Professor Michael Aldous

Strategy Implementation General Motors Final

Jamar Johnson 1/31/2014 IE Business School

1 Jamar Johnson, Strategy Implementation, General Motors Final

Introduction

General Motors was at one point a groundbreaking North American success story. At its

peak between the years of 1931 up until 1997i, General Motors held a dominant market share of

51% (in 1961) down to 31% (in 1997) within the United States vehicle industryii. Led by what

was then considered innovative business practices spearheaded by Alfred P. Sloan, its success

inspired a new wave of management philosophies, operational practices, and served as a

significant source of employment opportunities for many Americans working within its

manufacturing facilities and corporate offices. This was the past, and at present up until now, its

story and position in the market has reversed. General Motors eventually filed for Chapter 11

bankruptcy in 2009iii. And the reasons for this monumental fall from grace are not esoteric in

nature; in fact, some of the reasons for its ultimate decline can easily be pointed out. The aim of

the paper is to identify and explore several factors leading to the failure of General Motors.

Furthermore, I will recommend several approaches and strategies which I believe will serve to

assist in the recovery of General Motors, the once iconic American brand.

History of Previous Success

As discussed in class, much of the success of General Motors and its earlier market

domination can be attributed to the pioneering operational methodologies incorporated by Alfred

P. Sloan. Prior to taking the helm, his predecessor Durant, General Motors lacked standard

procedures, poorly tracked inventory, and was massively in debt as a result of overspendingiv.

The transformation worked to rectify these weak points by adopting standard modes of procedure

across all divisions, controlled financial spending, unilateral financial reporting, marketing design

and planning, along with planned obsolencev. Moreover, Sloan perfected the new culture of

General Motors by instilling accountability to his managers and their departments by encouraging

decentralized managementvi. Decentralized management allowed for managers and key

stakeholders to conduct its work and make responsible decisions for the betterment of said

divisions faster than a more centralized, bureaucratic organizational structure. At the time, the

adoption of a decentralized hierarchical system paired with uniform standard procedures was new

and arguably disruptivevii. Now that we have outlined the history of General Motors when times

Poor Corporate Leadership

Poor Vision from Senior Executives: One main cause for the failure of General Motors can be

traced back to the failure in identifying the shift in market externalitiesviii. Normally, businesses

will make a concerted effort to maintain its market share, at the very least. Over the years,

General Motors turned a blind eye to the monitoring of market trends, the growing change in

consumer tastes and purchasing habits, while disregarding its competitors increasing tendency to

manufacture vehicles that became consistent more fuel efficientix.

General Motors worked on the assumption that its previous years of market success

guaranteed its dominance in the future; as such, General Motors failed to invest in appropriate

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research and development, poorly assessed the market and the strategic moves of its competitorsx,

while ignoring consumer surveys citing declining interests in vehicles with high gasoline

consumption levelsxi. Such short-term thinking on the part of General Motors helped paved the

way for competitors to disrupt and capture majority market share within the United States. In fact,

Toyota benefitted most from the once dormancy exhibited by General Motors. According to the

Brookings Institute, at the time of into to the U.S. market Toyota held a 3%

market share. By 2005, Toyota expanded to enjoy a market share of 25%. xii

Recommendation: While the recommendations contained may verge on the obvious, they are

important nevertheless as General Motors failed to maintain its dominant competitive advantages,

thereby allowing for foreign domination in the car industry.

1. General Motors must encourage and engage in a hands-on leadership program for

aspiring senior management and current executives. Such a program will work to refine

the management abilities of internal stakeholders and encourage the culture of continual

i

2. Needless to say, individuals within management level positions must be keenly aware of

the market and possess the skill of anticipating both market and non-market conditions

that can potentially affect their business. At the time of their eventual Bankruptcy 11

filing, General Motors continued to manufacture and produce high petroleum consuming

vehicles position for the American consumer, such as the Hummer SUV. It is worth

noting that during much of the decade for 2000-2010, the purchasing of petroleum by

American consumers declined by an average rate of 5% annually from its 2006 peakxiii.

3. Expanding on recommendation number 2, it will be important for General Motors to

reduce its portfolio and eliminate inefficient petroleum consuming vehicles in light of the

economic environment along with the overriding consumer preference for more energy

efficient vehicles. This will allow for General Motors to reduce its manufacturing and

production expenditures and free up required capital, with the goal of increasing profit

margins per unit sold.

Ineffective Management of Financial Resources

Far too Generous Remuneration Schemes: After a number of years of poor financial

performance, General Motors instituted a payment scheme that matches 80% of a senior

While in theory this may appear to be a good solution, such a policy is only a superficial one. In

generous stock common stock allotments, and severance packages should they be removed from

office.

Recommendation: Pay the most senior executives a baseline salary of only $1. Concurrently, the

most senior executives will receive salary packages that match 99% of the financial interests of

shareholders to be exercised at the end of year. Rather than pay for a corporate jet, lease it.

