Analysis of General Motors Corporation - Case Study Example

 General Motor Corp-An analysis Abstract General Motors Corporation has posted a whooping loss of $9.5 billion in the fourth quarter of its financial year 2008. The struggling auto giant has posted cash loss of $ 5.2 billion in the last quarter of 2008 and a total cash loss of $19.1 billion during the financial year 2008. This research essay analyses the company’s background, legal issues and ethical issues faced by General Motors and recommendation to come out of the current financial crisis in detail. I need to request a revision to my paper.  I cannot have any chart or table, because it won’t count toward the 10 pages.  Please remove any chart or table from the paper.  Also, the following areas were not cover in the paper as I specified on my original instructions: Background: Identify the key stakeholders in the case and the impact of operational/ethical issues on the stakeholders. Ethical analysis: Summarize the key ethical issues in the situation. Apply at least three of the ethical perspectives (teleology, egoism, utilitarianism, deontology, relativist, virtue ethics and Justice).  Just two theories were discussed. Contributing factors: corporate culture and corporate governance/guidelines. Analyze how the company’s corporate culture that may have either helped to minimize the unethical behavior or actually contributed to/caused the unethical behavior. Analyze how the company’s corporate governance (overall guidelines, strategic decisions/actions) may have either helped to minimize the unethical behavior or actually contributed to/caused the unethical behavior. Ethical decision factors to consider: Based on the ethical perspectives (theories of ethical thought presented in the course), what are the key factors that should be addressed or considered in resolving the legal/ethical issues identified in this case (as outlined above). List each ethical issue and then for each issue, the factors to be addressed or considered based on the ethical perspectives used above. Recommended corrective action – recommendations need to be related to the ethical issues and the recommend approaches or policies are the approaches that the company, not the government, need to take. Recommend corrective actions for each of the legal/ethical issues outlined above. Provide supporting rationale for each recommendations or industry examples of the use of your recommendations as “ best practices”. Recommend approaches or policies that the company can take to help prevent these issues in the future. Provide supporting rationale for each recommendations or industry examples of the use of your recommendations as “ best practices”. Background: General Motors is a multinational company with headquarter at U.S engaged in the manufacturing and selling of trucks, cars and spare-parts. In the year 2007 alone, GM had delivered 9.3 million truck and car internationally. Some of its famous brands are Cadillac, Chevrolet, and GMC. Further, GM also holds equity ownership holdings through multi regional subsidiaries like GM Daewoo, Shanghai GM, CAMI Automotive Inc and SGMW. These subsidiaries holding companies engaged in designing and marketing the brand vehicles like Cadillac, Daewoo, Suzuki and Chevrolet. Other than manufacturing activities, GM is also engaged in after sales services through its dealer outlets like small repairs, maintenance, vehicle parts, collision repairs and offering extended service warranties. In the last two decade, General Motors (GM) had scaled down from being a golden corporate success to a status of “corporate dinosaur” as claimed by Fortune Magazine. How success can breed failure can be known from the history of GM. GM was the global leader in the automobile industry for very long time but it failed to foresee the need for change. One of the reasons for GM’s failure was that it was administered like an institution. GM failed to usher changes in retort to the public pressure and preference. GM has posted a whooping loss of $9.5 billion in the fourth quarter of its financial year 2008. The struggling auto giant has posted cash loss of $ 5.2 billion in the last quarter of 2008 and a total cash loss of $19.1 billion during the financial year 2008. In the year 2008, GM’s revenue shriveled by 34% from $ 46.7 billion in 2007 to $ 30.7 billion in 2008. In the fourth quarter of 2008, GM’s operating loss was $ 5.9 billion and its net loss was $ 9.5 billion. GM’s accumulated loss of $9.5 billion is equivalent to oil-rich United Arab Emirates budget figures for the year 2008! It is to be noted that GM has posted loss for the consecutive fourth year and this is the second biggest ever loss posted by GM in its whole history. These mounting loss are due to general slump in the sales of the car around the globe. This is more or less analogues to ringing death bell to the future of GM. It is to be noted that GM has already received $ 13.4 billion as bail out package from U.S government since December 31, 2008. It has made additional request for funds to the tune of $16.6 billion as bail-out packages from U.S government. (Muller, Joann, 2009). Commenting on the continuous loss by GM, Rick Wagoner, CEO of GM commented that the year 2008 was exceptionally thorny year for the U.S economy and for auto markets internationally. It was announced by GM that its annual report of 2008 is going to contain a “going concern” view from the auditors of the company which signals that viability of the company’s future is in stake. This also implies there are many holes left in the net. (Farrago, 2009). Some reasons for the debacle of GM are listed as