Revitalization of the American Car Industry Term Paper

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General Motors was founded in 1908 and has been the largest manufacturer, designer, building and marketer of cars and trucks throughout the world since 1921. It sells vehicles in more than 200 countries worldwide and maintains assembly, manufacturing, distribution or warehousing operations in 53 of these countries. In 2000, it sold 8.6 million cars and trucks - constituting 15.1% of the entire world vehicle market (the world's biggest share) at $4.5 billion net sales and $184.6 billion in revenues. (General Motors). It envisions itself as the enduring world leader in transportation products and related services, whose goal is "to maintain this position through enlightened customer enthusiasm and continuous improvement, driven by the integrity, team work and innovation" of its employees. (General Motors)

The organization operates in four regions. The first, which has the largest market at 27%, is the GM North America. This region designs, manufactures and markets vehicles for the U.S., Canadian, Mexican, Central American, Puerto Rican and Caribbean markets. Brands that sell in this region are Buick, Cadillac, Chevrolet, GMC, Hummer, Oldsmobile, Pontiac, Saab and Saturn. The second is GM Europe, with headquarters in Zurich, Switzerland, and has a 9.3% market share. It designs, manufacturers and markets vehicles for the European market (General Motors), such as the Open, Vauxhall, Saab, Cadillac, and Chevrolet brands. The third is GM Latin America, Africa and Mid-East, which has a 16.3% market share and maintains headquarters in Florida, USA. It also manufactures and sells vehicles for and to the said markets, such as the Cadillac, Chevrolet, GMC, Isuzu, Open and Saab brands. And the fourth is the GM Asia Pacific with a 3.7% market share. Its headquarters are in Ngee Ann City in Singapore. Most popular brands there are Holden, Isuzu, Opel, Chevrolet, Buick, Cadillac, Saab and Saturn. The company employs 386,000 in all its regions. (General Motors)

In 2001, it set world records by selling more than 1 million SUVs and more full-sized pickup trucks than any other manufacturer since 1978. (General Motors) It also operates the GMAC, which offers automotive, mortgage and business financing and insurance services to customers the world over. This financing arm is now one of the world's largest and most successful in the field. Its subsidiaries are Hughes Electronics Corporation, GM Locomotive Group and Allison Transmission Division, and maintains major alliances with Fiat Auto SpA, Fuji Heavy Industris Ltd., Isuzu Motors Ltd. And Suzuki Motor Corporation. It keeps strong technology collaboration with Toyota Motor Corporation, Honda Motor Company and ventures with Toyota and Renault SA. (General Motors)

General Motors basis its sustainability efforts on its four cultural priorities that guide and describe the conduct of its business, especially in the 21st century. These priorities are acting as one company and leveraging its total and tremendous global capabilities within the company and in its global links; embracing stretch targets and striving to achieve the best; moving with a sense of urgency and working to accelerate and using speed to advantage; and enhancing product and customer focus in building long-term relationships with customers by providing the products, services and corporate practices they demand. (General Motors)

But General Motors was in deep financial trouble a year ago, from which it has yet to rise. Its earnings fell by a huge 88% mainly because of "economic downturn, pricing pressures, and continuing losses from (its European) operations." (McCafferty 2001) In this year's first quarter, General Motors achieved a poor 2% while its competitor, Ford, made 20%, equalling GMs earnings but making profit four times. (McCafferty) Ford had smaller production cuts and sold more in Europe.

Though 1999 and 2000 were two of GM's best years in its history, these were also the bleakest. Its domestic market went low and buyers turned their backs on its dull and unimaginative cars and trucks. GM has an overcapacity which erodes profits and with little recourse to draw it down. (McCafferty) It lost $676 million in Europe in 2000.and would not even break even in 2001. Right at home, vehicle owners[complaints fill up the list, ranging from transmission malfunctioning or poor service, gasket leaks, paint falling off, tahoe metallic humming after the vehicle warms up and ignition key problems. Furthermore, its financing arm, GMAC, went into high debt levels and ratings agencies are contemplating on downgrading.

