For the majority of the second half of the 20th century, one company took over the automobile aspect of the industry: General Motors. It is known for its famous traditional car brands, such as Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac, General Motors was a highly respected figure in the United States. It held an impressive, approximate 60 percent of the American car market share in 1960. However, those numbers didn’t last much longer. A decade later, General Motors was faced by issues such as fuel economy, labor unrest and the birth of Japanese auto companies such as Toyota, Honda and Nissan. The number one automaker’s numbers in sales slowly started to diminish. As more time progressed, GM was faced with more issues such as poor product quality, and lawsuits over unsafe vehicle designs. The company is not a stranger to adversity as it always strives to overcome their challenges. However, their numbers were still on a decline. The problems seem to never end for the company as GM is currently facing numerous challenges such as rising healthcare costs, intense competition, and a stock decline. Its history of crisis has had an affect on its reputation and sales volume. Poor management over these crises has tarnished the company’s legacy and took its toll on GM.
Stiff competition:
It seems as if General Motor’s legacy as the number one automaker has disappeared as Japanese, specifically Toyota, automakers made their way to the top. The automobiles that GM provides take up too much gas. With a crisis such as increasing gas prices, the concept of a gas-conservative automobile is more likely to succeed. Innovation is needed to survive competition. This is where GM fails and Toyota overcomes the challenge.
Innovation is a major part of Toyota’s recent success. It is giving GM a hard time as they are constantly creating new products to face present issues, such as high gas prices. Their innovative advantage reflects the commitment of not only the management but the entire organization. “In the first three months of 2007, Toyota sold 2.348m vehicles. In the same period, GM sold 2.26 million vehicles. All of these buyers had a choice. They chose Toyota over GM because they believed the Toyota product was superior. Yes, ‘believed.’ Even if the ‘real’ difference between a Toyota and a GM product exists entirely in their minds, well, it's still a product-related reality.”[1] It is understood that Toyota has build a reputation of loyalty to its consumers, as the company listens to their consumers demands.
It is not surprising to see Toyota ranked as the number one automaker. They were the first ones to provide affordable, durable gas-conservative cars, which is exactly what each car consumer desired. General Motor’s response to their competition was by producing decent midsized vehicles. However, the damage was already done on their reputation. “Perhaps the biggest challenge is changing the way consumers think about its cars. The idea that GM's cars have been a disaster, even if the trucks were passable, ‘has been so ingrained, and so hard to change.’ Lutz said.”[2] Robert Lutz, product expert who took charge of GM’s vehicle development, stated GM has a damaged reputation and might take a while to regain the consumer’s confidence.
Rising health care costs for GM:
In the year of 2005, GM spent over $5.2 billion on medical benefits for over 1.1 million workers and retirees. Which when calculated, it works out $1,400 per each vehicle produced. There is more health care than raw material such as steel in the cost of each GM vehicle sold. In addition, GM spent over an overwhelming $6.5 billion in pension contributions last year. It is clearly seen that healthcare costs affect the economic growth of GM, with profit margins being under pressure from the increasing costs.
Richard Wagoner, GM chairman and chief executive officer, spoke about the topic of rising health care costs. He stated that health care issue is discouraging the competitiveness of the U.S. economy on the global aspect of the market. He also said that the relatively poor quality of health care is unbelieveable. During Wagoner’s speech in an annual Auto-Tech conference, he stated, "In the U.S., health-care costs are rising at an annual rate of 14 percent to 18 percent and already account for 15 percent of our gross domestic product — 50 percent higher than the next most expensive country. The worst part of all this is that these very high costs don't necessarily buy the best health care."[3]
The issue of health care costs was seemingly important to General Motors; however, Wagoner decided to change the topic and focus on other matters. "There is no easy solution to this issue and my goal today is not to make this a speech on the health-care crisis," Wagoner stated during the same conference. "My point is that there are important issues that manufacturers and suppliers can and must work together on in order to improve conditions for all of us.”[4] Clearly he had no strategic plan to solve this crisis and, hence created new problems thereafter.
