1. The history, development, and growth of the company over time (e. g. , critical incidents) General Motors (GM) was founded in 1908. William C. Durant brought together 25 independent car companies to form one large corporation. Each company held its own identity as GM operated as central administration office for the 25 divisions. Due to high cost in manufacturing of automobiles, GM was only able to target wealthy customers who could afford cars. Then Henry Ford, owner and founder of Ford Motor Company, revolutionizes the production process of manufacturing cars and takes the lead in the industry.
With this new process, Ford becomes GM’s largest competitor, rapidly growing their market share by mass produce affordable cars, the Model T. GM did not have the same competency to mass produce affordable as efficiently as Ford and their sales plummeted. GM was in a bad situation, producing a wide range of expensive cars for a small target market of middle class customers. From 1910- 1920 Ford grew stronger and wealthier while GM struggled to stay afloat. In 1920, Alfred P. Sloan became the CEO for GM and made major changes to GM’s strategy to more effectively compete with Ford.
Sloan restructured GM to regain its competitive advantage, targeting a different segment in the market. His consolidation of the 25 companies into 5 major self-contained and operated divisions: Chevrolet, Pontiac, Buick, Cadillac, and Oldsmobile proved to be successful. In 1925 GM took the lead in the industry, hurting Ford’s sales of the Model T so bad that Ford had to shut down his factories for several months to redesign his production line and produce new models.
GM became the United States car market leader with the largest market share, 70% at its highest. 925 to 1975, GM expanded its product line to all kinds of vehicles to full-size trucks, light weight trucks, and various specialized vehicles such as vans and ambulances. GM also started to vertically integrate and at one point, made more than 65% of its cars components. From 1925 to 1975, GM dominated the United States market holding approximately 65% of domestic sales. Together, GM, Chrysler, and Ford, held more than 90% of the United States market. Due to the global oil crisis and low cost/high quality Japanese cars in 1970’s, GM lost its lead in the industry.
The oil embargo of 1973 revealed the inefficiency of the American “gas guzzlers”. Neither GM nor its American competitors at this that time had the competence to build fuel efficient cars. Japanese cars now entered the American market and not only were they fuel efficient, there were reliable and affordable. In the 1970s and 1980s, demand for large sedans fell and thousands of GM workers got laid off. By the end of 1970s Americans flocked to Japanese economy cars or sleek European luxury cars and ignored high cost and low quality American cars.
In 1980, GM still earned 3. 3 billion on more than 60 billion in sales. With its large cash flows, GM was still able to act as a dominant competitor. Roger Smith, GM’s new CEO aimed to regain GM’s competitive advantage and launched several major programs to reduce cost and improve quality. By 1990, these programs had cost the company over 100 billion dollars, which at the time, was enough to buy out Toyota and Honda. Smith had the most the difficulty lowering cost due to the high cost labor agreements with the UAW (United Auto Workers).
GM invested more than 50 billion to improve and update technology and in 1980 started to develop automated factories using robotics to increase quality and efficiency. GM lacked the competency to effectively operate automated factories and was costing them twice as much in producing parts the traditional way. In 1982, GM created a new division called Saturn to develop low-cost manufacturing skills and produce quality cars by imitating Japanese manufacturing companies. It cost GM 2 billion to build Saturn’s plant, GM largest construction project in history.
Saturns were priced to compete with Honda Civic and Toyota Corolla. Saturn did not meet its quotas and 1991 and lost $800 million dollars. The next year, Saturn sales picked up and were ranked top 10 in customer satisfaction but still had a loss of $700 million. Saturn could not replicate Toyota and Honda efficiency, especially its low cost supply chain. Same as other divisions, Saturn had difficulties reducing costs because high labor cost due to previous agreements with UAW. To learn Japanese manufacturing techniques GM had a joint venture with Toyota in 1983 called new United Motor Manufacturing, Inc. NUMMI).
NUMMI reopened a failed plant in California under Japanese management in 1984. By 1986, with the use of flexible work teams, plant productivity was higher than any GM factory and twice as much as with the old GM management. The flexible teams were regularly rotated, trained to perform the jobs of other works in the team, taught the procedures to analyze jobs to improve work procedures, designed all the teams’ jobs. This freed managers to focus other tasks. GM quickly implemented this system to all its plants and by 2005; GM was laiming to be the most efficient United States carmaker.
However, due to tariffs and high costs involved to bring foreign car to the United States, foreign car makers were eager to open their own car plants in the United States. By 1995, foreign controlled plants were making more than 1. 5 million cars a year in the United States. Although GM’s market share declined from 50% in 1978 to 35% 1992, it had not reduced it number of plants or downsized its work force significantly. In 1990 Robert Stempel became the new CEO and like Smith, Stempel did not want to down size the company at all.
However, an activist GM director, John Smale, set out to stop GM’s losses and convinced the board to appoint Jack Smith as the new CEO. Smith made drastic changes and down sized the company dramatically. His new strategy for GM was to once again become profitable by aggressively focus on cutting cost, aggressive use of marketing of new designed vehicles that better satisfy customer’s needs, and create a new more-flexible decentralized organizational structure. He also reduced number of models and platforms in which they were built.
In 2000, GM built a $1 billion state-of-the-art manufacturing plant in Michigan to raise quality to Japanese levels. In 2005, GM did receive higher quality level similar to Japanese competitor but could not preform to be profitable due to high labor costs. In another attempt to lower value chain cost, GM closed down it Oldsmobile division in 2004. GM then focused on improving efficiency with its parts, components and suppliers, making various changes there. In 2000, GM, Ford, and Chrysler formed an organization called Covisint to gain power over global suppliers.
Toyota launches program that reduces the number of steps needed to make components and car parts reducing its costs by 2. 6 billion. In 1992, it consolidated its nine groups into five and combined all its car divisions’ engineering and manufacturing units to eliminate redundancy. Also the five design and technical departments were combined into three to speed product development. To promote and improve coordination between departments, GM changed its organizational structure to a global matrix structure and invested heavily in IT to support this new global matrix structure.
With the help of IBM, GM was now able to speed information transfer between its divisions all around the world. In attempts to quickly lower its cost, GM spun off several of its component parts divisions and vertically disintegrated. In 1996, form joint ventures with Isuzu Motors and Suzuki to establish facilities and make specialized engines and transmissions for GM. In 2000, GM acquired a 20% equity stake in Fuji, the manufacturer of Subaru cars and received a new CEO, Rick Waggoner. GM also establishes a strategic alliance with Honda. In 2001, GM’s new assembly plant in China begins production.
In 2002, GM formed an alliance with Russian company. During this time, GM attempts to rapidly grow globally and competes with Ford to acquire premium European carmakers. GM bought many other European carmakers but did not find any to be profitable, only costing them more money and more failures. GM also acquired Daewoo and Hummer brand in hopes to strengthen product line and market share. All failed. In 2008, GM fell with the recession and spun off, sold, or digested many of its global assets. GM asked the government for bailouts and in the end filed for bankruptcy.
Subject: General Motors,
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 11 October 2016
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