under; Japanese are continuously enhancing the design and quality of their cars and have introduced small cars the sector where GM is yet to penetrate. The price of gas sky-rocketed due to two past oil crisis. In second quarter of 2008, oil price went to the peak of $ 148 per barrel which has added more fuel to GM’s crisis. High safety standard and better fuel efficiency standards set by federal regulations. High employee cost and retiree benefits which added about $1400 to the cost of per car manufactured by GM which is totally absent with its Japanese and Korean competitors. A 1981 survey revealed that a Japanese car was cheaper by $1800 than GM’s car. (Robert, Monks & Minow, 2008, p.422). The present of CEO of GM, Rick Wagner was of the opinion of that the industry’s dilemma was not because of inefficient of management of auto industries in U.S.A in general but due to the saturation of global financial crisis. Wagner also warned if US government fail to approve the auto bail-out packages, there will be not only America’s GDP could be lost by 4% but also loss of million of jobs. Wagner put the blame on the international financial predicament which has rigorously limited availability of credit and lessened industry sales to the ever gloomiest per-capita intensity since Second World War. (Erbe, 2008). Auto industries allege that if no bail-out package is extended to it as in the case of insurance and banking industry, there will be a loss of three million jobs within the first year of predicament which will have tale telling effect on U.S economy. GM’s insurance and finance business operations are carried through its subsidiary GMAC LLC.GMAC major profits and revenues were emanated from initiating, securitizing and servicing residential mortgages which include subprime loans. Year 2007 was a catastrophe year for real estate market in U.S.A as real estate value declined drastically with declined housing constructions, falling residential sales and increasing rate of foreclosures and defaults. Due to subprime crisis, GMAC profit was adversely affected. Due to this, Residential Capital LLC (ResCap), a subsidiary of GMAC in 2007 incurred a total pecuniary loss of $ 2.4 billion alone as equated to its net revenue of $ 2.3 billion in the year 2006. (Form 10-k 2007). Due to subprime mortgage crisis, ResCap’s mortgage loans were significantly written down which were held for sale portfolio. Any prolonging of these situations may continue to drastically affect GM’s results, its operations and financial conditions. The employees retirement benefits alone added $1400 to cost of every vehicle manufactured at GM which is totally absent for its competitor’s product from Asian and European markets. Loss-making cars of GM have to be manufactured in large quantity due to high demand and as the result, GM could not concentrate on manufacture of high profit yielding sport-utility and pickup trucks. To me, no potential illegal/unethical practices or behavior have caused the present financial debacle for GM. I suggest that it should immediately demerge its loss making subsidiaries like GMAC LLC. This will reduce the net loss posted by GM and also helps to resurrect the GM core business namely manufacturing of cars. The key stakeholders of GM are public, market, customer, shareholders and suppliers and employees. Public reactions are mixed in nature. Some support that government should bailout GM or else millions will loose job. Further, these jobs will be moved to either China or India. Some public oppose support from government. They feel that restrcutirng measuers like evaluation of brand portfolios of GM, scaling down employee’s benefits and running under the federal oversight board may not enough to put the company back on its track. Current market share of GM is 24% on global basis. GM may loose its market share to Asian manufacturers including Japan, Korea, China and India if it is failed to take off. Market for car is associated to consumer spending pattern and general economic scenarios which will have great bearing on GM’s sales. GM’s debacle has destablised the consumer’s confidence on the GM’s vehicles. GM has estimated that its consumer base for the current year will be 14 million as compared to 16 million last year. Failure to introduce small cars, fuel-efficient cars may entice consumers to shift their loyalty. Shareholders are concerned about the future of GM. If GM files chapter 11, their interest will be badly affected. There was a loss of GM’s shareholders value of more than $ 50 billion since 2000.Many GM’s suppliers will be out of business if GM fails. This would generaly affect the development of car spare parts manufacturing industry in America. On employee’s side, there will be further job losses. Employees may find it difficult to find immediate job replacement. They may be forced to be employed at low salaries. Employee’s union should come forward to minimize its salary structure and perquisites to save GM from its current financial debacle. Legal analysis: One of the brands of GM namely Chevrolet Corvair had been under controversial as it had some technical flaws. Since 1961, Convair had raised many controversial issues in the U.S courts. A woman who lost an arm after her Convair tossed her, later sued GM for marketing cars with insecure steering designs. In fact, in 1967, as many as 150 lawsuits had been filed against GM’s Convair. Most of these cases were settled out of court. However, GM had won those cases which actually went for trial. Ralph Nader wrote severe critical remarks against GM’s Convair in his book “Unsafe at Any Speed”. Aggrieved by the strong criticism by Ralph