General Motors -- Poised Upon

¶ … General Motors -- poised upon the brink of bankruptcy or poised upon the bring of a new future? A SWOT analysis.

During the presidential administration of Dwight Eisenhower during the 1950's, it was said that as General Motors goes, so goes the nation -- in other words, the relative economic success or failure of the Detroit car manufacturing behemoth was indicative of the economic health of the United States. (Brunell, 2005) For the sake of America, however, one hopes this is not the case -- unless GM takes proactive steps to counter the threats from its domestic chief rivals, from the threats that that are endemic to the American automotive industry today from more fuel efficient foreign competition, and also from within the organization itself in the form of its close relationship with organized labor.

Forces of Change and Tactics

GM's primary domestic rivals of Ford and Chrysler are also undergoing economic pain. But GM cannot remain content that it is not the only American automotive organization hit hard by threats that affect the industry -- instead it must use this critical transitional historical juncture in the industry to succeed. The reason for the industry's difficulties lie in the seemingly ever rising cost of fuel. This particularly hurts American manufacturers, whose bread and butter products are large, "gas guzzling" vehicles. Smaller cars produced by its foreign competition of Toyota and Honda mean that GM now has only about one quarter of the U.S. market, down from sixty percent thirty years ago. (Brunell, 2005)

According to a recent meeting between the CEO of GM and a group of GM car dealers, "one group [of dealers] said they had not noticed any difference in their S.U.V. sales with the $3-a-gallon gas, and the people who want them still want them. Doesn't make that much of a difference to them. And the other half disagrees completely. Their sales are way off, off as much as 50%, which is - I think nationally, we were off in the 40's. And I attribute - by the way, that pretty much goes across all makes, this decline." ("The Solstice's Proud Daddy: Interview With Bob Lutz of G.M." 2005) But simply because question of fuel efficiency may not seem like a threat to all car dealers does not mean that a manufacturer like GM can so easily shrug off a decline in the sales of its bread-and-butter vehicles that have formed the core of GM's branding in recent years. GM's ignoring this is troubling and it must counter this threat with further research into what consumers will desire, should gas prices go up in the longer term.

Another specific drag upon the success of GM lay in its history with its own labor force of unionized workers. The pension plans and health care benefits General Motors negotiated with the United Auto Workers Union when the company was at its most profitable mean that such commitments to GM workers amount to about $1,500 per car and consume five percent of all the company's entire revenue. (Brunell, 2005)

To save money, GM plans to close a number of American plants and eliminate 25,000 jobs. Robert S. Miller Jr., the chief executive of Delphi, the nation's now-bankrupt, once biggest maker of auto parts states that unless it cuts labor costs it could follow Delphi into bankruptcy court. "Delphi, a division of G.M. until 1999, sought bankruptcy protection in federal court in New York on Saturday, in the largest Chapter 11 filing in the history of the automobile industry. G.M. represents roughly half of Delphi's business, and about 4,000 Delphi workers have the right to return to G.M., meaning that the company would be responsible for their wages and benefits, including pension and health care costs, on top of its own liabilities. G.M. has estimated that its cost from a Delphi bankruptcy could be as much as $11 billion." G.M. shares fell $2.81, to $25.48, in the first day of trading after the Delphi filing. (Maynard, 2005)

Anticipating Industry Changes

GM thus needs to make it clear to its union workers that they will "have to give up something," or else see the company, and their pension plans fold in the long-term like Delphi. (Maynard, 2005) GM must also strive to gain an edge on its competition to make a more appealing car for consumers. Further research needs to be done in terms of what consumers are looking for in the long-term and short-term regarding fuel efficient as well as attractive cars in GM's core middle market of car consumers. In terms of fuel efficiency, there are a number of current potential advantages GM could take to improve upon its situations in relation to its competitors.

For example, the National Highway Transportation Safety Administration proposed an update the thirty-year-old regulations that govern the fuel economy of U.S. pickups, minivans and SUVs was "clearly designed to help out the [American] automakers most thirsty for profits, the struggling General Motors and Ford Motor." (Fahey, 2005) Current rules, known collectively as "Corporate Average Fuel Economy, or CAFE," force automakers to average twenty-one miles per gallon when manufacturing and designing pickups, minivans and SUVs." This averaging up of total vehicles means that it is "far easier for carmakers that make mainly smaller vehicles." (Fahey, 2005) Under the proposed change, there would be no averaging up and "smaller vehicles will have to meet more stringent fuel economy targets than bigger vehicles," although all would have to improve somewhat," The proposed regulations would portion "light trucks" into six categories based on the square footage of the vehicle, or the ecological footprint of every single vehicle. (Fahey, 2005)

It is tempting for American carmakers to take advantage of this change, and continue to make large vehicles. But GM could take advantage of this proposed change and meet the 'fuel efficiency' challenge better than its American competitors and to make new hybrid cars. It must anticipate the need for increasingly stringent fuel regulations for all cars, which the government, despite this temporary relief, predicts will have to come in 2011. Currently, the proposal will save all American manufacturers money in the short-term. "U.S. carmakers complain they now have to sell large numbers of money-losing smaller vehicles in order to sell high-profit larger vehicles and meet the overall fuel economy average. With the size-based system, they could sell no smaller vehicles and still meet the standards, but "reformed CAFE spreads the regulatory cost burden for fuel economy more broadly across vehicle manufacturers within the industry." (Fahey, 2005)

Of course, the "proposal sent environmental advocates through the ozone layer," but GM could gain a powerful public relations coup if it works with environmentalists to manufacturer hybrid cars and SUVs and demonstrates it can even exceed administration expectations for fuel efficiency in the long run. (Fahey, 2005) True, this may be a way to gain a potential advantage in relation to its American competitors. But what of foreign competitors such as Toyota and Honda, that already make fuel-efficient vehicles?

Swiftly implementing and implemented change in the current environment