GENERAL MOTORS

THE CHALLENGES OF GLOBAL COMPETITION

BY: Brajesh Narayan Singh (0121PG065) Ashish Sundriyal (0121PG106) Sakshi Chaudhary (0121PG058) Vikeyal Rehetso (0121PG063)

The overall competitive situation of General Motors at the beginning of the 1990s was uncertain, despite a decade of the most far-reaching strategic changes the company had ever made. Worlds largest industrial company still sold more cars than any other automaker in the world, but the companys market share was one-fourth lower than it had been at the beginning of the decade. GM chairman, Roger Smith was preparing to retire from the chairmanship in the summer of 1990 and his successor would be assuming control of the company. After a decade that saw periods of substantial growth in car sales, the economies of the United States and other major industrial nations seemed to be entering a sluggish, recessionary phase. The major strategic efforts were a Joint ventures with Toyota , the development of a completely new car (Saturn) , a major reconstructing of GMs five divisions , and the acquisition of the two high tech subsidiaries , Electronic Data System (EDS) and Hughes Aircraft.

 In 1983 , GM announced that it would participate in a 50- 50 joint venture with Toyota to build 2 lakh small cars per year at a plant in Fremont California . GM hoped to learn the secretes of Japanese automating method , & Toyota would gain experienced in operating facilities in the United states , something it had never done in the past . The new company was called New United Motor Manufacturing Inc. (NUMMI) The 1st car made would be a version of a car that Toyota already produced and sold in Japan , but would be marketed in US under the Chevrolet Nova name plate. Toyota would produce the drive train and several other components in Japan and would ship them to the NUMMI plant where stamping and assembling operations would complete the vehicle .

NUMMI would use a just-in time-inventory system to minimize expense , save space and increase quality by providing no parts stock-piles the effects of defective components. the number of job classification was reduced to four from the nearly 200 used at some GM plants.

 The innovations at the NUMMI plant in the way the work forced was selected and managed Prospective employees underwent an intensive 35-hour screening process and , when hired , were guaranteed they wouldnt be laid off. Toyota based its work force management philosophy on the assumption that employees wanted to do a good job and they would do if they would do so if treated respectfully and given the responsibility to improve the quality and efficiency of their output. A work team even had a permission to stop the entire production line if a problem was spotted The idea of giving employees such a degree of control was something foreign to GM traditional management Brought two production workers to the defect repair area to show them how the repair personnel had to disassemble a significant portion of a car to weld in a part that the two workers had consistently failed to install. By 1986 NUMMI was in operation and by 1987 it seemed to be a success. Workers productivity had increased enough that one study estimated it would cost $750 more and take 50 % more employees using the same technology at the old Fremont plant to assemble the same car Toyota was impressed enough to decide to begin assembling 15000 corolla FX16s at the plant.

Employee morale was also high Absenteeism had dropped from 22 % ( at the old Fremont plant ) to 2.5% Workers had a positive things to say about the new management philosophy GM rotated teams of managers through NUMMI prepared training tapes and other instructional materials on the NUMMI concepts NUMMI trained managers that moved other GM divisions generally found that their new ideas received an unfriendly reception . Some left for job elsewhere Though NUMMI was profitable in its first two years of operations, it lost approximately $100million in1988 . Sales of the nova were weaker than expected and were expected to fall by 50000 units to about 150000 cars in 1988 The 1996 cutoff date was rapidly approaching and GM had yet to decide what to do with NUMMI work force when the operations was disbanded. By 1990 the facility had begun producing the prism and Toyota had made plans to build trucks there as well. By 1990 it also appeared that GM had learned a lesson from NUMMI after all.

