A Review of the Collapse of General Motors and Plans for Reorganization
General Motors was once the most powerful company in the U.S. Over time the company has experienced many financial highs and lows. This paper reviews the history of General Motors and analyzes the elements that contribute to one of the largest bankruptcy cases in U.S history. These elements include the role the United Auto Workers had on the failure of GM, along with the impact of rising health care costs. Management decisions that were detrimental to the company and their effect on the company's profits will also be reviewed. The new GM strategy will be analyzed, and the reader will have a good understanding if the new company will be successful or not. This paper will give the reader a broad review of events that contributed to the collapse of GM and the new direction the company is heading.
A Review of the Collapse of General Motors and Plans for Reorganization
General Motors (GM) was once the world's largest automobile manufacturer. The history of GM is filled with financial highs and lows from the time the company was founded in 1908 through 2009 when the company filed for bankruptcy protection. This paper reviews the history of GM from 1908 through 2009 and discusses the elements that contributed to one of the largest bankruptcy cases in U.S history. The elements to be discussed include the struggles with Unions, Rising cost of health care, management decisions, brand management, and company investments. The “New GM Strategy” will also be reviewed and analyzed giving a better understanding of the new direction of the company.
According to Berg (2005), GM was founded in 1908 in Flint, Michigan as a holding company for Buick and was controlled by William Durant. Durant realized the future of transportation was evolving from horse-drawn carriages to the automobile. Although most automobile companies were having financial difficulty due to the market decline of 1907, Durant made the decision to purchase Oldsmobile within the first year of business (Berg, 2005). Then acquired Cadillac and Oakland which was later renamed Pontiac (Halliday, 2009).These were the first brands that formed GM (Berg).
William Durant liked to take risks while running his business. Durant's business style took GM to great financial highs as well as financial distress. In 1910, bankers removed Durant from the company to prevent the financial collapse of GM (Press, 2009). However, in the following year GM stepped into the international market to overcome their financial torment. This enabled the company to create the General Motors Export Company which controlled sales outside of the United States and Canada (Berg, 2005).
After Durant was forced out of GM, he worked eagerly to form another company known as Chevrolet. However, Durant was able to regain power at GM when the company purchased Chevrolet in 1918. During this time, Cadillac thrived, enabling GM to become very powerful (Berg, 2005).Even with all of GM's success, they were still impacted by America's post-World War I recession. In 1920, Durant resigned and left the company for the second time (Halliday, 2009).
During the great economic successes of the 1920's, GM became again very successful. Automobile sales reached $4.5 million, and the auto industry had three major competitors: GM, Ford and Chrysler (Berg, 2005). GM saw a brief period when the competition with Ford stressed the company. However, GM overcame difficulties by hiring Alfred Sloan who used his marketing ability to overcome the threat of Ford (Berg).
Ford's business plan was to offer customers the best value; however, they had a limited selection of products. Sloan and GM provided their customers with automobiles that had many customizable options. For example, GM offered different colors whereas Ford only offered black. GM became known for all the extra features and comforts available in their products. GM also invested substantially in engineering. Cadillac, Pontiac, Buick, Chevrolet, and Oldsmobile received a new look and style every year (Halliday, 2009). This contributed to the loss of customers for Ford since their products did not receive updates and new styles were not introduced on an annual basis. This enabled GM to gain market share from the Ford customers. GM was also the first automobile manufacturer to offer customers the ability to purchase a new car on credit. This attracted even more customers from the competition.
Then, the Great Depression put a stop to all of GM's expansion plans and the company stock price took a sharp decline. By the early 1930's GM regained financial stability and purchased the Yellow Coach bus company, along with the Electro-Motive Corporation, which manufactured Diesel – Electric motors for rail industry (Halliday, 2009). By the 1950's GM produced diesel powered trains that were used to haul passengers and freight on the American railway system. All of the company's success paid off in 1955 when GM became the first company to earn more than a billion dollars in one year (Berg).
