klienbaum, a former GM executive and consultant (Some say GM needs shake up of corporate culture, 2009, the Washington Times). Rather than create more fuel-efficient vehicles in the wake of pending stricter environmental legislation, GM lobbied against such restrictions; rather than creating new models that kept pace with new consumer demographics, GM simply released 'more of the same,' relying upon outdated styles and marketing.

Furthermore, during its boom times, GM negotiated generous wages, benefits, and pensions with the UAW, the United Auto Worker's union. This became a financial 'drag' upon the company as profits declined. GM's wages were supposed to draw the best and brightest employees to the company, but soon it found itself paying workers to merely 'show up.' This was because during prolonged negotiations with the UAW in 1990, GM created a program that "paid workers even when plants were not running, forcing it to build cars and trucks it could not sell without big incentives" (GM company information, 2011, the New York Times). GM's labor contracts kept it mired in the past, in an America where there was little competition in the auto industry beyond the big Detroit three -- in an America no longer existed.

Problems: Pre-bailout

GM's failure to innovate was noted as early as the 1960s during its heyday. "Its glory days continued to the 1960s, when it owned half of the United States car and truck market -- its share peaked at 51% in 1962 amid suggestions that it should be broken up under antitrust laws. But then GM began a long and slow process of undermining itself" (GM company information, 2011, the New York Times). When longtime industry critic Ralph Nader published a 1965 book entitled Unsafe at Any Speed, questioning the safety of many of GM's vehicles, such as the Chevy Corsair, rather than attempting to institute better safety controls, GM began a campaign of harassment and intimidation against Nader. This eventually cumulated in a court case, Nader v. General Motors. When gas prices began to escalate in the 1970s, companies known for producing smaller vehicles like Toyota began to muscle their way into the marketplace. GM did not focus on producing smaller vehicles. Rather, it fought environmental legislation that it viewed as hostile to its focus upon larger vehicles such as trucks.

During the 1990s and early 21st century, Toyota intensified its focus upon developing smaller and more fuel-efficient vehicles. When it introduced the Prius, Toyota began to reap the benefits of its investment in the research and development of hybrid vehicles. However, ever since the collapse of oil prices in the 1980s, GM kept its focus steady upon large SUVs. While the foreign carmakers offered smaller vehicles in addition to their truck lines, GM began to supersize almost all of its iconic brands, including the Hummer, a kind of army vehicle designed for suburban driving.

However, the GM formula began to falter. Even when car sales were relatively robust in 2005, GM still was struggling to find its niche in the market. The company lost $1.1 billion during the first three months of that year alone (otherwise a strong one for world automakers) "as poor sales and rampant health care costs hammered the world's biggest automaker" (Schneider 2005). GM still resisted jumping into the market for gas-electric hybrid vehicles, even while Toyota's Prius grew in popularity and Toyota and Honda introduced more hybrids, including hybrid SUVs. As late as 2005, GM CEO G. Richard Wagoner Jr. insisted on producing yet another "new line of large pickups and sport-utility vehicles" (Schneider 2005). That year, cars were being bought at record-high numbers in the U.S., but consumers showed little interest in GM models. After a record spike in gas prices, GM's failure to produce competitive midsized vehicles further undermined the brand.

The economy's downturn in 2008 proved to be the nail in the proverbial coffin for GM. The company had negotiated a more feasible contract with the UAW. "It created a two-tier entrance system that paid old GM employees $60 an hour with benefits. Meanwhile, new entrants made $30 an hour" (Benedicto 2011). Regarding the draining health care benefit costs, "The company, along with Ford and Chrysler, has also reduced its health care obligation by paying into a trust to cover the medical bills of its retired hourly workers" (Vlasic & Bunkley 2011: 1). It also began to downsize, letting go over 50,000 workers even before it declared bankruptcy. However, this proved to be too little, too late: the contraction in the credit markets meant that fewer and fewer people had available capital to spend on GM vehicles, given that most individuals use loans to finance the purchase of new cars. Also, the recession and fears of job loss caused many consumers to eschew buying cars in the first place.

For many months, CEO Wagoner resisted a government takeover, which eventually resulted in his ouster and the appointment of GM's then-president Frederick a. Henderson, to the helm. Many believe that if Wagoner had stepped aside sooner, GM would have recovered even more quickly: "If Wagoner did the 363 sale in February vs. June, it could have reduced the amount of money the government had to provide, which reached $49 billion" (Benedicto 2011).

