General Motors in Free Fall - A Case Study with Purposeful Action
A brief comparison on GM and Toyota would be helpful in discussing the four principles of purposeful action.
GM: After World War II there was big demand for each and every product that was introduced in the market. There is reason for this was rationing of product usage came to a halt. Two of the major industries emerged out of this boom one is housing and automotive. GM took advantage of this market. In order to be the competition GM focused on producing cars at the least cost. The concept of manufacturing cars at least cost helped GM to evolve into a mass manufacturing company. In mass manufacturing system of production raw materials are purchased at the lowest price. The raw materials and finished products will have high inventory. Whether a car has demand in the market or not still the inventory of the car will be high. It is the job of the marketing team to come with ideas to sell it. In this business model GM quickly transformed from visionary to a goal oriented company. The only goal of GM was to be the largest producer and seller of cars, which sacrificed its vision and mission. Every action taken inside the company had no purpose to benefit the society. There was no ethical balance in the form of producing cars that consumed lot of gas without any forecast for environmental impact at later stage. Executives and leaders were happy as for as the goals were accomplished. The desire that motivated these goal oriented action were in the form of: financial numbers, bonus package and salaries for the executives. The company gave the least importance on the desire to serve the welfare of the employees, society and environment. Hence company lost to listen the voice of internal and external customers, which resulted in low quality cars, low employment morale, lack of visionary leadership and motivation and poor financial planning. The only thing that was helping GM these days is that customers were enticed by emotional market strategy as “GM is the car built by Americans for Americans” and selling to rental car companies. Even rental car market share fell to other Japanese and Korean car manufacturers in the millennium years. On the whole GM got locked in the ego and arrogant pride as the largest car producers and lost the humbleness in its action.
Toyota on the contrary: After World War II Japan economy was in shambles. The quality of all the industrial products developed in Japan was not up to the international market. Toyota was producing car that was least desired by consumers around the world. Moreover the company was in deep financial shambles. Most of the financial institution did not want to give any kind of financial support to the company. In this crisis, there was one company that provided financial support to Toyota with a stipulated condition. The stipulation was that Toyota can only borrow when it sells a car and the amount must equal to the selling price of the car. This means if Toyota sells one car the company can borrow the money equal to the selling price of that particular car. Toyota accepted this challenge. The management was looking for ideas to produce and sell the car. This created the leaders in Toyota to develop the concept Kaizen meaning continuous improvement (Phase III of Purposeful Action), which later became Toyota production system. Kaizen was applied at every level of the company from the top leadership to the bottom management, from shop floor to dealership place. This became the vision of the company. Every action applied by the employee had to evaluate how it continuously improves the process. This led to employment empowerment. There was open communication at all levels. Toyota saw the company as integrated system not separate entity from the environment, which was not in the case of GM. Every action taken inside company was customer focused. The company sent its executives to see how other companies around the world were manufacturing their products. The executives went to developed nations in the west from Germany to USA. They were open-minded to benchmark companies from other than companies that were producing cars. The benchmarking process did not lose customer focus. Toyota developed the concept called quality circles which gather information to improve the overall quality for each and every process of the company from both its internal and external end user. In this process the company paid every attention to the welfare of the employee. This boosted the morale and motivation of the employees. One important thing was Toyota maintained high ethics of commitment. It never layoffs employees to cut cost instead every aspect was focused on improving the quality of the product without losing its vision on customer focus. Toyota maintained product line was customer wanted for its needs and necessities. Also made sure the cost of maintenance of the car was at the least cost related to were and tear of the vehicle due to operation.
One the whole Toyota’s action had a purpose at every aspect of its business; ethics to stick to its commitment and were not driven by financial goals; desire to serve the customers, employees and society better.
Sources from www.businessweek.com
For example Toyota-General Motors sold 9.37 million vehicles worldwide in 2007 and lost $38.7 billion. Toyota sold 9.37 million vehicles in 2007 and made $17.1 billion. That was the second best sales total in GM’s 100-year history and the biggest loss ever for any automaker in the world. For Toyota, that was roughly $1,800 in profit for every vehicle sold. For GM, it was an average loss of $4,100 for every vehicle sold.
