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General Motors Case Study Solution

But industry-watchers are increasingly convinced that the departure of Mr. Perot last week is just the beginning of wrenching changes ahead, as G.M. struggle to lower its horizons and make profits again, with a smaller market share.

General Motors' fortunes have been on a roller coaster ride since Mr. Smith took over as chairman in early 1981, just as G.M. was about to announce a $763 million annual loss, its first since the 1920's.

Concessions wrung from the United Automobile Workers union in 1982 and improving car sales turned the company profitable again, and by 1984 G.M. earnings hit a record $4.5 billion.

Emboldened by the financial turnaround, Mr. Smith began to transform the corporation. To react more quickly to the market, he continued an internal restructuring under which Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac were not run as separate car companies but combined into two ''supergroups'' - one for large cars, one for small.

He also paid $2.5 billion to acquire the Electronic Data Systems Corporation from Mr. Perot, in part to buy computer expertise for G.M. And in 1985, he announced that $5 billion would be spent to establish a separate internal corporation, Saturn, intended to build small cars with the same quality and cost as the Japanese using some of their innovative management techniques.

Later that year, he paid $5 billion for the Hughes Aircraft Company and its technological skills. He also invested billions in high-tech, robot-heavy ''factories of the future.''

Mr. Smith was widely hailed for the innovative spirit behind these moves, until the results started coming in. For the last two years, G.M. has consistently produced more cars than the American public wanted to buy. Each time that dealers' lots became clogged with unsold cars, G.M. came out with sweeping financing-incentive campaigns that other carmakers grudgingly adopted.

The climax came this fall, when G.M. offered loans with interest rates as low as 2.9 percent, about one-third the commercial car-loan rate. The campaign sold cars, but it was so costly that it caused G.M. to post its third-quarter loss.

The losses and the reduction in market share have caused a reassessment of Mr. Smith's management and strategies.

Analysts point out that despite the expensive new factories that bristle with robots and that promised low-cost production, it still costs G.M. more to build a car than it costs either Ford or Chrysler. And despite the new supergroups and the billions that have gone into design, look-alike styling has made it difficult for buyers to differentiate between Oldsmobiles and Cadillacs - and sales of both have declined.

When it lowered G.M.'s credit rating recently, Standard & Poor's, the rating agency, noted that the company ''no longer dominates the market, having lost both styling and quality leadership.'' Indeed, sales of a new line of luxury cars - the Oldsmobile Toronado, Buick Riviera and Cadillac Eldorado and Seville - have been so poor that one analyst has estimated that G.M. will earn $750 million less on those models than it did on the cars they replace.

The line at G.M. is that the costly investments in new factories, acquisitions and reorganization had to be ''frontloaded'' and that the payoff -in both reduced costs and diverse styling - will be visible soon.

''There's no question in my mind that we've turned around from the bottom,'' said F. James McDonald, the president of G.M. in an interview last week. ''We know that internally, and we'll prove it to the public.''

In a shift in strategy, company officials now say they will cut production to match sales, rather than resort to costly incentives.

A round of recent layoffs appears to underscore that determination. Last week, G.M. announced that 4,500 workers would be indefinitely laid off from its luxury-car plants. Two weeks ago, it announced layoffs in some smaller-car plants. And the company is also beginning an effort to cut its white-collar work force by 25 percent.

Mr. McDonald also said that G.M. is evaluating its components operations - the company is more vertically integrated than any of its domestic rivals - and is prepared to get rid of those that cannot match outside suppliers on cost or quality. ''Whatever penalty we suffered in the past for our high integration will fall off,'' he said.

But as Mr. Perot is fond of pointing out, even movement in the right direction is not enough if the pace is too slow. Below, some advice from outsiders familiar with the industry: MARYANN N. KELLER Auto analyst, Furman Selz Mager Dietz & Birney Inc.

TODAY, G.M.'s biggest problem isn't costs or acquisitions or over-reliance on gee-whiz technology. It's in the dealer showrooms.