GM dominated the auto industry from 1955 through 1979 when it employed over 618,000 employees. Then in 1980, GM lost $750 million as sales of cars and trucks fell 26 percent (Press, 2009). This was followed by a list of new business plans to regain their financial success. These plans included the birth of Saturn, which was a product developed in reaction to the threat of the Japanese automakers. GM also acquired Hughes Aircraft Company within the same year (Press). Although Saturn was developed in 1985, it took five years until its official launch in 1990. This was another bad year for GM as auto sales dropped and the company faced a charge of $2.1 billion for the closing of four manufacturing facilities. Profits also fell to $102 Million and cut 21,000 jobs within the same year (Press).
Then, GM posted an industry record loss of $4.45 billion for the year of 1991. This prompted GM to close 21 manufacturing facilities and cut 24,000 more jobs. This led to changes in executive management and Jack Smith became CEO (Press, 2009). From 1991 through 2000 GM was full of spin-off and selling activities including the sale of Hughes in 1997 and the spin-off of Delphi in 1999. In 2000 the president of GM, Rick Wagoner, replaced Jack Smith as the acting CEO of the company. After becoming CEO “Wagoner cut 10 percent of the white collar workforce” (Press, p. 4).
The American economy was booming in 2000 and large sport utility vehicles were the new trend. This prompted GM to contract with AM General to supply the Hummer H2. In the years following, between 2000 through 2007, GM discontinued the Oldsmobile line and closed multiple manufacturing facilities (Press, 2009). By 2008 the Hummer brand proved to be unsuccessful due to the American fuel crisis when gasoline prices hit $5 a gallon. This caused the sales of sport utility vehicles and trucks to tumble (Press). Unfortunately for GM, sport utilities and trucks were the only products keeping the company afloat. With the decrease in sales, the company was forced to shed 8,350 jobs and close four sport utility and truck manufacturing facilities (Press). The Hummer brand was consequently put up for sale. Company executives went to Congress, seeking aid to help keep the company operating. The GM Chrysler merge talks stopped due to the decline in sales from both companies. Finally by June 1, 2009 GM filed for Chapter 11 bankruptcy protection at the U.S Bankruptcy Court in New York (Press).
GM has been a dominant auto maker for many years. Although the company has seen much success, the company has also been stressed by contract agreements with the United Auto Workers Union (UAW) and management's failure to compete with the Japanese auto firms (Reisman, 2006).
The following graph compares GM's market share to that of imports for the time period of 1920 through 2009.
The UAW has put a tremendous burden on GM by negotiating higher pay, generous retirement plans, and free health care to all union workers (Reisman, 2006). In 2006, the average hourly wage for a union employee was $72, which included health care benefits and retirement benefits (Reisman). The cost of non union labor at Toyota is $47 per hour including health and retirement benefits (Berger, 2009). The graph below compares the Wages and Benefits of Chrysler, GM and Ford to those of Toyota, Honda and Nissan in 2008.
The union also required that specially trained employees would be needed to perform certain tasks. This meant that a job that would normally require one or two employees would now be performed by five or six specialized union employees (Reisman). This added extra overhead to the company and led to inefficient production in its manufacturing facilities. The union also required the company to continue full salary and benefit payments to 2,300 workers whose factory production had been suspended. Theses employees were paid to do nothing which in turn caused the company more financial stress due to the lack of automobiles that were being produced from the factory (Reisman).
Starting in 1960, union membership began to decline in the US (Welsh, 2008). However, the percentage of union employees at GM remained consistent. GM did not research nor recognize this growing trend of decline in union memberships. If this information had been utilized, GM may have had more favorable negotiations with the unions.
Along with the high pay levels union workers were receiving, the health benefits were also extremely generous. Each employee received free health care for themselves and their entire family (Appleby & Carty, 2005). This turned out to be an enormous expense for the company since the price of health care increases every year (Reisman, 2006). GM employees and their families did not encounter the health care issues that most Americans face today. Every doctor visit was paid for 100 %; and surgeries were also paid for. This could cost the company thousands of dollars (Appleby & Carty). In comparison, employees at Nissan and Toyota only had to pay a certain percentage of the cost.
