GM Holden Limited - Challenges - Case Study Example

GM HOLDEN LIMITED By Course Tutor University City and state Date Gm Holden limited is a vehicle manufacturing company located port Melbourne Victoria region of Australia. It was founded in 1856 and later adopted by general motors a United States company in 1936. Due to the recession in the world economy and the apparent lack of it in the Australian economy, the company has increasingly found it difficult to run its operations efficiently. The strength of the Australian dollar has meant that exports return lower incomes. This combined with the declining domestic market has dealt a major blow on the company’s fortunes. In the first instance, the company had opted for the international market due to the weakening of its local market. The company has resorted to shutting down its production plants in the areas where they cannot be downsized. The announcement to downsize its operations was announced by the company management in December 2013. Apparently, the company plans to do away with the production of engines by 2017. However, as a safeguard and in preparation for any eventualities in the vehicle industry, the company chose to retain its car design plants albeit with highly downsized staff (Plunkett, J. 2008, 50) Empathizing GM Holden limited as indicated has been faced with a myriad of problems in its production of vehicles. In a bid to contain the damage from the dwindling profits, the company chose to downsize its operations as much as possible. In fact, most of the vehicles that the company has been selling are developed overseas by the General motors the parent organization of GM Holden limited. The choice must have come after a lot of consideration. For instance, the management was aware that they would apparently have to lay off most of its workers. This fact alone is a negative turn of events for both the company the employees and the customers. It becomes quite difficult to find other job opportunities matching the experience of the employees; as such, it would be quite difficult from then henceforth for the employees from the GM Holden to acquire employment opportunities elsewhere. Over 3000 workers are set to lose employment as the company initiates the winding up the process. On the other hand, the company was losing a great deal in terms of expertise that they had developed over the years. Development of a skilled workforce takes much in terms of resources lost and time. Apart from losing of workers, there were concerns about losing market share. Since its inception, GM Holden limited has been the top selling vehicle manufacturing company in Australia. This trend, however, was changed when the Japanese vehicle manufacturing company Mazda started retailing its products. For the first time, GM Holden’s Commodore was overtaken by Mazda 3 in sales (Wikipedia, S. 2013, 12) The realization of a waning market share precipitated by the entry of Japanese cars prompted the GM holdings to shut down its production lines. Apparently, this was a measure to safeguard against further losses. Not even the fact that it was losing skilled workforce and a market share could make the management think otherwise or come up with another strategy of beating the impending competition from imported vehicles. In a bid to maintain its position as a vehicle selling company, GM Holden limited resorted to the importation of vehicles from its major plants in the United States. It was identified as a much cheaper alternative as compared to the local manufacturing plants. In doing so, the company would be doing away with production related costs while at the same time retaining a market share. The fact that GM Holdings limited has a parent company in the United States meant that most of the decisions to close down its operations must have been informed after a comparison of the prices of vehicles in the two countries and by extension world over (Jacobus, J. 2005, 23). Apparently, if the company had been locally based, chances are that the company would have strived as much as possible to fight off the impending competition. The nationalistic views and pride are some components however much small they maybe wield a huge influence in the determination of a company’s policy. In the case of GM Holden, the lack of this factors expedited the whole winding up the process. After all the General motors had other plants in other different countries, therefore the shutting down of its operations in Australia did not portend much impact (Singh, P. 2005, 3399). Definition of the problem The strengthening of the Australian dollar occasioned the problem faced by GM Holden limited. As such, it rendered exports to international markets quite expensive and hence lacked the desired returns. Apart from the international market, the exchange rate also favoured imports at the expense of the locally manufactured vehicles. In line with this assertion, the local car consumers would rather sample the different products from the international companies like Mazda and Toyota. With the dwindling incomes, the company could hardly run its activities let alone the payment of its employees. Hence, the company management agreed to shut down the vehicle manufacturing plants in the country (Conlon, R. 2001 67). For over 15 years, GM Holdings have depended on Commodore for its sales. The dependence is so high to an extent that in every three cars that the company sold, one was a Commodore. This highlights how the company had practically depended on this brand to make sales. However, with the entrance of other vehicles with better features as compared to the Commodore, the company has practically no other option but to close shop. Since its inception, the Commodore has always drawn customers to the showrooms and now that the company no longer finds it viable to produce it, the customers have no other favourite among the vehicles produced by the company. The exit of the Commodore from the light as the ideal car left the company at the crossroads. They had no other car in line that could fit into the shoes of Commodore (Mia, L. 1999, 158). In realising that, the odds were against them GM Holdings limited parent company hatched a plan to bring to a halt the production of vehicles in Australia. On the contrary, they wanted the company to start selling vehicles produced abroad albeit at lower cost and without incurring production fees. Ideate With the exit of Commodore, GM Holding will experience imminent exit from the production of vehicles. This is attributed to the fact that their entire sells dependent almost entirely on the performance of Commodore in the market. Therefore, with its exit and without other revolutionary products the company is bound to wind up. In fact, the company has set 2017 as the year when they will completely do away with the production of engines, the only vehicle-related production they have been left with. However, it should be noted that the company’s woes started with the current state of interest rates. This refers to factors, which are beyond the control of the company. As much as the company may want to indicate that the exchange rates have really dealt a blow to their production plans locally, the fact that the rates are bound to change with time in the favour of the company is inevitable. As such, the company should not completely wind up its operations in favour of the imports. The decision to maintain some employees in the design plants apparently was informed by the awareness that the company may bounce back to its feet in the future (Blanpain, R., & Brulin, G. 2008, 87) Moreover, the consumers’ preference for the imported products is bound to change with time. As much as the imported