2. What kind of a leadership is required for the present scenario of GM.? Please provide your views, with justification.
As mentioned in the first question on the comparative analysis of GM and Toyota. GM should focus applying purposeful actions in their operations. The company should develop and implement Kaizens at all levels. Eliminate bureaucracy in the management and involve everyone to seek better solution for both welfare of the company and society. In the recent years GM has improved its quality of cars both in design and performance. It is time for the executives to listen to both internal and external customers. The company should develop health welfare programs for its employees to boast and improve the well being of its employees. One way is to help its employees to eliminate unhealthy practices like smoking and consuming alcohol. Providing incentives for people improving their health which will indirectly reduce the health care cost. The reason for this is the number of employees working for GM is more than 100,000.
Sources from websites: www.businessweek.com and yahoo.com:
Health care, pensions and other benefits -General Motors isn’t bankrupt, but the once-great firm is on the rocks, having lost nearly $4 billion last year alone through September, recently announcing 30,000 layoffs. And at first glance, its long decline would seem to be GM’s fault. Consider perhaps its foremost headache: Its hulking health insurance costs for which workers pay nothing out of pocket, and retirees very little. They have about 145,000 employees, active employees, and we have health care coverage for 1.1 million retirees, independents and family members. Last year we spent $5.2 billion on health care coverage for all of our employees in the U.S. basically. It equates to about $1,500 a car.
That’s more than the steel in an average car and $1,500 that GM’s foreign rivals, with government health insurance, that don’t pay. GM’s got another cost disadvantage as well: full pensions after only 30 years of service, regardless of age. To pay for this largesse, tack on another $1,000 per car.
The lushest benefit of all, however, may be GM’s jobs bank. Workers whose plant closes can transfer elsewhere in the company or, if they choose not to, take classes, do community service, continue to get full pay and never retire. So in Baltimore, when a GM plant closed recently, the jobless weren’t exactly distraught.
When you add the jobs bank to the pensions and health care tab, GM has a total cost disadvantage, compared to non-U.S. rivals, of $2,500 or more per car — before it even starts making one.
Questions and background information for this case study discussion were prepared by Chandrika, Discussion Leader.
This discussion will continue for the next three weeks, through midnight on April 21. Each student will discuss in depth the two questions posted above, applying the specific principles assigned to each student. Assignments of principles will be posted under Assignments in Blackboard. Posts should be based upon research, with appropriate references and links.
This discussion will carry more weight with respect to course grade than a weekly discussion.
Good luck.
VISION is the key to restoring faith in GM in the eyes of the people. A strong leadership that can show investors that they have a futuristic plan that is innovative and genuinely trailblazing. It will cause people in the market to have more confidence and give GM another chance instead of the current perspective of total negativity surrounding the company. A good evaluation of the past and present will help shape the future plans as realization of mistakes will help avoid them in the future. Some of the problems they USED to have were:
• overdependence on trucks and large vehicles
• horrifically ugly or otherwise unappealing new products
• no product is class leader in any major market segment
• unacceptably cheap interiors
• bulk of car sales going to rental and law enforcement
• general perception by public as still being a bargain brand
• “Domestic” mentality, that is no products with appeal to import buyers
• lack of presence in burgeoning Asian and Eastern European markets
We can see that several positive steps have been taken by the company over the last decade or two where some of these were addressed. The Cadillac brand is VERY popular abroad, especially in China, and is definitely a class leader worldwide. The quality of interiors have got so much better in the last two years (probably too late to avoid the perception though) and they have models available in many different segments now. The styling has improved a lot, a good example being the new Malibu, and gas mileage on a lot of them has increased by leaps and bounds. But, even with all these positives, the baggage of overheads, absence of product differentiation, management techniques that are wasteful, production principles that are outdated, oversight and lack of vision has brought them to the current position in the market.
