This report tends to analyse General Motors, one of the most important automotive company of the past century, from 1980 to 2010. This essay demonstrates, analyse and understand the important changes that took place at General motors during the financial crisis of 2008 and tends to explain their nature and impacts on the company and its stakeholders.
To fully understand these changes, we will first define some change management tools that drive successful change management then we will briefly review the history of the company to understand the economic context in which it stands and finally, we will analyse the causes that drove General Motors to conduct these changes. The results of these changes will also be mentioned.
While globalization has allowed the expansion of the international market and the growth of many companies, it has also created a significant increase in competition between companies who face a growing number of competitors and a constant rise of customer’s expectation. To respond to a constantly changing environment, companies must become familiar with change management and apply it when necessary. Change management could be defined as a structured approach to moving individuals, teams, and organisation from a current state to a desired future state and involves changes in a company towards processes, organisational culture, job roles and systems. Different concepts come to support change management. One of them is the Force field analysis that helps companies to understand and analyse driving forces and restraining forces for better decision making. This could be done through a stakeholders mapping or a PESTEL, SWOT analysis. A second one could be Lewin’s analysis which help companies “Unfreeze” from a current state “Move” and “Refreeze “to an evolutionary shape. Through this essay, we will analyse why and how General Motors implemented a significant change and what were the results of this change. We will mainly focus on the North American market.
General motors a successful company
General Motors, a car manufacturer founded in 1908 by William Crapo Durant, is a company that has for more than a century shine on the automotive market, controlling more than a dozen brands and ranking as the largest automobile manufacturer between 1931 and 2005.
Between 1908 and 1929 General Motors acquires more than twenty companies in which we can count Oldsmobile, Cadillac and Oakland and sees its number of employees grow to about 85,000. In 1929, General motors acquires more than 80% of the German car manufacturer Opel. The success of the company in the 1920s is often attributed to the leadership of Alfred Sloan who introduced the concept of ‘planned obsolescence’ that wants the design of cars to be changed every year.
During world war two, general motors is highly solicited by allies and produces both vehicles, armaments and airplanes. By the end of the war, the company is granted 33 million in compensation of the damages that the Allies caused to its German sections. After the war, General motors becomes one of the most successful and largest company of the United states and become the corporation with the largest number of employees after the Soviet state industry. General Motors continues to evolve in this way and although the company is threatened by the Japanese market during the 80’s, it sees its market share increase sharply and its profits multiply until 1999, when inflation and the recession of the stock market create economic tensions within the company.
Reasons and forces for change.
1) External forces.
One of the main reason that led General Motors to change is the consequent increase in competition in the automotive market that the company faced. Thus, General Motors saw its market share decrease against its Japanese competitors and its American competitors.
At the beginning of the 80’s Toyota by its new system of production manages to reach the level of General Motors and gains a significant market share in the North American automotive market, closely following general motors. Ford follows the same path and during the year 1986, see its sales surpassing those of General motors.
Net income of Chrysler, Ford, and General Motors automotive companies, 1980-1990. (The national academics of science, engineering, medicine)
Global competition is becoming more and more heavy and Gm loses its market share to the profits of Asian car manufacturers like Toyota and Honda. However, the company is still profitable and although it is losing power in the international market, it continues to sell nearly one in two cars in the United States.
2) Internal forces
But in 1990, General motors is affected by the recession which greatly affects the automotive market, and encounter several crises. Indeed in 1998 General Motors faces the biggest strike of its history which causes the company a shutdown of its production chains for nearly 50 days and a very significant loss of revenue. During the next 20 years, General Motors encounter many other crises and is unable to maintain its position as the leader of the automotive industry. Many reasons explain its decline. First General Motors has a costly and inefficient operation system that do not allow the company to make the same profits as other companies such as Toyota. Indeed, the company pays its employees 74$ an hour while Toyota pays them 44$ an hour and spent over 103 billion on post-employment healthcare and pension expenses. In addition, the brand is no longer able to attract as many customers as before because of unattractive and repetitive car design and the implementation of a wrong pricing strategy. Its inability to move from fuel-consuming SUVs to more fuel-efficient cars to respond to customer’s demand increase its revenue loss. General Motors also fails to track and implement new technologies as well as its Japanese competitors and seems to always be a step behind. Added to this is a complicated organization because GM must juggle between a dozen brands and faces poor leadership.
3) 2008’s financial collapse.
All these flaws weaken greatly the company before the economic crisis of 2008 and the collapse of the financial market, which has a great impact on the international automotive sector and leads General Motors to bankruptcy. Indeed, this crisis leads to unstable oil prices and a high unemployment rate, which reduces the spending of households that no longer buy cars. This affect greatly the cash flow of the company. To save GM from bankruptcy, the US government decides to nationalize GM and injects close to $ 50 billion in the company through US and Canadian ratepayers. But this is not done without counterpart and several factories are closed, many employees dismissed and Gm completely restructured.
A leadership and cultural change.
1) Force field analysis
As mentioned above, Force Field Analysis allows companies to analyse driving forces for change and restraining forces for change. The table below shows both driving and restraining forces, found through a SWOT analysis, that General Motors faced soon after the financial crisis.
An urgent need to reduce the costs, especially those of wages and pensions
Employees and staff resistance to cost cutting
The need to change an inefficient organization culture and leadership and to reduce decision-making time (over bureaucratic organization, weak leadership)
Anxious and fearful employees of cultural change.