products may appear more advanced and much cheaper compared to the locally purchased vehicles, chances are that the locals may want to invest in the local industry. In line with the assertion the consumers would choose not to look at either the cost or the design of the locally manufactured cars, they would purchase them in spite of the flaws and the cost. The introduction of taxes on imported vehicles for the other competing vehicle manufacturing companies is another option which the company should pursue. The championing for this should be done with the number of job losses at stake in mind. The company indicates that about 3000 individuals will lose their jobs when the company winds up. This does not take into consideration the distributors of the company products. It should also be noted that the company has been a major foreign currency earner for the government. This fact should form the basis why the government should at the forefront initiating measures aimed at the promotion of local industries (MacDuffie, J., 1995, 221) Generally, the Australia economy is bound to be affected substantially y the winding up of the company. Prototype A review of the Australian automobile industry revealed that it is in a dire need of government aid in form of policy developments funds and the legislation of taxes to cushion the locals manufacturers from the ravaging competition from international companies. According to the productivity commission act of 1998, the local automobile industry is need of grants to support research in the field apart from tax exemptions. The industry, in general, suffers from external shocks precipitated by the international currency upheavals and the entry of much-developed car brands. In line with this act, the possibility that the GM Holden limited could have sought help from the government in order to cushion it was quite feasible. The ratification of the act by the government mean that local automobile manufacturers could seek government support in terms of fund and capital for the purpose of conducting research apart from the exemption from payment of taxes. The automotive transformation scheme is the institution established by the Australian government in order to support the automobile industry. With many jobs at stake and the government losing a foreign exchange earner, all should probably be done in order to ensure that the company does not wind up as already communicated by the management (Puri, P 2009, 428). The GM Holden management’s decision to wind up the company could have been informed by the fact that they are an international company and as such would not be that concerned about the impact it would have on the country’s economy, however, small it may be. The decision to import automobiles from other countries could have then been arrived at quite easily as the management are not aware of the impact of their decision. In line with this, the local politicians should have lobbied the company executives to find an alternative to the winding up of the company. Through such an initiative, the General motors would have been made aware of the implications of their actions on the locals. The development of new car brands in a bid to have an advantage over the imported ones should have also been considered. As highlighted above, the Australian government has put in place a number of facilities to ensure that the automobile industry gets the necessary support. Among them is the capital for research purposes. In utilizing these funds, GM Holden albeit with a lot of challenges could have developed a car brand to replace the ageing Commodore brand. Justification The Australian government in many ways has addressed the problems that precipitated the winding up the decision by GM Holden. As such in utilizing the available mechanisms, the company can avoid the unfortunate situation. It is also quite a viable option in that the company may not have to incur additional charges. The services provided by the government are relatively cheap and with an aim of ensuring the continuity of local businesses. The development of a new brand would have changed the company’s fortunes. The Commodore in which the company had depended on for over many years is a clear indication of how the consumers can be quite patient and understanding. The fact that the company did not develop newer and many users centred cars were a weakness on the part of the company of which when addressed using the proposed channel can yield positive results (Lloyd, P., 2008, 145). Recommendations Generally, GM Holden has experienced a difficult economic environment heralded by the stiff competition from rival companies as well as a strong Australian dollar, which has made its exports expensive. The decision to wind up, however, much popular is not the best. I would recommend that the company utilizes the available options availed to it by the Australian government. The automotive transformation scheme is the most appropriate solution to the impending closure that the company is facing. Through the scheme, the company can acquire the necessary funding for the purposes of conducting research. During such moments when the company lacks a major driver in terms of branding, research is the most appropriate means of remedying the situation and hence avoiding winding up. The prioritization of other sectors without necessarily being it touch with the customer need is another area which required attention from the company management. The statement from the company executives that they had underestimated the needs of the Australian consumers reflects a major mistake on the part of GM Holden. Had they been in touch with the consumers probably they would not have been overtaken by imports. As such, the company should have studied keenly the market. Moreover, the quick decision to wind up without paying attention to the consequences of the action should be avoided. The over direct job losses is a clear catastrophe in waiting. The management, therefore, should exhaust the available channels before embarking on closing shop. References Blanpain, R., & Brulin, G. (2008). Globalization and employment relations in the auto assembly industry: a study of seven countries. Austin, Wolters Kluwer Law & Business. Conlon, R., & Perkins, J. (2001). Wheels and deals: the automotive industry in the twentieth century Australia. Aldershot, Ashgate. Jacobus, J. (2005). The Fisher Body Craftsman's Guild: an illustrated history. Jefferson, N.C., McFarland. Lloyd, P., 2008. 100 years of tariff protection in Australia. Australian Economic History Review, 48(2), pp.99-145. MacDuffie, J.P., 1995. Human resource bundles and manufacturing performance: Organizational logic and flexible production systems in the world auto industry. Industrial & labor relations review, 48(2), pp.197-221. Mia, L. and Clarke, B., 1999. Market competition, management accounting systems, and business unit performance. Management Accounting Research, 10(2), pp.137-158. PLUNKETT, J. W. (2008). Plunkett's automobile industry almanac 2009: the only comprehensive guide to automotive companies and trends. Houston, Tex, Plunkett Research Ltd. Puri, P., Compston, P. and Pantano, V., 2009. Life cycle assessment of Australian automotive door skins. The International Journal of Life Cycle Assessment, 14(5), pp.420-428. Singh, P.J., Smith, A. and Sohal*, A.S., 2005. Strategic supply chain management issues in the automotive industry: an Australian perspective. International Journal of Production Research, 43(16), pp.3375-3399. Wikipedia, S. (2013). Motor vehicle manufacturers of Australia: holden, ford motor company of Australia, ford. [Place of publication not identified], University-Press Org. Read More