History of General Motors Company - Research Paper Example

General Motors Table of Contents General Motors in 2000s 2 Challenges faced 3 Changes incorporated 4 Conclusion 6 Reference 8 Introduction General Motors, world’s largest automobile company in terms of number of units sold, for 77 years at a stretch (Strott, 2009), experienced baptism by fire. Based at Detroit, General Motors was founded in the year 1908, the same year when Ford Motor Company had launched the iconic Model T – the car that had revolutionized the automobile industry by introducing assembly line production (Harverd Business School, 2009). However, despite the wildly popular Model T, General Motors slowly but surely caught up with the Ford Motor Company by the early 1930s, and by mid 1930s it has graduated to become the world’s largest automobile company. It maintained its dominant position throughout the 1950s and 1960s. General Motor Company faced a series of dramatic changes in the economic environment in 1970s like the Oil Shock and the entry of Japanese competitors in the US market, and by 1980s it had entered the path of slow bleed. The industrial behemoth employed more than two hundred thousand employees and had manufacturing or marketing presence in more than 150 countries. It lost ground to its more nimble Japanese competitors steadily and the twin recessions of 2001 and 2009 triggered the near collapse of General Motors. The recession of 2009 was the final trigger and GM finally filed for bankruptcy protection in 2009. The urge to survive forced the GM management to take unpleasant but important decisions. Aided by strong government support, better economic conditions, a resolute management and an upswing in the market sentiments in the US as well as all over the world, GM was finally able to bounce back by 2010. This paper analyzes GM’s situation in 2000s - the external as well as internal challenges it faced and the changes it incorporated to survive, and subsequently, grow. General Motors in 2000s General Motors entered 2000s after a heady decade in 1990s. US automobile companies like General Motors and Ford Motor Company had experienced increased sales and record smashing profits. US customers loved and bought heavy cars and SUVs - vehicles that offered higher margins than smaller, compact and fuel efficient cars that the Japanese automobile companies manufactured. General Motors, by 2000, was a vertically integrated company with multiple brands and operations. These brands/operations operated independently, resulting in a lot of inefficiency. General Motors was also heavily investing in technology. It was embracing Internet as a new medium of interfacing with consumers as well as vendors. It was also extensively investing on new communication technologies that would offer novel features to its customers (Nohria, Dyer, and Dalzell, 2002). Challenges faced The last decade of the century has been a tumultuous one, and has witnessed dramatic changes in economic scenarios. 1. Distance from the customer: The Gulf Wars had resulted in a never before seen situation – gas prices had shot through the roof and subsequently the cost of running the car had become more important than the cost of buying the car. While the nimble Japanese players had rightly understood that the environmentally conscious consumer wanted smaller, more efficient and easy to own cars, US automobile manufacturers, notably GM, continued investing in developing bigger and more powerful gas guzzlers. GM had clearly faulted on the most critical business basics – listening to the consumer. 2. Bureaucratic decision making process: The century old legacy, the very reason why GM had become such a superpower, was lost. Faced with the onslaught of Model T which offered no choices to consumers, General Motors fought back by offering its customers a wide range of cars to choose from. This was possible because the decision making process at General Motors was fast and quick. However, almost a century of world dominance had resulted in complacency in the company. This meant the management was slow to connect to the customers. With multiple divisions and a vertically integrated organizational structure, there was tremendous inefficiency in the decision making process. 3. High cost structure: US automobile manufacturing companies in general, and General Motors in particular, had a high cost structure. In addition to inefficient manufacturing processes, General Motors also incurred huge expenses as part of its pension plans. New players like Toyota had a much younger workforce in place and had lower cost of wages and higher productivity per employee. Changes incorporated The bankruptcy and near collapse of General Motors was a wakeup call to the management as well as to all the stakeholders. They were forced to take strong and unpleasant decisions. 1. Streamlining of operations and brands: Over the last decade, General Motors has hived off a number of non critical brands, divisions and operations. Starting with the spinning off of Delphi, General Motors slowly but surely rationalized its operations. Delphi was spun off, marquee brands like SaaB and Opel was put on the block, unviable manufacturing plants and factories were closed down and noncore ventures were exited. GM also exited quite a few joint ventures and decreased its stake in companies. To further cu t costs, GM closed down thousands of unviable Car dealerships all across US, These activities helped GM shrug off the lethargy, streamline decision making process, free up managerial bandwidth and aggressively move towards profitability. 2. Focus on fuel efficient vehicles: As mentioned in the report, General Motors had primarily focused on developing bigger and faster cars, mini trucks and SUVs. These vehicles had excellent road presence and comfort but were gas guzzlers. The oil shock and the sudden spurt in oil prices to more than $150 per barrel increased the total cost of owning a car. As a result, consumers deserted General Motors’ gas guzzling SUVs and instead opted for compact cars, hybrids and fuel cell powered cars. Despite having billions of dollars in R&D budget, alternative energy technologies received little importance in the pecking list of General Motors. So, when the consumers looked for fuel efficient and green cars, GM had little to offer to the customers’ new requirements. However, during the recession, GM fast-tracked its hybrid car and also aggressively promoted its green technologies. 3. Cost cutting and risk reduction: GM's $15.5 billion loss during 2008 was a horrible experience for the company. The financial leverages increased and liquidity reduced dramatically. The investors, who invested their money in GM, experienced huge losses as GM’s share prices fell 84 cents from $10.23. It was one of the worst declines for the company. However, at such critical situation, the management of GM realized to reduce the financial burden to save the company from bankruptcy. Therefore, the management took necessary steps for risk and cost reductions. The company reduced its monthly payments by leasing policies. It used swaps to reduce its financial risk and to protect its bondholders. It planned for increasing its liquidity by saving operational cost. Hence, GM cut “an unspecified number of salaried jobs and eliminating the 25-cent-a-share dividend to help save $10 billion annually” (Bensinger and Green, 2008). Besides, it also planned to sell assets and to borrow from bank for generating $4 billion. Conclusion The 2008 – 2009 economic recessions is widely believed to be the strongest recession since the Great Depression in 1930s. An industrial behemoth like General Motors, in all likelihood, would have gone belly up without effective initiatives. GM faced a number of challenges in its business operations during the financial crisis. There were some internal weaknesses like the distance from the consumers, high cast and weak management structure that made financial position of the company weaker. However, realizing the seriousness of this situation, the company incorporated some changes. There were three major areas of improvement for the company. Firstly, it attempted to bring efficiency it its operations by concentrating on its different brands. Secondly, due to increasing demand for fuel efficient vehicles, the company started to focus on such vehicles. Lastly, it took necessary initiatives for cost cutting and for risk reductions. These measures were very necessary for saving the company form bankruptcy. Reference Bensinger, G and Green, J. (August 1, 2008). GM's $15.5 Billion Loss Is Third-Biggest in a Century (Update2). Retrieved on January 25, 2011. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=au.TL_ofjGuM&refer=home. Harverd Business School. (June 15, 2009). GM: What Went Wrong and What's Next. Retrieved on January 25, 2011. http://hbswk.hbs.edu/item/6229.html. Nohria, Dyer, and Dalzell. (June 10, 2002). Reinventing the Industrial Giant. Retrieved on January 25, 2011. http://hbswk.hbs.edu/item/2971.html. Strott, E. (January 21, 2009). Toyota takes sales crown from GM. Retrieved on January 25, 2011. http://articles.moneycentral.msn.com/Investing/Dispatch/Toyota-takes-sales-crown-from-GM.aspx. Read More