THE SATURN : GM STARTS FROM SCRATCH

The same year that the NUMMI venture was announced ,1983 GM announced another innovative project: the Saturn car , named after the rockets that propelled astronauts to the moon The Saturn would be the first new gm name plate since 1918. Companies mission would be to market vehicles developed and manufactured in the united states that are world leaders in quality cost, and customer satisfaction through the integration of people , technology and business systems and to transfers knowledge A whole new car development was needed because the old approach , as described by Keller wasnt working anymore. The most advanced robotic and automation technologies would assemble more of the car then ever before Highly computerized accounting and management system would make whole operation paperless. Eighty percent of the work force would be guaranteed lifetime employment. There would be no hourly workers ; instead workers would be paid additional pay based on 80 percent of the national average autoworkers wage , with additional pay based on an incentive plan which rewarded good worker performance .

 Workers were organized into 165 teams of ten employees each Authority to stop the entire line if problem developed. The original plans called for a $5billion investment in the project, which would begin producing 500000 import fighting cars at the new plant in spring hill Tennessee, in 1990 As the year passed the plans were scales back instead was cut back to 6000 new hires , only 3000 workers would be employed. Project budget was cut back to $1.7 billion and its projected output halved to 250000 cars . The cars would be more expensive and larger than originally envisioned. As the 1990 debut approached , it became clear that the car had to be a success GM had announced new products before( like the X cars and J cars )that were supposed to beat the Japanese at their own game and had fallen short. Some analyst wondered what Saturn really had to offer the corporation . If the car was a money loser before it ever hit the showroom floor, then its value had to in the lessons the corporation would learn by producing the car. Unfortunately , by 1989 it seemed that the personnel management lessons learned through the NUMMI experience were making the most innovative aspect of the Saturn project seemed redundant.

 By the early 1980s it was becoming evident to GMs top management that the corporation s organization was an impediment to the kind of adaptability that was required to respond to the rapid changes in the global auto industry .since 1916 GM had been composed of five separate divisions Chevrolet , Pontiac, Buick, Oldsmobile and Cadillac ___ that operated independently of one another . Two other major divisions, fisher body and general motors assembly division (GMAD) were

responsible for the engineering and tooling / assembly operations.

As competition in the industry heated up and costs and quick responses to market changes become more important the flaws of the ossified management structure became impossible to ignore. A consulting firm McKinsey and company was brought in to assess the situation it concluded that fisher body and GMAD had become bureaucratic empires unto themselves and that a complete reorganization was in order. The five car division were divided into two super groups BOC, composed of Buick Oldsmobile and Cadillac and CPC, composed of Chevrolet, Pontiac , GM of Canada , NUMMI and Saturn. The fisher body and GMAD divisions would be split in two and absorbed into both super groups .

 The old division would continue to serve as a marketing arm Many of the 10000 fisher body employees affected were upset by the change Another complications arose when it became clear that the reorganization was serving the informal communications network that had developed over the years and was largely the means by which things were accomplished in the overly bureaucratized behemoth. By the late 1980s the reorganization seemed to have been at least partially successful. The quality of GM cars was higher than it had been at the beginning of the decade and the organization was more flexible for having gone through tremendous change The head of the CPC super group had already organized his groups along functional lines with a strictly vertical chain of command , which meant that disputes had to be resolved at the highest levels of management .

 In 1984 , while GM was adapting to the changes wrought by the reorganization , the company made its biggest acquisition to date a $2.55 billion buyout of electronic data systems (EDS) a rapidly growing firm that designed and operated data processing systems. Founded by billionaire entrepreneur h. ross perot the company was the 3rd largest in its field and was flourishing its earning per share quadrupled between 1980 and 1983. Roger thought that EDS would be good for GM in number of ways The automaker had 200ibm mainframe computers and 200000 terminals but no centralized data processing system to coordinate interdepartmental operations The system inefficiency was estimated to costs GM $600 million per year . Smith envisioned EDS developing a new data processing systems for GM that would coordinate the collection of financial and operations data from throughout the company process health care claims ( the company used 187 different health care carriers and its health care cost came to $450 per car in 1983 Smith also felt that that exposure to the highly competitive corporate culture of eds would be good for GM The company was known for its rigorous training and testing program , strict codes of ethics and emphasis on results. EDS was based largely on performance incentives at GM Poor performance by a GM employee often went unaddressed for years.