G.M. has a product problem. Their cars aren't selling, and they are losing market share. They forgot they are in the consumer products business and got overly concerned with the details of how to put a car together. People don't care if it is manufactured by robots or if the dealer can order it directly from a factory computer.

I know financial analysts are supposed to be concerned with costs and numbers, but I see the revenue line. If they were selling more cars, their revenues would increase and that would help with costs.

What Roger Smith needs to do is get some people together who have good market know-how and have them figure out how to make the cars in the showrooms today more attractive. He can't wait until 1990 or 1991 for new designs to come out of the G.M. Technical Center. The problem is now.

Other companies have done it. Ford's Mustang is an old car. But Ford has kept it fresh by putting in a bigger engine and offering a convertible version and doing a lot of smaller things. Chrysler showed you can build a whole product line from one platform with a little imagination. You have to pay attention to what the customer wants and give it an an affordable price.

Where is the Lee Iacocca of G.M.? PHILIP CALDWELL Former chairman of Ford, now managing director, Shearson Lehman Brothers

DEALING with the fundamentals is most important - offer what the customers need and want, produce the highest possible quality product, produce at low cost. If you follow the fundamentals, you can have your cake and eat it too.

I don't want to give unsolicited advice; I can only talk about my experience at Ford. You don't need to be a hotshot engineer or salesman to be an effective leader. You need somebody who can bring together a team, create the vision, know where he would like to take the company and explain to people why it is important.

You also need the capacity that fits the market share that you're likely to get, and you shouldn't delude yourself about it. And you have to involve the entire work force, or you squander the most important resource you have. Get initiative and ideas flowing freely, and instill a genuine feeling of ownership throughout the work force.

This formula has been in use at the Ford Motor Company since 1979 and it brought about one of the most successful turnarounds in American industry. I know of no better formula for G.M. or any other business, and I presume G.M. is undertaking that sort of program.

The most important thing is to get the products right. Ford developed a product line where the shape of the cars was developed out of the quest for significant improvement in fuel economy. Attractiveness came second. The concept was not to have a gimmicky new shape.

Next, you have to be able to sell your product based on low costs. Any business must decide whether it can make a profit based on how small it believes the market might be. If the market turns out to be larger, all the factors will be working in your favor. You may not be able to take advantage of the last inch of potential, but you will have less exposure on the downside.

And you have to be patient. At Ford, our turnaround effort started in 1980, we saw no change for two years. We kept asking why, and nobody could see what we were doing wrong. Then it was almost like the tides of the Bay of Fundy when the break came in 1982. It was like a flood. DOUGLAS FRASER Retired president of the United Automobile Workers

GENERAL MOTORS' main problem is that its cars are not attractive to the American public. Look at what they've done, or haven't done, to the Cadillac. Cadillac used to be part of the American vocabulary, the American standard of the best. They downsized it; it's not distinctive enough. All the cars look alike. I hope they're on the way to designing cars that are distinctive and have greater appeal.

They have also tried to do too much at one time. They thought they could put up new assembly plants with state-of-the-art technology and that all their problems would disappear. They miscalculated how quickly they could bring new technology on line.

The buyout of Ross Perot was very bad for their image. But I hold no brief for Ross Perot. He says we should listen to the workers and let them express themselves. Yet E.D.S. is run like a Marine boot camp. There's a dress code, women can't wear slacks, men can't have beards. When the U.A.W. tried to organize E.D.S., they came at us like savages.

About the recent layoffs, there were no surprises there, at least not for anyone who knows the industry. I resent how they did it, because they sent shock waves and raised the level of insecurity among workers. In making the announcement that way, they placated Wall Street, which thinks they really stepped up to cutting costs.

The huge inventory they now have is the result of a strategy that didn't work: Those guys are bean counters, and they know every car sold every day. They built up that inventory hoping to capture a larger share of the market by offering financing incentives. But Ford and Chrysler didn't just sit there; they were angry that G.M. cut the interest rates and they met the competition.

Now G.M. is saying, we won't do that again, we'll cut production instead. The 4,500 laid off are just at the assembly plants; it will spread to other G.M. plants.