Access to the corporate aircraft should only be accessible to executives who have been with

General Motors for more than three years, and is subject to the voting decision of the elected

Board of Directors for GM. Guaranteed stock options and severance packages should only

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allocated to senior executives with at least 2 years of work experience in their current executive

role. Such mechanisms will recruit and retain only the most committed of executives with a

vested interest in the success and sustainability of their employer.

High Labor Costs: With regards to the labor costs, General Motors also failed to structure this in

a favorable manner. A great deal of its ongoing labor costs had to deal with legacy costs for

retired and current employees to the tune of $13 Billion annually. It is worth mentioning that in

many global economies to which General Motors competed, the financial performance was

generally profitable as they were not bound by similar costs found in the United States.

Recommendation: Restructure the costs of labor to be more competitive with foreign companies.

Several approaches can be implemented simultaneously. Encourage unions to invest in General

Motors via paying a fixed percentage of union (use hard-negotiating tactics,

if necessary). In return, unions will receive an agreed upon preferred stock allotment exercisable

at a mutually-agreeable date. In addition, General Motors must cut back on healthcare and

insurance coverage for part-time employees and full-time employees that are recent hires while

encouraging said employees to participate actively in company sponsored retirement plans. For

older e U.S. Government to subsidize a

portion of the expenses for these individuals while highlighting the stress on General Motors

operational costs. Participate in labor arbitrage for the manufacturing of resource and capital

intensive parts while retaining all technologically sensitive work within domestic borders (to be

fulfilled by American labor). In addition, retain a quantity of American labor minimally necessary

to avoid a public relations crisis.

Conclusion

General Motors have undergone tremendous growth for 77 consecutive years, but due to

poor management, inefficient financial controls, and a lack of strategic planning, it has found

itself experiencing a noticeable fall from grace. What was once a company that inspired

generations of business leaders with the use of innovative management practices now serve as a

cautionary tale to business students on what not to do in business.

However, I believe all is not lost. In fact, should General Motors serious dedicate itself to

the task of reviving its management practices, controlling its cost, while heavily investing in the

future, I believe it can one day regain its once coveted market position and serve as an inspiring

business turnaround success story.

i GALLIGAN, KATHLEEN. "GM again the world's largest automaker". Detroit Free Press. Retrieved January 31, 2014. ii TRUDELL, CRAIG. GM Seen Holding U.S. Share After Slipping to 88-Year Low. Retrieved January 28, 2014. http://www.bloomberg.com/news/2013-01-08/gm-seen-holding-u-s-share-after-slipping-to-88-year-low.html iii McCarthy, Ryan. "GM Files For Bankruptcy." The Huffington Post. TheHuffingtonPost.com, 01 June 2009. Web. 31 Jan. 2014. iv General Motors, Creating the general office (Chandler, Strategy and Structure)

http://www.bloomberg.com/news/2013-01-08/gm-seen-holding-u-s-share-after-slipping-to-88-year-low.htmlhttp://www.bloomberg.com/news/2013-01-08/gm-seen-holding-u-s-share-after-slipping-to-88-year-low.html

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v ibid vi ibid vii ibid viii General Motors Corporation Restructuring Plan for Long-Term Viability, as presented to the United States Congress. ix Ibid x McCarthy, Ryan. "Steven Rattner: GM Had "Stunningly Poor Management"" The Huffington Post. TheHuffingtonPost.com, 21 Oct. 2009. Web. 31 Jan. 2014. xi Soren Anderson and others (Resources for the Future). Automobile Fuel Economy Standards: Impacts, Efficiency, Alternatives- Ad Discussion Paper. Accessed January 30, 2014. http://www.rff.org/documents/RFF-DP-10-45.pdf xii Vehicle Choice Behavior and The Declining Market Share of U.S. Automakers. Train, Kenneth E and Clifford Winston. University of California-Berkeley and the Brookings Institute. Accessed January 30, 2014. http://www.brookings.edu/~/media/research/files/papers/2007/11/us%20automakers%20winston/11_us_automakers_winston.pdf xiii "Guest Post: Why Is Gasoline Consumption Tanking?" Zero Hedge. N.p., n.d. Web. 31 Jan. 2014.

http://www.rff.org/documents/RFF-DP-10-45.pdfhttp://www.brookings.edu/~/media/research/files/papers/2007/11/us%20automakers%20winston/11_us_automakers_winston.pdfhttp://www.brookings.edu/~/media/research/files/papers/2007/11/us%20automakers%20winston/11_us_automakers_winston.pdf

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Appendix 1 Global Economic Analysis, Mike Shedlock

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Appendix 2 Reduction in Gas Guzzler Purchases in the U.S.

Appendix 3 American Fuel Prices as per the BBC