Nader, GM engaged some private detectives to investigate into Nader’s private and financial life with an anticipation to tarnish his personal reputation. Nader smelled the foul play of GM and publicly accused GM’s repulsiveness claiming that GM’s private investigators had even engaged several young women to entice him into a sexual affair. Nader filed a lawsuit against GM for harassment. GM had settled the court case at the cost of $ 425,000. (Salinger, Lawrence M, P.844). Under Title VII of the Civil Rights Act of 1964, women rights are ensured against any sexual harassment and discrimination in the workplace. In Williams v. General Motors Corporation 1 held that a chain of practical jokes remarks made at plaintiff by her colleagues and three occasions of embarrassing sexual hints from her supervisor over a period of 12 months were observed by the court as employing the “entirety of scenarios” test. It was observed to be enough to permit the complaint to carry on the summary judgment. The court in this case observed that “the spotlight of the subjective or objective inquest should remain on (a) whether a rational individual would see the scenario neutrally unfriendly and (b) whether the applicant subjectively uncovered that the behavior was “pervasive or severe” so as to demonstrate whether an action could endure summary judgment. Thus, in William’s case, test of subjective and objective was employed by the court for the survival of a summary judgment. ( Suleiman ,Yohann) An employee of GM namely Jose Ignacio Lopez along with colleagues left GM and joined Volkswagen in 1993. These groups of employees left GM had the potential to damage GM severely and there was incidence of passing of secret information to Volkswagen which was illegal under law. General Motors filed case against Volkswagen and won the case in 1997 with a compensation of $ 1.1 billion as settlement from Volkswagen. In this case, it was alleged by the GM that it was exploited by international piracy and had been victimized due to unfair competition practices by its competitor by referring the RICCO Act (Racketeer Influenced Corrupt Organization) in an effort to safeguard its intellectual property rights.(David, Blenkhorn & Fleisher, 2005, p.99). GM engaged down sizing in the past and is also employing during the current economic downturn. There were numerous age discrimination case filed against GM in the past downsizing measures and it may witness a valley of age discrimination cases now also. To me, these legal cases are routine in any business and it is not arising out of non-complaint of any legal provisions by GM. : GM’s Corporate Culture GM’s Board’s mission statement focuses the following: Its board signifies the shareholder’s interest in preserving a thriving business which includes maximization of financial returns. Both at good and bad times, GM’s management is the responsible for executing these objectives. GM board has to watch the efficaciousness of policies perused by the management including the carrying out its strategies. Apart from optimizing its shareholder’s values, GM’s board has to strive for welfare measures of its employees, customers, societies and suppliers who are all founding stones for its success. GM’s vision statement states that it wants to be global leader in automobile sector and its associated services. GM will strive hard to win the customer’s loyalty by prolonged improvement driven by the teamwork, integrity and innovation. GM has stated that it has six core business values. Two of its business values are directly associated with ethics and others relates to their customary business processes. GM core values is consisting of the following: a) Integrity b) individual responsibility c) cutomer enthusiasm 4) team work 5) innovation 6) continous improvement. At GM, customer enthusiasm is the top most value priority as it has brought the finally gas guzzler, the Hummer. Planning and budgeting in GM tops second priority which signifies product quality, design, customer service, production and marketing. However, GM’ core value does not define what will happen if there is a clash between values for respect, integrity with the customer enthusiasm. Training and continiuing education of its employees which are the corporate culture of GM was considered to be the pivotal instrument in resurrecting the company from its earlier financial debacle. Ethical Analysis As stated above, individual responsibility and respect and integrity are the core ethical values which are more precise to GM Company alone and may not be applicable to other companies in general Whether GM has perused these core ethical values with out any deviation. Has GM acted from not polluting the universe? Whether GM has shifted manufacturing thoughtlessly and rapidly to the cheapest labour sites for instance to China, India, Mexico and Korea. Whether GM has interfered with the legitimate government processes? These are all to be answered in ethical perspective. GM’s CEO Rick Wagoner argued from utilitarianism perspective which is based upon the “ greatest good for the greatest numbers” to US Congress that Company will expected to go out of business if no bailout is sanctioned to it . Further, to put GM again to the profitability route, they have come out with plan to reduce the excess work force, to reduce the salary of the existing workforce and to cut perks. However , Rick Wagoner who made a request for an alms to the US Congress in the guise of bailout package from taxpayers dollars flown to Washington DC from Detroit by GM’s $ 36 million luxury jet aircraft . Rick Wagoner is ready to extend the utilitarian concept to