Along with the benefit of free health care, employees and their dependents were entitled to highly reduced drug plans (Appleby & Carty, 2005). These drug plans would cover all prescriptions, even if they were not necessary. This was another benefit the foreign competition was not offering their employees. Just like the health care benefits offered at Nissan and Toyota, employees had to pay a certain percentage for prescription drugs. At the foreign automobile manufacturers, drugs that were deemed unnecessary or had over the counter subtitles were not covered under their plan. Employees had to pay for these drugs themselves. Compared to any other American car company, the GM benefit package was considered to be the most generous. .Not only did the company's active employees receive these benefits, they were also provided to retirees (Appleby & Carty).
GM retirees also receive free health care benefits that were equal to the benefits of active employees. GM currently has more retired workers than active employees receiving these benefits (Appleby & Carty, 2005). This is due to recent early retirement packages offered to employees in order to reduce the workforce. It is estimated that GM has future obligations for retiree health care that total $47 billion, which increase every year due to rising health care costs. All of these additional health care costs are passed along to consumers. In 2006 an estimated $1,600 went towards health care for every automobile the company produced (Reisman, 2006). Without these health care benefits, the cost per automobile would have been close to what it was at Nissan and Toyota. In 2006, Toyota made a profit of $2,000 per automobile (Reisman). According to Reisman (2006) “GM loses $1,200 per automobile, this is a difference of $3,200 per automobile sold” (¶ 5). Toyota used this to its advantage and was able to sell cars cheaper than GM. This contributed to Toyota's success in selling more cars than any other automobile manufacturer.
Although the Union introduced and created many problems at GM, the company itself was not without fault. Many careless business decisions were made at the company at all levels. One of the most visible mistakes made was the ability to ignore the competition (“Detroitosaurus wrecks, “ 2009). This fault became noticeable in the 1970's after the first oil crisis. The powerful V8 cars that Americans liked were being replaced with small front wheel drive cars. GM was forced to make this switch to comply with the Corporate Average Fuel Economy rules (known as the CAFE standards).According to the National Highway Traffic Safety Administration:
CAFE standards were put into law in 1975 as part of the Energy Policy Conservation Act. The goal of these standards was to double new car fuel economy by 1985 and was put into place due to the Arab oil embargo. (National Highway Traffic Safety Administration.n.d. ,¶ 1)
These new standards forced American auto manufacturers to produce vehicles with an average fuel economy comparable to that of the Japanese manufacturers (Godoy, 2007).By the early 1980's, not only did Toyota manufacture cars more efficiently, but the cars themselves were superior to the products that GM was producing. This trend caused GM to lose more sales to Toyota. The decrease in demand also caused the price of GM products to drop.
By the end of the oil crisis in the late 1980's, GM was taking advantage of the fuel efficiency loop hole that permitted some passenger cars to be classified as light trucks. This allowed GM to hold a majority of its automobiles to a lesser fuel standard (“Detroitosaurus wrecks“, 2009). Rather than investing in fuel saving technologies, the company continued investing in large non-fuel-efficient trucks and sport utilities. However, these large trucks and sport utilities were very profitable and allowed the company to recover from its $30 billion losses (“A giant falls,” 2009). In 2008, GM would again find itself in trouble during the oil crisis, when consumers moved away from purchasing sport utilities and pickup trucks and instead were buying fuel efficient Toyotas.
GM also had problems with maintaining the many brands the company had established. With the brands Chevrolet, GMC, Buick, Saturn, Pontiac, Oldsmobile, Saab, and Hummer competing for the same consumer, the company struggled to make each brand unique. GM spent billions trying to keep multiple brands afloat, instead of focusing only on the profitable brands (Maynard, 2009).