A bankruptcy seems the only viable (less damage in the long run) option to restructure and rebuild a successful company at this point as we are seeing things unfold. President Obama’s plan that requires the price to be paid evenly across the board so that union members are not sitting pretty with the clauses in their contracts while the rest of the country suffers seem fair, but the details and consequences will only be clear several months, maybe even years, down the line. As the new GM CEO Fritz Henderson said “I think the message to all the constituents that play a part in our future we need to pull together. We need to sacrifice as a group, whether it’s our people, our unions, our salaried employees, our dealers or suppliers, we need to pull together to do what’s necessary to make General Motors viable going forward. We have been doing that. We’ve gotten enormous support from that up to this point. We need to do more.” The new policy has to deal with some of the uneven distribution of monetary rewards and look forward to a balanced union/exempt ratio that can sustain the company profitably over decades to come.
http://crooksandliars.com/nicole-belle/david-gregory-tries-union-bust-auto-c
GM really has no choice but to downsize some of its operations, and even cut off some of the branches under it. Some suggestions on what they should do regarding specific models as well as operating companies are:
Buick
- bring back the Riviera
Chevrolet
- This should be the flagship brand, so bring the focus back to Chevy products!
- Bring the Cruze to the market A.S.A.P.
Cadillac
- add sub CTS model
- merge STS and DTS into new model
Pontiac
- axe the G3 (not a very good idea to begin with)
- axe the G5
- axe the Torrent
- possibly axe the Vibe (is it worth keeping?)
- bring back the Firebird (Oh ya!)
Saturn
- bring the Insignia over
- improve on the current line
- give them some promotion! (All the advertising money they’ve been spending seems to benefit the others only)
Axe:
- Saab
- Hummer (They’re still producing these! Wow!)
- GMC
The consolidation of GM & Chrysler has also been in the talks for a while, but nothing ever seems to come out of it. Some of the suggestions are well detailed here:
Fuel efficiency especially in the last few years has become an integral revolving point that will most likely be a determining factor in the future success of the company. The VOLT (Electric car) was very promising, while the delays in production (hindered from the design process on) have been very disheartening. The new leadership can hopefully set the priorities right and remerge the giant back to a position of strength.
Some of the links I had in the above posts it seems like didn’t come through, so here they are:
Cruze
http://www.thedailygreen.com/living-green/blogs/cars-transportation/chevrolet-cruze-2011
Insignia from OPEL
http://www.motorauthority.com/revealed-2009-opel-insignia.html
Suggestions (last paragraph)
http://www.bloggingstocks.com/2008/11/18/six-steps-to-restructure-gm/
If the US had a good public transportation system, would Americans need so many cars? Probably not. Gasoline is still the least expensive fuel and it will be around for years. What size engine in the Firebird?
I liked your observations Jimy! Especially about “the new policy has to deal with some of the uneven distribution of monetary rewards and look forward to a balanced union.” This can be related to the 12 steps of Purposeful Action - rewards and recognition. Recognizing the right things/people in the right time is absolutely important.
Yes Mark, I agree with you most of us would prefer using the public transportation which would cost much lesser than owning and maintaining a big car.
The meanest one they can get in there! LOL that’s more of a personal bias than a wise corporate decision… I like the old Trans Am a lot and wanna see it come back in the form of a Firebird - but that’s just wishful thinking! There’s still the camaro, that’ll have to do.
This is good reading if you like the old Trans Am and is also a very good example of how GM has “slowly” let it get away from them - they were unfortuantely to “product-oriented” rather than “customer-oriented”! It might seem that trying to better performance & styling on a sports coupe like this would be the right idea, but they missed what the CUSTOMER needed and wanted…
The links keep messing up! Here it is again: http://www.edmunds.com/pontiac/firebird/review.html
Jimy
NO NOT THE FIREBIRD, the “CAMARO” I have built mine online
the 2SS with a 425 HP V8
Nice! The FireBird is indeed a sweet car. There’s no way they could bring back a more efficient model - kinda defeats the purpose. Can you imagine a hybrid Firebird?