the pleasure of GM’s executives and is not ready to extend the same to the gullible workforce of GM. There is much talk about the reduction of workforce, their salaries and perks but no word for restricting GM’s executive perks, bonuses, jets, salaries, stock options etc. Is this utilitarian concept of GM is really worthwhile? However , under outlook of the employees who are being retrenched , the reason for running the plants without closing are based on principles like “ those in need is to be assisted by those capable “. Further, GM owes gratitude and allegiance to its employees who bestowed prosperity to the company in the past. This is apparently a necessity of compensatory justice, where one section has reaped benefits from the services of other. There are two decisions involved in this process. One is bleeding heart or sympathy approach and other is carrot and stick business policy which insists that only firm decision will save the company and enhances the productivity and profitability which are life blood for any business. Thus, in any business decision, where company’s survival is most significant, and the application either utilitarian or deontological principle does not weighed by the management. Is the Roger smith action closing GM’s plant in US and having moved the same to Mexico is correct? From GM’s angle, it is justified as it would save the company from going to graveyard. From American employee’s perspective, it is unwarranted. From Mexican employee’s view who got jobs in GM plant in Mexico, it is more advantageous. (Duska, 2007, p.75). A deontological ethics deals with the morality of an action which solely based on its motives or its intrinsic or it being in harmony with some principle or rule and either not wholly or solely on some results. [Krutines & Gewirtz, 1984]. While closing the GM plants in Michigan and Flint, the then CEO of GM Roger Smith demonstrated profit maximization as the reason for closing these plants. From the outlook of CEO, Roger Smith, the cause for shutting down is the acknowledged theory of profit maximization. Thus, profit maximization can be legalized by a utilitarian pleading for over all social benefits or under deontological cover of private liberty and property. Thus, under these circumstances, system can be legalized and the action of CEO can be said to be ethical since he owes a duty to shareholders of the company. Egoism symbolizes an act which is considered to be right when it promotes a person’s best long-run interest. According to Machiavelli, a monarch has to act cruelly to safeguard his power and position if situation warrants. According to Thomas Hobbes, egoists are human beings to safeguard their personal interest. For instance, if a journalist writes about a social issue, he visualizes that some good may happen to redress such issues. At the same time, he also visualizes that he will be recognized by a promotion or with a Pulitzer award. There is no harm in having self interest as long as it doesn’t become the paramount reason for making a decision. Egoism is also applicable to corporation. What is fine for General Motors is also good for the country was the slogan coined by GM sometime back. For example, if GM makes out of court settlement with plaintiff for any manufacturing defect in their cars mainly to avoid negative advertisement, it is an act of egoism. (Bivins, 2004, p.92). Recommendations and Conclusion: If GM is to be resurrected, specific attention have to be paid to the following. Bureaucracy in GM has to be reformed. GM has to invest in advanced technology Entrepreneurial spirit is to be instilled in the company GM should become meaner and learner if it want to succeed. I strongly recommend that GM should immediately demerge its loss making subsidiaries like GMAC LLC. This will reduce the net loss posted by GM and also helps to resurrect the GM core business namely manufacturing of cars. Appropriate bail-out packages by way of loan should be immediately sanctioned to auto industries in U.S.A including GM .GM should develop more fuel efficient vehicles , to make a settlement with employee’s union to agree for wage cut in lieu of lay-off and to minimize the retirement benefits. GM is to draw a retirement package for its industry’s so as to GM to use the funds so saved to improve their manufacturing techniques and to introduce more fuel efficient cars to make it fit and compete in the global automobile market. The GM should think of exploring the alternate short-term financial assistance schemes for resurrecting the company. References Bivins, Thomas Harvey. (2004). Mixed Media: moral distinctions in advertising, public relations and journalism. Philadelphia: Lawrence Erlbaum Associates. David, L, Blenkhorn & Fleisher, Craig S. (2005). Competitive intelligence and global business. Abington: Greenwood Publishing Group. Duska, Ronald F. (2007). Contemporary Reflections on Business Ethics. New York: Springer. Farago, Robert. (2009, February 26). GM Posts $ 9.6 billion Q4 Loss. Retrieved March 11,2009 , from http://www.thetruthaboutcars.com/gm-posts-96b-q4-los Muller, Joann. (2009, February26). How Long Can GM Stay Alive? Retrieved March 11,2009 , http://www.forbes.com/2009/02/26/autos-gm-detroit-business_automobiles_gm.html Robert, A, Monks, G & Minow Nell (2008).Corporate Governance. Hoboken: John Wiley and Sons. Salinger, Lawrence M. (2004).Encyclopedia of White –collar & Corporate Crime. London: SAGE. Sulaiman, Yohann. (NA). Sexual Harassment in the workplace: Legal perspectives. Retrieved March 11,2009 , http://knol.google.com/k/yohann-sulaiman/sexual-harassment-in-the-workplace/2ek85k0kif95u/12# Read More