It was not possible for the company to invest the required dollars needed to re-engineer and re-design new models every couple years as needed to keep up with the competition. Products started to suffer due to the lack of updating, and the products that once had a loyal customer base such as Oldsmobile started to fade and the customers stopped buying the products. Eventually GM decided to stop Oldsmobile production in 2004, costing the company millions (Maynard, 2009). GM also neglected the Saturn brand, which did not see any new models for 5 years (Maynard). Oddly enough, the brand that was developed to compete with the Japanese fell to the wayside while the company developed new products that were not as fuel efficient for the GMC and Chevrolet brands. The company never dedicated adequate time, money or assets to develop the brand as intended. In 2009, Saturn faced the same fate as Oldsmobile.
GM also mismanaged its Saab brand, which caused the company to lose a tremendous amount of money. GM acquired part ownership of Saab and helped the company turn a profit in 1995 which was the first time since 1988 (Johnson, 2009). However, since 1995, the Saab brand has been losing customers and has failed to attract new ones. This was mostly because GM was not investing in the company and new models. GM ran Saab just like its other failing brands by building Saab models on existing platforms. This became very noticeable in 2000 when GM took full control of Saab. Chevy Trail Blazers were being branded as the Saab 9-7x, and the Subaru Impreza as the Saab 9-2x (Johnson). The failure to build the Saab brand and attract new customers caused GM to shut down the Saab brand. In 2009 only 7,812 Saabs were sold in the US, a dramatic decrease from Saab's peak six years earlier in 2003 when 47,914 were sold in the US (Niedermeyer, 2009). Due to the mismanagement of the brand, GM lost $5,100 on every Saab sold after gaining full control in 2000. Including other losses, this has cost GM $6 billion over the past nine years just to keep the Saab brand (Johnson).
GM has also made billion dollar mistakes by investing in other companies such as Fiat, Isuzu, Subaru, Suzuki, and Saab. GM wasted $5 billion on a partnership agreement with Fiat in 2000 (Cato, 2009). Over time, it became clear the partnership was not a good investment due to the heavy losses Fiat was experiencing. This investment also came at a time when GM's European operations were operating at a loss. These two events prompted GM to back out of the Fiat deal, which in turn cost them and additional $2 billion (BBC News, 2005). This poor investment made by GM management cost the company a total of $7 billion dollars. Even though this was a failure, GM still did not admit to its mistake. The CEO at the time Rick Wagoner stated, “We needed scale in Europe to get costs down, and we were able to do that in working with Fiat” (BBC News, ¶ 10). This has continued the trend of GM not admitting to its mistakes.
Another mismanaged alliance GM made was with Fuji Heavy Industries. Fuji is the manufacturer of the automobile brand Subaru. GM bought a 20% stake in the company in early2000 (DeMarines, 2000). GM's goal of this alliance was to gain the superior all-wheel-drive technology that Subaru developed. This technology was intended to be used in new GM sport utilities that the company wanted to develop (Kiley, 2005). GM realized after a few years into the alliance that Subaru was a company that did not want to re-engineer their existing technology (Kiley). In order for the Subaru all-wheel-drive systems to work with GM products, the entire system needed to be overhauled or re-engineered. Subaru uses a Boxer engine which is horizontally opposed and GM uses an engine that is vertically opposed (Kiley). The all-wheel-drive systems would not work on the products, as GM was hoping. This proved to be a bad alliance when Subaru refused to retro fit their systems to work with GM products. Therefore, this alliance was also a very costly mistake.
The new GM Strategy
GM filed for Chapter 11 bankruptcy protection on June 1, 2009. This was a very unique bankruptcy case with the US government owning 60.8% of GM (Sanger, 2009). The United Auto Workers Benefits Trust fund, will own 17.5 % and the Canadian government owning 11.7 % (Wilkinson, 2009). And the remaining 10% owned by the old GM (Wilkinson). This has given GM the potential to emerge as a productive company once again.
On June 10, 2009 the new reorganized GM began operations with a new corporate structure. (Wilkinson, 2009) The new GM will have a competitive cost structure, cleaner balance sheet and a stronger liquidity position that will enable GM to invest in new products (Wilkinson).
