General Motors Organizational Change: The New GM

Introduction: 'As GM Goes, So Goes the Nation'

"As GM goes, so goes the nation." This famous statement by the president of General Motors in 1953 has become an iconic cliché of American history. However, its meaning has changed over the years, along 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 its 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 Kleinbaum, 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creating new models that kept pace with new consumer demographics, GM simply released "more of the same," relying upon outdated styles and marketing.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 years, GM negotiated generous wages, benefits, and pensions with the UAW (United Auto Workers union). This became a financial drag upon the company as profits declined. GM's wages were supposed to attract the best and brightest employees, but the company soon found itself paying workers merely to show up. 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 — an America that no longer existed.

Problems: Pre-Bailout Decline

GM's failure to innovate was noted as early as the 1960s, during what was ostensibly 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 his 1965 book Unsafe at Any Speed, questioning the safety of many GM vehicles — such as the Chevy Corvair — rather than attempting to institute better safety controls, GM launched a campaign of harassment and intimidation against Nader. This eventually culminated 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; instead, it fought environmental legislation it viewed as hostile to its focus on larger vehicles such as trucks.

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

The GM formula began to falter visibly. Even when car sales were relatively robust in 2005, GM was still 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 entering 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 mid-sized vehicles further undermined the brand.

GM's Crisis and Government Intervention

The economic downturn of 2008 proved to be the nail in the proverbial coffin for GM. The company had negotiated a more feasible contract with the UAW, creating "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 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, p. 1). GM also began to downsize, letting go of over 50,000 workers even before it declared bankruptcy. However, this proved to be too little, too late: the contraction in credit markets meant that fewer and fewer people had the capital to spend on GM vehicles, given that most individuals use loans to finance new car purchases. The recession and widespread fears of job loss also caused many consumers to put off buying cars altogether.

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).

Conclusion: A Work in Progress

General Motors is undeniably a healthier and more forward-thinking company than it was before the bailout, and it has many strengths, most notably its overseas success. However, the final verdict on its long-term prognosis remains uncertain. In February 2011, GM car sales were 49% higher, but critics contended that the gains were due to unsustainable, hard-sell deals rather than real quality improvements (Sweeter deals, newer models, 2011, Associated Press). GM is still playing catch-up with its foreign rivals in the development of fuel-efficient vehicles suitable for everyday use — unlike the Volt. As gas prices rise again in the wake of Middle Eastern instability, GM must confront its continued heavy reliance on large truck sales. Even Chinese demand may prove less sustainable than originally assumed, depending on that nation's government policies.

GM's corporate culture is evolving, as is the image it markets to consumers. But its actual behavior is still playing catch-up, and it still tends to resort to old formulas to bolster its financial outlook and justify the cost of the bailout. Nevertheless, its leaner organization and renegotiated union contracts demonstrate that, although the GM of today remains a work in progress, it has moved on — in strategy and in attitude — from the GM of the past.

References

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Bunkley, Nick. (2011, January 11). GM plans 2 plug-in hybrids. The New York Times. Retrieved March 1, 2011 from http://www.nytimes.com/2011/01/12/business/12volt.html?ref=generalmotorscorporation

General Motors. (2011). Company information. The New York Times. Retrieved March 1, 2011 from http://topics.nytimes.com/top/news/business/companies/general_motors_corporation/index.html

Nader v. General Motors. (1970). Courtroom View Network. Retrieved March 1, 2011 from http://lawschool.courtroomview.com/acf_cases/9243-nader-v-general-motors-corp

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Sweeter deals, newer models. (2011, March 1). Associated Press. Retrieved March 1, 2011 from http://ca.news.yahoo.com/sweeter-deals-models-push-general-motors-us-sales-20110301-075348-868.html

Vlasic, Bill, & Bunkley, Nick. (2011, January 13). Auto workforce gets dividend. The New York Times. Retrieved March 1, 2011 from http://www.nytimes.com/2011/01/13/business/13auto.html?ref=generalmotorscorporation