The U S does not have the public transportation system like Europe because we are more spread out.
The cost per rider would be too high for most cities to even think about expanding the public system.
Larger cities, DC LA New York Chicago, are a different story
Excellent commentary. Indeed GM must consolidate their brands with a focus on current and future trends and it is in this vein that new leadership must put focus. Whatever strategies are developed must be done with a constant finger on purposeful action. I would imagine that consolidating brands and working on more appealing engineering in their vehicles would provide GM with the increase in sales they are seeking, but this also may tempt whatever leadership is in place towards negative core values if they are not careful.
New leadership must have a strong track record of doing the right thing and purposeful action.
General Motors owns or is associated with a wide variety of vehicle manufactures. I believe a large issue with many of these brands is they are associated too close with General Motors. For example, if Saturn was independent however still backed by General Motors I think they be able to compete with some of the other product lines GM has to offer. This may allow the weaker brands GM is associated with to be filtered out.
Although again I think it is very critical that General Motors address what the customers are currently looking for and what the market is demanding. More efficiency and decreased reliability on petrol based fuels.
Question 1)
The auto industry has drastically changed since General motors was created over 50 years ago. Through increased competition, changing consumer demands, new technologies and changing consumer requirements, the company has not stayed ahead of all of these changes. Other auto manufactures have been able to stay head in these markets giving them the advantage at present day.
How has General Motors changed over the years in relation to the overall environment of the automotive industry?
Consumers purchase vehicles from the various makes of General Motors, however these purchases are based on what the consumers want and what they are willing to pay for these wants. These demands change over the years based on what consumers and the industry want. General Motors must be maintain and stay up to date on these changes. New technologies are always being developed by and for auto manufacturers, with some manufacturers implementing these technologies into their vehicles while others are not.
Vehicles are far more efficient in comparison today from twenty or thirty years ago, although General Motors has not stayed ahead of the competition in maintaining a high efficiency vehicle fleet. As consumer demands change the auto manufactures must adapt to these changes and ultimately change the structure of their business model.
http://www.nytimes.com/2005/09/21/business/21trucks.html?fta=y
Recently general motors has been trying to push new designs into the market that provide more efficient operations, however the majority of their fleet is still not efficient. In order for the company to maintain a competitive edge within this industry they are going to need to modify their model to pursue more efficient designs, considerable more efficient designs.
The leader in the company must be change-agents and move the company through posititve and necessary change. In this case, Wagoner was not a very good or purposeful leader. He didn’t have the vision to see where the company needed move to in order to survive.
During his tenure at the helm, Rick Wagoner focused on international markets to advance GM, which generated revenue to keep the company float. Maybe that is due to the fact the company has not required to insurance workers in foreign plant or maybe it due the company finding tax shelters to protect international earned funds from US taxes. But Wagoner needed to find away to reconnect with the world’s biggest consumers, Americans.
Japanese and South Korean investors bought into automakers on Wednesday, celebrating U.S. President Barack Obama’s apparent willingness to let their rivals General Motors and Chrysler go into bankruptcy.
http://www.forbes.com/2009/04/01/briefing-asia-midday-markets-equity-autos.html
As you see this is a result of GM not relating with other manufactures (fourth principle), seems like GM known as a taker rather than giver amoung other similar type manufacutures.
In relation to first principle, GM failed to act purposefully, which caused bring about these troubles.
There is something even more sinister about the actions of the Japanese automakers that further supports the current state of the business world - action based on greed. GM is, at least in its current state, an example of what can happen when focus shifts away from purpose and service.
GM is, as we all know, in terrible shape and the Japanese automakers, smelling blood, jumped on the opportunity to capitalize. Are these actions not a perfect example of failing to maintain an ethical balance? Furthermore, these actions reveal the Japanese automakers, at least in this case, are being led by the first two levels of desire.