The first major goal for the new GM is to produce fuel efficient automobiles with a small carbon footprint (Sanger, 2009). The new fuel efficiency rules were given by President Barack Obama as part of the government bailout deal that was agreed upon for the company (Sanger). The new GM is working towards this goal by introducing new cars to the US auto market. According to GM chief executive Fritz Henderson, “Small cars represent one of the fastest growing segments in both the U.S. and around the world” (Whoriskey, 2009, ¶ 6). The new GM is aggressively developing a wide range of energy saving technologies, which include advanced internal combustion engines, bio-fuels, fuel cells, and hybrids (Wilkinson, 2009). The company is also the leading developer of extended range electric vehicles such as the Chevy Volt which is currently in road testing and will be released in 2010 (Wilkinson).
GM will be producing these new small fuel efficient cars in the US. This goes against the industry trend of making such cars overseas (Whoriskey, 2009). By building these cars in the US, GM will not be subjected to the union complaints claiming that GM will produce more cars overseas as part of its restructuring cost reduction plan (Whoriskey). According to GM officials, the decision to build the cars in the US reflects a new labor agreement with the UAW (Whoriskey).
In May 2009, the UAW Union came to an agreement with GM. This new contract has approved modifications to wages and benefits. Part of this contract will close the wage and benefit gap, making wages and benefits more comparable to what the competitors offer employees (Liberto & Isidore, 2009). The agreement will also allow GM to cut costs. This would put GM's spending in line with competitors such as Toyota and Nissan.
The new union contract also reduces the amount of money that GM is required to give to the union controlled trust funds that cover the cost of health care for retired union workers (Liberto & Isidore, 2009). Under the new negotiated contract, the trust fund that covers health care for retired employees will be funded by the 17.5 % stake in the new reorganized GM. The Union also has the opportunity to buy an additional 2.5 % stake in the company allowing the trust fund to be funded by a 20% invested share in the company. The fund will also own $6.5 billion in preferred stock that pays a 9% interest rate. In addition, GM will owe the fund an additional $2.5 billion (Liberto & Isidore).
Not only does the new union contract reform the health and benefits of union workers, the labor contract has also been addressed. Under the new contract, cost of living increases will be cancelled (Johnson, 2009), bonuses will be suspended until further notice, and the new labor contract will allow GM to hire low wage entry level workers (Johnson). According to the United Auto Workers vice president, Cal Rapson, the new contract could save GM $1.3 billion a year (Johnson). GM also expects the new union contract to enable the company to become productive once again. A statement from vice president of GM labor relations reads,” Their shared sacrifices will enable GM to become a stronger, more viable company that will continue to deliver world-class cars and trucks” (Johnson, ¶ 5).
The restructuring plan also removes GM's regional operating structure (Wilkinson, 2009). This will move decisions closer to the customer, by eliminating the regional president positions and the regional strategy boards (Wilkinson). The company will also be removing layers of management which will reduce the number of executives by 35% and overall U.S salaried employees by 20%.(Wilkinson).This will enable the company to speed up the decision making process.
The new GM will have only four core brands: Chevrolet, Cadillac, Buick, and GMC. Opel and Vauxhall will remain as GM's European division and will not play in the US market. All of these brands are getting overhauled and new models are being introduced. Some models are being re-introduced that were previously discontinued. For example, the Chevy Cameo which has passed the competition in this division (Wilkinson, 2009). Other models, including the Chevy Equinox, Cadillac SRX, and the Buick LaCrosse, have earned high early reviews (Wilkinson)
GM has also consolidated their dealer network from 6,000 to 3,600 in the US (Wilkinson, 2009). Even with this large decrease of dealers, GM will still have the largest dealer network in the US (Wilkinson). Since GM will have a much smaller dealer network, the company is piloting a program in California that will sell cars on EBay (Wilkinson). This will make car buying more convenient for GM customers (Wilkinson). Customers will be able to place bids on cars just like any other EBay purchase, and they will have the option to “buy it now” which allows the customer to purchase the product instantly for a pre-determined price.