G.M.'s got problems, but they have a lot of strengths too. Everyone likes to jump on a giant when he's down, that's the price of being big. But there's a lot of talent there. I'm not concerned about G.M.; I'm worried about G.M. workers. RALPH NADER Consumer advocate and founder of Center for Study of Responsive Law

THE first thing G.M. should do is retire Roger Smith. He's a finance man who doesn't know how to focus on improving the quality of the product.

G.M.'s cars must be safer, more durable, more fuel-efficient and more quality assured. Instead, the company has been going the other way. They think if they automate their factories, that will pull them ahead. But if people don't perceive the cars to be good, they won't buy them.

G.M. should work on product defects and stop being insensitive in dealing with complaints. They give customers the runaround, and their customers have been forming G.M. lemon groups.

The company is also behind in technology. Why should they be behind Ford in anti-lock braking devices? G.M. is going toward electronic gadgetry - it's the modern-day substitute for the styling mania of some years ago. The Japanese broke into the U.S. market because they had quality and fuel efficiency instead.

What G.M. needs is a more diverse board of directors instead of a bunch of industrial reactionaries and yes-men. They couldn't even stand Ross Perot.

As long as Roger Smith is there, they will not change. His great frontier is robotics. The guy who can turn G.M. around, guaranteed, is John Nevin, chairman of Firestone. He was at Ford; he was head of Zenith, a real quality-control company. Then he took on a crumbling company known as Firestone. He has the right attitude toward consumer complaints. He knows how to improve labor productivity. And he would know how to improve the product. He has said he's never heard of a product recall that was labor's fault, it was all management. He's a believer in air bags. There's the guy. JOHN J. NEVIN Chairman, Firestone Tire, and a former Ford executive

THE company's problems are similar in both nature and degree to the problems that have characterized many of the nation's smokestack industries.

To be successful in the future, G.M. will have to define its strengths and focus its resources on those parts of its business. It's going to involve some very painful restructuring. I'm sure there are a lot of people at G.M. who are making critical judgments as to whether its long-term interest is served by doing a lot of things by itself, as it has, or by tapping resources of suppliers.

There have been many instances in the auto industry where companies decided that a supplier that specializes in a particular technology or a particular component can do it more efficiently than the end-user company can do it itself. Throughout the auto industry, decisions are being made to buy engines or radios or even the design of products from outside companies.

Chief executives anywhere, even at G.M., tend to get more of the credit than they deserve when things go well - and more of the blame when things go wrong. Right now, Roger Smith is on the down side of that equation. IRWIN KATZ President, Kayson Chevrolet, Croton-on-Hudson and past president, Greater New York Automobile Dealers Association

GENERAL MOTORS' main problem is its immense size. It takes an inordinate amount of time to get things turned around, even though eventually they do get on target as to what consumers want. It takes longer than with smaller companies and entrepreneurs. Ross Perot, whom I admire tremendously - the last time I admired someone so much was when Winston Churchill was alive - ran an entrepreneurial company, even though E.D.S. was big.

An example of this problem is G.M.'s sluggishness in making somewhat bigger cars now that gasoline has dropped below $1 a gallon and people want slightly larger vehicles.

Another problem is pricing. The consumer has become accustomed to periodic price rebates and interest subsidies. Sales are being adversely affected because G.M. does not now have a price-war, interest-subsidy program, except for the Cavalier model. As much as the G.M. finance committee does not want to get back into interest subsidies or price rebating, I am afraid the consumers will have their way. If no automobile manufacturers had the rebate programs, I'd be against them; they confuse the consumer, make aberrations in the market, causing prices to go up and down. But if the others offer them, G.M. had better get into the fight and produce an equal or superior program. DAVID E. DAVIS JR. Editor, Automobile Magazine

MORE than anything else right now, General Motors needs a home-run product. It needs to bring out a car like the 1955 Chevrolet or the Honda Civic, one that changes the game and makes other manufacturers play by the new rules.

The 1955 Chevrolet was light and fast and good-looking by the standards of the time. It forced Ford and Chrysler to change their approach to car design, just as the Civic did in a later era.