This is alarming in that it is yet another example of a company falling victim to greed and actions not based of purpose. Would it not be better if the Japanese made an effort to “lend a helping hand”, no matter how seemingly trivial the “hand” may be? In my humble opinion, the Japanese missed a great opportunity to relate to and unite with a competitor for the greater good.
If GM goes into bankruptcy, it WILL come back. GM has “VALUE” so it will survive in a form that can be profitable.
Bankruptcy is a way to reorginize and fix the failures of the past
Till 2007 GM was the largest producer and seller of cars, this had led GM to become very complacent about the position in the market. GM’s marketing strategy did not foresee the emergence of Korean car companies like Hyundai and KIA which were not so expensive like Japanese or American cars but still provided all the features and warranty protection for the consumer. People who were not able to afford for a used or new Japanese car went on purchasing Korean cars instead Ford, GM or Chrysler. The consumer market had created a vibe in the level quality of the car producers with American car companies having the least quality among all the manufacturers. This also led to decline of GM’s Market share in North America.
You are right chandrika but not only did they become very complacent, they also demonstrated the negative core value of arrogance. They assumed because they were on top of their market that they would remain there. GM did nothing to look toward the future and prepare for the competition thus they fell behind compared to their competitors.
Chandrika,
Interesting posting. GM keep forgetting to differenciate its products and understand its market structure.
Do you happened to have the reference for this article?
Thanks
I agree that GM was managed with an attitude of “we are the best and no other company can defeat us.” They could have learned a great deal from the Japanese auto makers through benchmarking. Another thing US automakers could have learned to prevent their loss in market share is a saying Toyota about “being paranoid at the top.” Toyota embody this believe with the release of the hybrid, Prius.
1) GM’s downfall can be attributed to many different reasons. The actions of the CEO, the union employees, and General Motors as a whole are driven by the five negative core values and the first two levels of desire. Over the years, the company has lost the focus on its customers and focused solely on profit and wealth. They continued investing money into Hummer because of their profit. The Hummer was designed mainly for higher income customers leaving many customers unable to afford it. GM was not forward thinking and visionary in their product development and research of new products. When the high gas prices forced many to ditch their Hummers and SUV’s the company had no “fuel efficient” options for these customers. The company was arrogant in the fact that they thought they had a good product, they had an overreliance on gas-guzzlers, mediocre product quality and unimpressive design yet thought they would continue to be successful. GM’s employee pension plan was fully funded in the late 1990’s then they stopped putting money into it. They were greedy and put more than $20 billion into shareholder’s profits in order to make the company look like it was doing better than it was instead of investing the money into R&D and into the pension fund in order to insure the future at GM looked bright. Not only has the company been driven by the negative core values but they have also been led by the first two levels of desire, lust and survival and wealth and reputation. Their main product focus, the Hummer, demonstrates this. As mentioned above, the company put most its eggs in that one basket because they were arrogant and thought they would continue to make profits on it. The product itself sold so well because of the “reputation” the customer felt they had by driving one. It was viewed as a sense of status and wealth. GM putting their energies into this demonstrates actions driven by the first two levels of desire. Another demonstration of the first two levels of desire is the overall growth of the company. GM grew its divisions and its number of dealerships in an effort to make the company a giant without regard to the impact this would have on the company future. It takes a lot of money to run these multiple divisions and the dealerships themselves began competing with one another.
http://www.today.ucla.edu/portal/ut/081015_gm-downfall_sanford-jacoby.aspx
2) A change in leadership at General Motors may be long overdue. However, even with a new leader and the government’s financial backing, GM will have a hard time bouncing back to the company it once was. The main thing the company needs is a purposeful leader. One who can transform the company into a giving company who practices actions of giving versus taking. Some of the obstacles the new leader will face are as follows:
• Working with labor unions and creditors – currently GM wants the creditors to pay more for its stocks/bonds than they are worth. They also want to fund the retiree healthcare plan with stocks instead of cash. Since there is an uncertainty about what the value of the stock will be, the unions and creditors are hesitant. The new leader will have to sell this idea or negotiate a new one.