The problem with Unions
Unions were originally designed to protect workers by limiting the number of hours worked per day and insuring that employees have safe working conditions. They were developed in the 1890's when treatment of employees was unfair and working conditions were unsafe. Over time, the unions have set their policies and standards very high without taking into consideration the changing workplace environment or the always changing economy. Health care benefits provided by union contracts were one of the biggest problems at GM. These health care benefits helped contribute to the bankruptcy of the company.
The contracts that were in place at GM guaranteed all union employees and their families free health care. These benefits were also given to retirees of the company. The paid health care benefit was fairly common among large companies in the US until the early 1990's, when companies started passing along some of the health care costs down to employees. This was due to the tremendous cost increase of healthcare and companies not having the resources to offer this benefit to its employees.
Since the out of date union contract was not up for negotiation, GM was forced to continue offering free health care to its employees and retirees. This was a great expense for GM and the company could just not afford to continue paying these benefits. At times, GM had more retired workers than current employees; however, the company was paying for these ex-employees who were not producing any products for the company.
The unions at GM also negotiated very high salaries for hourly employees. Salaries at GM were much higher than companies like Nissan or Toyota. High wages and high health care cost forced GM to sell its products for a higher price to make profit. Since Toyota and Nissan did not have the high cost of health care and high wages, these companies were able to sell automobiles for a cheaper price. This led to GM losing its market share and losing the top spot as the number one automaker. Without unions, companies such as Toyota and Nissan are able to deliver high quality products to consumers at a lower price than companies with unions.
Companies without unions can more easily eliminate employees who do not perform than companies with unions. By having only the best employees working together to perform tasks, a higher quality product is manufactured. Companies with unions have difficultly eliminating employees that are not performing up to standard. This results into the manufacturing of products of lesser quality.
Unions are not necessary in modern, developed industrial countries. Today with the numerous amounts of labor laws, companies are set to a new standard. Companies now treat employees fairly, have the safest working conditions, and have fair benefit plans. Unions have become more of a burden to both employees and employer. If GM did not have unions in place, the number of jobs lost would have been reduced. Resources could have been used for product development and research allowing GM to compete with foreign manufacturers. This could have also given the possibly of avoiding bankruptcy, and reduced the amount of layoffs.
Bad management decisions
Unions were not the only element that contributed to the bankruptcy of GM. Bad business was also a factor. GM was not forced to agree with the labor unions, on the health care and compensation plans. By not agreeing with the labor unions millions of dollars could have been saved. This could have lead to a workforce strike, but would have only lasted short term. The long term effects of the agreement proved to be costly.
GM management also ignored the competition from the Japanese automakers. By not responding to these threats, GM fell far behind in quality and technology. This led to the market share loss the company has suffered. GM managers were late on their response to the oil crisis of the 1970's. At this time Toyota was already producing fuel-efficient vehicles due to the high cost of fuel. In response GM had to develop small fuel efficient automobiles in order to compete with the foreign car manufacturer. However, it did not take long for the consumer to notice the lack of quality in GM's newly designed vehicles. Over time, the reputation of GM's products deteriorated due to the poor production quality. Therefore, potential GM customers ultimately bought Toyotas, which were higher quality and less expensive.
GM has a history of ignoring trends in the economy. When the oil crisis ended, GM started to take advantage of loopholes in fuel efficiency rules. Since GM was good at making trucks and large V8 automobiles, the company then started to develop sport utility vehicles. These were built on the same platform as the trucks already being built by the company. Since the sport utility vehicle is built on a truck frame, they did not have to comply with the same fuel efficiency rules as small sedans.
GM made lots of profits from the sale of sport utility vehicles, and were selling millions. This was the trend after the oil crisis of the 1970's due to the low cost of fuel. GM banked on this trend and focused on building larger utility automobiles such as the Hummer. This took the focus away from building high quality fuel efficient cars. While GM was developing the new larger sport utility vehicles, Toyota was investing in Hybrid technology. This again hurt GM during the next oil crisis in 2008, where gasoline hit a record price of over $5 per gallon. The same scenario occurred again during this time, as in the 1980's. Many loyal GM customers unloaded their large, inefficient vehicles, and bought small Toyotas and Nissans, and Hondas. This was again a case of GM ignoring the threat of its competitors and the changing economy.