Solutions

The heads of all three of the America Detroit-based car manufactures came to Washington DC in 2008 to demand money to enable them to remain financially solvent. However, while Ford was able to stay afloat without a bailout, GM required a massive restructuring campaign, eventually proceeding through bankruptcy court while still under government stewardship. This was perceived to 'taint' is brand in the marketplace, although GM's fortunes rebounded far faster than industry analysts initially predicted

One of the new GM's first actions was to begin to get rid of its low-performing brands, including Saturn and Hummer. GM cut the ranks of 40% of its dealers, and tried to create a more coherent image for itself as company, eliminating unprofitable models. GM's wide selection of vehicles had proved to be especially draining to company finances, given that unlike Toyota, there was little interchangeability of parts from different brands. This meant that if one GM vehicle began to dip in popularity, the plants that produced the model would often go idle, and parts from discontinued vehicles were virtually useless.

To respond to criticisms about the absence of small cars from GM's stockpile of brands, GM rolled out the Chevrolet Cruze. With a price tag of $16,995, the Cruze was priced higher than its foreign competition, but offered amenities like air-conditioning and power locks as part of the original asking price rather than as extras. Also unlike their foreign competitors, the Cruze was produced at a unionized, American plant. The Cruze was already highly successful overseas: it was Chevrolet's second-best-selling vehicle in 2010 after the Silverado pickup (GM company information, 2011, the New York Times). It seemed like a tested brand, ready for market.

The most powerful symbolic gesture of GM was undeniably its decision to sell its Hummer brand and to introduce the Chevy Volt, an electric car that could travel up to 50 miles on a charged battery before needing to use its gasoline engine. The Volt was even more fuel-efficient than the Prius. However, unlike the Prius the Volt had a far higher price: $41,000. GM sold 326 Volts in December of 2010 and will make 60,000 available for purchase in 2012. However, the most disappointing aspect of the Volt may not be its price tag, but its relative quality. Edward Niedermeyer, in an editorial for the New York Times, called the Volt GM's Electric Lemon: "So the future of General Motors (and the $50 billion taxpayer investment in it) now depends on a vehicle that costs $41,000 but offers the performance and interior space of a $15,000 economy car," he marveled. Still, the future stated goal of GM is to develop an electric or hybrid version in all of its existing brands lines -- Chevrolet, Cadillac, Buick and GMC.

Outcome of changes

GM's most notable success has been overseas, where it is currently ahead of all of its competitors in the rapidly expanding Chinese market. "While GM is outpacing Ford in overseas competition, GM cannot solely depend on China for growth. While the emerging market contributed to GM's global recovery last year with 2.3 million in sales, it may not experience the same momentum this year [2011] because the Chinese government has ended incentives on small cars and rural purchases" (Benedicto 2011). Still, evidence of GM's health is seen in the fact that it recently announced that it will issue profit-sharing checks this month for hourly workers, the largest in a decade (Vlasic & Bunkley 2011:1). Talks with the UAW will soon recommence, and GM wishes to institute new productivity measures to improve worker productivity, including performance-based bonuses and offering company stock to union members as part of a new bonus plan to encourage company loyalty. That way, by working hard and not 'hard-dealing' with the company as before, unionized workers will be able to profit. GM is seeking to link high-quality worker performance bonuses to overall company success.

However, Detroit's harshest critics who hoped that the shift in product styles would produce a greener American car industry in terms of the environment as well as dollars have been disappointed with the post-bailout changes in GM. Although GM's 'greening' may have rehabilitated its image, and its small car sales like the Cruze are selling impressively in Europe and China, the average American GM car consumer has been slowly falling back into bad, fuel-guzzling habits. GM has done little to change the bulk of its output. GM's car sales have fallen 6% which are low even when "compared with last year's anemic numbers, while light trucks (which include pickup trucks, SUV's, minivans and crossovers) are up by more than 16%" (Niedermeyer 2010:1). In other words, the current prosperity of GM is once again built upon the foundation of large vehicles "Despite rolling out the much-hyped Cruze compact and the Volt plug-in hybrid, G.M. still sells half again as many trucks and SUVs as it does cars" (Niedermeyer 2010:1). While GM's current SUVs are more fuel-efficient than earlier models, "the Detroit automakers have three of the four lowest average fleet fuel economy ratings among full-line manufacturers, and none achieves the industry average of 22.5 miles per gallon," including GM (Niedermeyer 2010:1). The showy 'boutique' model of the Volt cannot make up for these dismal statistics.