 The merger of the 8000 GM computers employees with the 6000 EDS employees did not go
smoothly . There was no clear strategy for integrating the two companies The news that they would be absorbed into the EDS organization hit the GM employees hard Already distressed that they would lose their generous GM pensions and benefits Despite the difficulties by 1986 EDS had modernized GM health care claim processing systems , saving the company $200 million annually .

 A year after buying EDS , GM outbid ford and Boeing to acquire the Hughes aircraft company The $5billion cost price tag was almost double the cost of EDS and made the sale the largest acquisition outside the oil business in history Hughes developed a wide range of electronic defense systems that were used in everything from air craft and weapons guidance systems to surveillance satellites The company employed 26000 engineers and more than 1450 PhD who were developing more than 100 different technologies for use in 12000 products and services. Hughes was grouped with GM Delco electronics and Delco systems operations subsidiaries and the instrument and systems display subgroup of the AC spark plug division to form GM Hughes electronics corporation(GMHE) Smith believed that high tech acquisitions like EDS and HUGHES would make GM the world leader in automotive technologies In a letter to smith he noted that the Japanese are not beating us with technology or money they use old equipment and built better and less expensive bot with japan and UAEW

 By 1990 GM had spent $77 billion in its decades-long effort to modernize its plants, automate its equipment, and develop new car models. Its truck and foreign car operations were doing well, earning more than $3.5 billion in 1989, but the North American car business continued to lose money. Despite the huge investment, car and truck assembly efficiency had only improved 5% since 1980, compared with a 31% improvement at ford. The company operated the 11-least efficient plant in country. GM car cost on average of $250 more to build than fords, and $750 more than Japanese model in US, making it the industrys high cost producer. Profit in 1984 $588/vehicle to $12 in 1989 Market share falls 12% point to 34.7 and during same time Japanese market share increased by 10.4%. According the survey of 35000 US car owner preferred Japanese car by 2-to-1 margin. Total US vehicles sales grew at 4.6% annual average rate during 1950s and 60s but had only grew 0.5% rate since 1973. Market was not growing as fast as it was earlier. Further owner were holding on to their own car an average of 7.6 years in 1985, compared to 6.4 in 1979

 Much of increased market share of the foreign manufacturers was due to the success of their transplants manufacturing facilities built in the US. Establishing production facility in the USA becomes economically attractive to Japanese manufacturers in 1980s. Honda opened first plant

operation in 1982 and by 1990 seven more Japanese owned plants had been built in the US with a
combined production capacity of 1.6 million vehicles annually about 12% of total US new car/truck capacity and later helps them to increase their market share in US. US producers market share dropped by two third of a point and import share dropped by one third of a point. But not all of the news was bad for GM. GM had made dramatic progress in its effort to improve the quality of its cars. The number of defects per 100 vehicles has dropped 77% to 168, nearly as good as the Japanese average 121.

Roger Smiths Retirement

In august 1990, after 9 years as GMs CEO Roger Smith retired and was succeeded by the companys president, Roger Stempel. Stempel has worked at GM 32 years, beginning as a transmission design engineer, and was the first engineer to rin the company, which had traditionally been led by people with finance backgrounds. GMs worker and dealers were enthusiastic about the prospect of a car guy leading

the company, but it wasnt clear that Stempels approach would much different from Smiths. we made
our decision to go with long terms view and its paying off overseas, in trucks, and in our acquisitions, he told an interviewer. We just have to stay the course in North America.

Questions
1. Evaluate the actions taken by Roger Smith during 1980s. Where they the right action to take? Was GM in a better position at the end of the decade than it had been when the decade started? 2. 3. What should Roger Smiths successors do? Will GM be able to survive in the world auto industry.

THANK YOU