The problem of overcapacity is more palpable in Europe and competition there has turned stiffer and more ferocious. It has been said that the main problem for GM was that competing automakers, such as Volkswagen, Peugeot and Renault, banded together. GM also lost to diesel engines, Europe's favorite, which constitutes about 40% of the mix. (McCafferty) GM admits that it has run short of diesels, although it is "catching up."

GM's alliance strategy also brought some of the troubles. While its competitor Ford prefers to buy foreign businesses outright, GM forges connections with foreign partners by taking minor positions in their organizations. Being in the minority, says one critic, makes it difficult to make decisions and turn things around. This is GM's situation in Asia, where GM has a 49% ownership deal with Isuzu Motors. Last April, Isuzu said it would post a loss of around $550 million.

And there too are the unions, which are considered the biggest obstacle to cuts. In the first quarter, around 18 plants have remained idle and affected 30,000 employees, according to analysts. This slump, however, has only negligible savings, because the contract provides that union workers who were temporarily laid off are entitled to 95% of their regular pay. And the contract can be reviewed only next year. (McCafferty)

General Motors, in its sustainability report, admits to having its share of disappointments along with its achievements. It acquiesces to having lost $1.1 billion in 1999. (General Motors) Yet it claims to solid earnings, considering the price pressures in its largest markets around the world. It continues to claim global market leadership despite a fall of a half point percentage. In its largest market, it registers 1% drop and "unacceptable losses" in Europe and Asia Pacific.

Its total employment worldwide also went down by 3%, mostly within the GMMA, the financing arm, where employment was reduced by 2.3%. Worldwide payrolls fell alongside.

But GM expressed unwillingness to accept these failures and losses and instead, moved aggressively to turn them around. Right in 2001, it focused on under-performing regions, phased out the Oldsmobile brand and closed one of two manufacturing plants in Luton, UK. (General Motors). Most importantly, it appointed two of the industry's men into its hierarchy: John Devine as the Chief Finance Officer and Gary Couger as Managing Director and Vice President for Labor. Formerly occupying a top finance position at GM's opponent, Ford, Devine is known for his being an "objective and focused communicator" (McCafferty) and the capability to communicate with the financial community. He enjoys a brilliant reputation among investors and Wall Street but critics are divided on how he can turn General Motors' steep situation around.

Devine is also widely known for his conservative and realistic projects. At once, he set the goals for GM: moving cash flow into positive areas at the year-end and improving net-income margins from 3 to 5% down the line. His other first move consisted of successful cuts by 21% in the first quarter and 17% in the second, but which did not affect the overcapacity problems, which ran as high as 15% worldwide.(McCafferty) Critics do not see how Devine can overhaul this particular problem, but he is aiming at profitability, more than anything else. He talked about the need for stability in its market share to insure GM's prestige as the industry leader. Then he talked about introducing the "right products" which, critics feel, would be a higher-margin product mix, such as sport-utility vehicles (SUV), light trucks and hybrid vehicles. These could be the much-awaited Chevrolet Avalanche (a cross between s big SUV and a pickup truck), Saturn's own SUV and a "scaled-down" version of the Hummer. (McCafferty) Innovations introduced are new devices, the EV1 project (electric cars), the OnStar system, alternative fuels, the GMXM radio, and research and development.

GM' is coming out with earth-friendly vehicles, specifically advanced-technology cars, among which is an extended-range EV1 and 80-mile-per-gallon, all-wheel-drive hybrid performance car (PRNewswire 1998). These, according to chairman and CEO John F. Smith, Jr., are clean-car options - pioneering electric vehicles using nickel-metal hydride batteries and the EV1 and S-10 electric truck ready by 2004 or earlier. EV1 NiMH batteries will increase range performance to 160 miles, while the S-10 electric truck will have double range with these batteries. The series hybrid will use an electric motor charged by the world's most efficient gas-turbine generator system (PRNewswire). Designed with the environment in mind, the parallel hybrid will be an ecologically- conscious performance car to be powered by an electric motor and direct injection turbo diesel. The fuel cell vehicle will use electrical energy created from a hudrogen-oxygen chemical reaction and the compressed natural gas vehicle will have a 1.0 L, 3 cylinder, turbo-charged…

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