Roger Smith should identify the most creative minds in the company and turn them loose to develop a product that will blow everyone else out of the water. They have the capacity to do it if they want.

He should also realize that the market is becoming more and more fragmented. The companies making money today are those finding the niches in the market and satisfying them. Economies of scale don't count for as much as they once did; you have to be lighter on your feet to take advantage of shifts in the market -the way the Japanese do.

G.M. also needs to balance the lessons of the Poletown and Fremont assembly plants. The Fremont plant, which is managed by Toyota, is a demonstration of what can be done with highly motivated human beings and an indication that robots and computers aren't the answer to everything. At Poletown, which is a G.M. plant, the robots were more flawed than the humans they were supposed to replace. It shows that the old axiom is true: If the original idea isn't very good, all the computers in the world won't save it. JOHN Z. DELOREAN Former vice president, G.M., founder of DeLorean Motor; currently on trial on Federal racketeering charges.

IT'S not Roger's fault or anyone else's - it's that the American automobile industry has essentially had a monopoly for 70 years. It was really a Detroit monopoly, where G.M. took half, and Ford and Chrysler fought over the other half. That monopoly led to lavish overhead, including lavish union contracts and lavish salaries for management.

The biggest need is a dramatic reduction in the overhead of the companies . . . and the biggest part of that is there is too much management. On that, Roger's on the proper track, although I think you could eliminate 50 percent of the salaried workers.

They also have to have much less vertical integration. They make too much of what they sell. They've got to buy more of it on the outside. Foreign manufacturers, especially in Japan, get much more from independent suppliers than U.S. companies do.

To compete at first, the U.S. companies may need to buy from Brazil or Mexico or Korea. Then they could come back to the U.S. later. For our country, in the short term that would probably reduce employment, but in the long term it would stabilize the industry and improve employment.

They also have to build the right products. For example, my brother is a Cadillac dealer. He told me the new Seville and Eldorado are not nearly as salable as the previous ones. I assume it was the look, but whatever the reason, they just aren't selling. Now that's not Roger Smith's fault, but somebody there didn't do the proper market research. There's no way that some guy making $600,000 or $700,000 or $2 million a year can have the proper perspective about what kind of cars to build for a guy who makes $20,000.

G.M. also should remember that its biggest asset isn't anything inside of G.M. It's the dealer organization. G.M. should try to maximize its profits through that structure. Those dealers have the best locations and the best salespeople, and if you give them the right product at the right price, there's no Toyota dealer or Honda dealer or any foreign dealer who can come close to them.

As for Perot's suggestion that G.M. needs to re-establish contact with its workers - to have them work together with management - that's easier to do in a young, growing company, as G.M. was years back. For G.M., that's going to take a dramatic change in management attitudes. AT A GLANCE: General Motors All dollar amounts in thousands, except per share data Three months ended Sept. 30 1986 1985 Revenues $22,800,000 $22,500,000 Net income 264,000 517,000 Earnings per share $0.56 $1.53 Year ended Dec. 31 1985 1984 Revenues $96,372,000 $83,890,000 Net income 3,999,000 4,516,000 Earnings per share $12.28 $14.22 Total assets, Dec. 31, 1985 $63,833,000 Current assets 24,256,000 Current liabilities 22,299,000 Long-term debt 2,867,000 Book value per share, Dec. 31, 1985 $73.78 Stock price, Dec. 5, 1986 N.Y.S.E. consolidated close 71 Stock price, 52-week range 88 5/8-65 7/8 Employees, Dec. 31, 1985 811,000 Headquarters Detroit

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Summary:

With thousands of dealers on 6 continents supporting 9 brands, including Chevrolet, Buick and Cadillac, GM delivered 9.8 million vehicles in 2015 alone. GM’s mission is “to earn customers for life.” This means ensuring sales associates are providing customers with the utmost care from the moment they walk in. To provide these associates with the most immersive training experience while cutting costs, GM and Raytheon turned to CoSo Cloud (CoSo) to be an integral part of their eLearning solution to meet the company’s strict requirements for reliability, performance, and scale.

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