• Shrinking the company – While Wagoner agreed to sell or close many of GM’s divisions, that may not be enough. The new leader may have to restructure the division who are slated to remain or cut additional divisions.
• Reducing dealerships – Cutting the dealerships from the current 6,000 to the proposed 4,700 by 2012 is a complex process since many states have franchise laws protecting the dealers from GM shutting them down. It might be necessary for GM to buy out the dealerships with money that GM doesn’t have. Reducing the number of dealerships will be a challenge for the new leader.
• Maintaining and improving quality – although GM has begun improving quality they are not where they need to be. They need to continue to improve quality. In reducing costs, it is essential that the new leader doesn’t let the quality slip. Practicing the third phase of the framework of Purposeful action will help ensure that improvement is met.
• Keeping up with the foreign market – it will be essential that the new leader devote the resources to improving the Chevy Volt plug-in car and into future products to help keep a place in the market for GM. They will have to advance in this area since Toyota and Honda are already ahead of the game.
• Winning back customers and keeping the customers they have – this may be the hardest task for the new leader since the consumer are in doubt GM now. It will be necessary for the new leader to get GM’s name back in the market in a positive light, reassure the consumers that GM is doing well, and help win back the customers they have lost. With the strong competition from other car manufacturers, this will not be an easy task. The most important thing is that GM needs a purposeful leader who can help turn the company back around.
http://seekingalpha.com/article/128393-ousting-rick-wagoner-won-t-solve-gm-s-problems
I think that GM should standardize on some common parts, like the window switches. I was looking for a GM window switch assembly and they had three different variations for my model car. It is unthinkable the amount of engineering hours GM has spent on such a part that could be standard across all models.
Discussion 1 - First Principle: Act with Purpose – Pursue your Journey with Purposeful Action. GM vision has remained the same, sell cars. GM did not do a reality check over the years. It presently has twelve vehicle divisions and many of the vehicles from the different divisions look the same. There is little or no product differentiation. When the Japanese first started exporting cars to the US, they had sub-par quality compared to the US manufactures and the cars rusted out within years. GM did not see any threats from foreign competition. The 70’s energy crisis was the turning point for people to become more aware of fuel mileage. GM fought for against any increases in the governments EPA gas mileage instead of trying to meet it. The foreign car companies kept working on improving their quality issues and GM did not notice this change. GM thought that they were to big to fail and did not consider any outside threats, being the competition or energy prices.
Discussion 1 - Forth Principle: Understand and Relate to Others – Progress is Affected by the Actions of Others. GM has a top down management style. The divisional managers inform the CEO of what needs to be done and he approaches the board of directors for approves or disapproves. GM is too diversified in there offering of vehicles. They offer 25 models that sell less than 36,000 units per year; where as the Toyota offers a limited number of models. The Saturn division was created to compete against the foreign market and has not made a profit since the beginning in 1985. How could a CEO and board of directors let this division lose money for all these years?
Brookmaster was run for former CEO Rick Wagoner and the results were as follows:
Leader: 21-14%, Entrepreneur 24-16%, Manager: 28-19%, Trustee: 22-14%, Intellectual: 22-14%, Consultant: 30-22%, Giver: 14-36%, Taker: 24-63%. This indicates that he was a well rounded individual and should have been able to run GM. The present CEO should be analyzing the divisional managers, markets, competitors, and the overall operations of GM.
http://www.wikicars.org/en/General_Motors_Corporation
http://www.wikicars.com/stock/General_Motors_%28GM%29
Discussion 2: I think an entrepreneur type leader is needed to turn GM around. They need to look at the realities of GM and determine what is feasible and obtainable in order for GM to survive. They also need to replace the board of directors with the brightest people they can find without any ties to GM. This will leave the new CEO with unbiased resources to get the job completed.