GM struggled to manage multiple competing brands. Not only did the company have American brands, it also had European brands such as Saab, Opel, and Vauxhall. Theses brands were also in competition with each other. The only brand that did not have internal competition was Cadillac. With all of these different brands, GM could not focus. Many brands were neglected, and did not see new models for many years. Brands also started sharing some of the same parts and components as other vehicles. In order to reduce costs, brands became very similar.
With GM not putting the proper funding into each brand, quality and innovation suffered. This caused many customers to turn to other automakers that were putting the latest technology into its automobiles. These trends contributed to GM discontinuing the Oldsmobile brand in 2004, followed by the elimination of Saturn. Saturn was the first brand to be cut, during the reorganization of the new GM with Pontiac following.
Poor Company Investments
GM's lack of resources allocated to research was also evident in their selection of companies they chose to invest in; resulting in the company losing millions of dollars. For example, GM's unsuccessful investment in Fiat cost the company a total of $7 billion. Even though GM's European companies were operating at a loss, they still entered into a partnership with Fiat. Combined with the losses Fiat was experiencing, this investment proved to be toxic for GM, and did not achieve the outcome the company was projecting
GM also invested in Fuji Heavy, which is the producer of Subaru automobiles. GM wanted to acquire the all-wheel-drive technology Subaru possessed. GM had a plan to incorporate the Subaru technology into new SUV and cross-over vehicles. The company wanted Subaru to modify its technology to work with GM products.
GM did not understand its new partner, and should not have entered into this relationship. Subaru was not willing to re-design its technology for GM products. This proved to be another bad investment for GM, as a result, the company loss of millions of dollars. If GM had spent time to research investments, these problems could have been eliminated. In return the company would have saved billions of dollars. Even though these investments proved to be unsuccessful, management still spun the outcome in a positive direction. Therefore, GM continued the trend of not acknowledging its mistakes and failure.
The new GM strategy
Since filing for Chapter 11 bankruptcy in June of 2009, GM has committed to making the company profitable again. GM learned from its past mistakes and developed an extensive restructuring plan. One of the first steps would be eliminating brands. GM plans to stick with four brands in the U.S.: Buick, Cadillac, Chevrolet, and GM, with European brands Opel and Vauxhall continuing operations.
With GM focusing on fewer brands, the company will be able to invest into new technology and research. This will improve product quality and offer improved features to consumers. By doing so the company is more in line with the competition such as Toyota which currently has three brands: Scion, Toyota, and the luxury brand Lexus.
The new GM is also investing heavily in alternative fuels by producing more Hybrids, and developing new electric vehicles. This change will bring new customers to GM. The new fuel-efficient products also have the potential to attract customers from Toyota. With the recent flood of Toyota recalls, buyers will be looking for other fuel-efficient options.
The new GM has also reduced the expense of health care and wages, with the new union contracts that are similar to the ones in place at competing U.S firms such as Ford. GM can offer a similar product at a similar price point, without losing money on every sale. This was common at the old GM where health care and wages cost roughly $2,500 for every car sold.
The new GM has corrected some of its old problems, such as eliminating brands that compete among themselves. The company is also investing in new alternative fuel technology instead of relying on old technology that was not fuel efficient. The new GM also eliminated the tremendous expense of health care to employees and retired employees by creating a trust fund that will cover the cost for these expenses.
With the proper execution of the new business strategies that have been put into place, the new GM will emerge from bankruptcy as a leaner and more productive company. The new GM will offer a wide range of products to a wide range of consumers. For example, construction companies purchasing trucks to use for their business operations along with, commuters who would need a fuel efficient vehicle to commute to work. These changes in GM's business strategy and operations will align GM with its foreign and domestic competition.
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