The need to increase the quality of products
Agreement with trade unions.
The international economic and financial crises, economic recession.
A rising competition (entrance of new competitors)
Job role dependence on bureaucracy
Changing consumer behaviours
2) Leadership and cultural change
From 2000 to 2009 General Motors has for CEO Rick Wagoner (also elected chairman in 2003). During his years at the head of the company, General motors losses more than 85 billion$ and declares bankruptcy. Although Rick Wagner tries to increase the company’s profits by various strategies, he fails to make the necessary decisions and often makes unwise choices, such as when he decides to focus his program on electric cars rather than hybrids. Although appreciated by the company’s employees, he is described by analysts, according to the BBC, as a leader who lacks judgment and willingness to make the tough decisions needed to rebuild the company. He tends to ignore the advice of analysts who recommend significant cost reductions and a change in the operating system.
Not surprisingly, when the US government regains control of General Motors (control over 60% of the company), Rick Wagoner is asked to resign and is quickly replaced by Fritz Henderson, who stays in the company only a few months before being replaced by Edward Whitacre who is also, a few months later replaced by Dan Ankerson. It is during the period under Whitacre’s and Ankerson Control that the company make its first big changes. Unlike his predecessor, Edward Whitacre stands out as a transformational and charismatic leader. He understands the issues that the company faces and the sense of urgency for change and sets new goals for the company to be successful again in the international market. It is through strategies of cost reduction and structural reorganisation that he pursues his objectives.
First, GM reduced the diversity and the number of its models which conducted to a diminution of the number of its employees. Thus, from 1998 to 2009 General motors reduced the number of its employees from 228 000 to 101000. The number of its workers in the factories also decreased by 20 000. Meanwhile, the company tried to reduce employee dependency on bureaucracy by giving them more power and responsibility. However, cost reduction strategies also implied significant wage reductions for the workforce.
In a second time, General Motors decided to sell a large part of its brands that were no longer profitable. Among them, Hummer, Saab, Saturn and Pontiac which is phased out by the company. The company decided to focus on its core brands and pursued a rebranding strategy to improve its image and win back its customers. GM also invested in technology programs to improve its cars and satisfy customers expectations.
Resistance to change
Resistance to change could be defined as the rejection of corporate changes from individuals or groups. Diverse reasons can explain resistance to change: anxiety, fear, lack of knowledge and communication, lack of understanding or poor change management.
1) Employee’s resistance
When General Motors was nationalized and passed into government control, there was a lot of speculation circulating among the employees. In addition, the important changes made to save the company from the financial crisis, including significant cost reductions, gave rise to fear and anxiety among the workforce. Thus, employees who were not dismissed have seen their salary decrease and their responsibilities increase. With no surprises, they resisted to change for fear of new responsibilities and dissatisfaction with the reduction of their salary. Unsatisfied with the change, they represented a threat to the change that Whitacre was trying to put in place. To reassure his employees and to calm rising tensions, Whitacre’s sent an email to the entire company in which he wrote ‘A smart company changes and adapts to the needs of the business. So, while there will always be individual moves within GM, I want to reassure you that the major leadership changes are behind us ‘.
Although some employees were not reassured by this email that lacked explanations and was perceived as insufficient given the significant changes taking place in the company, good communication, a well-managed change management and the empowerment and involvement of the workforce, helped employees to embrace change and get involved in the company to make again General Motors a leader in its industry.
2) Trade union resistance
However, the company was also facing resistance from the UAW (United auto workers union) in which it was engaged in several agreements. Among these agreements, we can count the obligation of job security guaranteed, high wages and the provision of health services and pensions to every worker. Thus, the company’s cost cutting program, which relied mainly on lowering wages and decreasing social privileges for employees, strongly displeased the UAW. Many discussions were needed and General Motors and the UAW entered negotiations to find new agreements in line with the economic crisis.
Finally, the UAW managed to make concessions by accepting that the wages of the employees would be halved for the new workers and that the cost of the pensions would be cut on conditions that the company creates an independent trust fund.
Results of change.
It is very difficult for a company to conduct an effective and successful change especially when this change is emergent. General motors through its different strategies and not without encountering problems has been able to reduce its cost by 15 billion$ and to slowly get out of bankruptcy. Strategies of cost cutting and rebranding helped the company makes profit of 4.7 billion$ in 2010, which was its first profit since 2004.
These strategies were very effective and allowed the company not only to regain market share in the following years, but also to become one of the leaders in the automotive industry, once again making an impressive turnover.
Below is a diagram based on the Kübler Ross Grief model, which tends to show the different stages in which General Motors went through during the 2008 stock market crash. Kübler Ross Grief model is widely used in change management to understand the different emotions felt by the people impacted by the change and determine the reasons for a possible resistance to change.
International Journal of Research in Management, Economics and Commerce. GM’s strategy change as reflected in the Kübler-Ross Grief model
World’s largest automakers April 2017, Forbes. “Top 10 Global automakers.”
We have seen through this report that General Motors, a company once flourishing but victim of the economic crisis of 2008 and weakened by a bad management coupled with a system of too expensive production, managed through a change management to recover on the international market. During the establishment of its change the company has encountered many problems including resistance to change from different stakeholders but has achieved through effective communication, well-conducted negotiations and a focused and effective management to implement its strategies and to make it successful, thus allowing General Motors to perform again on the international automotive market.
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