The spiraling health care costs were a major concern to GM, as it wasn’t affordable to them. However, the GM chairman stated that he wasn’t planning on proposing a health-care plan. Without a doubt, it was a bad move on their part.
General Motor’s sales and stock decline:
General Motor’s negligence towards their crises, such as high gas and health-care costs certainly had a financial affect on the company. In 2005, sales tumbled at General Motors. “GM (Research), the world's biggest automaker, said U.S. sales overall sank 24 percent to 344,797 vehicles in September. Sales of light trucks, which include pickups, sport/utility vehicles and vans, plummeted even more, falling 30 percent from a year earlier, while car sales declined 14.5 percent.”[5] Chief Executive Officer Rick Wagoner stated, “that the company expects to post a loss of about $846 million ($1.50 per share) for the first three months of 2005. This would be GM’s largest quarterly loss since 1992, when it was on the verge of bankruptcy.”[6] It seems as if all these issues had caught up to GM as they were in a middle of a financial debt crisis.
The decline of General Motor’s stock price from 2004’s, $55, to 2005’s, $30, indicated a loss in consumer confidence. As the stock was decreasing, so was GM’s credit status. Their status was considered to be a little above “junk bond,” which meant that investors were skeptical that the company would pay off their debts. As a result, there was an increase to their borrowing costs and a limit to their fund-raising options. This was definitely bad news for the company as they had already lost a significant automotive market share.
Without a doubt, a financial debt was an overwhelming issue to the management of General Motors. As they tried to regain the confidence within the company, stating that they will rise to the top again, many investors were skeptical of that as they believed that the company was full of empty promises.
Union strike:
As time progressed, General Motors crises over the overpriced health-care costs and plummeting sales have instituted new problems for the automotive company. Their plan to deal with the financial decline of their company involved a lay-off of their employees, dumping of their parts unit and closed plants to try to adjust its production with its diminishing market share.
It seemed as General Motor’s flaw in management with its crisis played a role in the engagement of a union strike. Their ignorance to the matter that their employees felt unsatisfied and insecure in their jobs caused action (by the employees) that had GM worried about its existence.
General Motors once claimed, “What is good for GM is good for America.” If that is the case, then America is in for a long-term financial decline. It’s apparent that GM is no longer considered the number one automotive maker in the industry, and its future doesn’t look bright either. It seems that the problem for GM is that the people in charge or the management crew don’t know how to deal with their crises. The declining stock shares of GM indicated that when there was something wrong within the company, nobody paid attention until it was too late. All the promises that General Motors have made, stating the stock and the company will rise to the top once again, eventually turned out to be empty promises.
The fact is GM cannot build competitive cars at a profit. As a result, the company will never become number one again. The company currently consists of high labor costs, too many expenses (such health-care and pension funds), too many car models, and most importantly labor inefficiency. On the topic of health-care, the company has gotten itself into this particular dilemma, as the UAW member’s contracts prevent any kind of benefit cuts, assuring that the company gives full benefits for their employees. With increasing health-care costs, the union worker’s contracts prevent GM from neglecting to pay them. General Motors has no one to blame but itself.
The company’s reputation has been tarnished to the point where it is almost impossible to bring it to the top again. The company doesn’t seem unified as it once has been. The managers, investors, and union workers do not seem to be on the same level. When crises occurred within the company, CEO Rick Wagoner seemed to be the only one representing General Motors. However, a company shouldn’t be a one-man show. In a time of a crisis, a company should be more unified than ever. This is where GM has failed to do. The point being is that even if GM has resolved all its issues now, it would be too late. The damage has been done to the company, due to its deficiency in crisis management.
[1] Money.cnn.com
[2] Edmunds.com
[3] Nytimes.com
[4] Nytimes.com
[5] Money.cnn.com
[6] Wall Street Journal
[7] Money.cnn.com
