Before this decline, General Motors were leading the way in the US car market. Under Sloan, they had developed strategies, which their competitors could not compete with. They had a strategy which involved manufacturing certain cars aimed at certain markets, and this proved a success. For example, they manufactured 5 different models:
- Chevrolet – a relatively cheap car, aimed at first time buyers
- Pontiac, Buick, Oldsmobile – produced cars in-between the two extremes
- Cadillac – a luxury car aimed at the ‘richer’ and ‘older’ market
This strategy would ‘tie’ customers to the General Motors brand for life, as they progressed through the different cars, relevant to their own lifestyles. The nearest competitor, Ford, at this time, only produced one type of car, ‘Model T’. This resulted in success for General Motors.
This proven success did not last long, though, as by 1992 General Motors were only the 40th largest company on Earth. As figure 1 shows, the five forces of competition are key to this decline. Potential entrants did in fact, enter the market and exploit the gap left by the failings of General Motors. The Japanese car manufacturing companies entered the US markets at a time when the US cars were not satisfying customer needs. This entry to the US market, created substitute products, and more often than not, these products were of higher quality than that of General Motors, which is strongly linked with the bargaining power of its buyers. Suppliers of oil had a massive impact on the market also by increasing the price of petrol. This resulted in a need for more fuel efficient cars, which General Motors did not manufacture. It was left to the foreign, Japanese firms to enter the US market with smaller, fuel efficient cars and meet the customer’s needs.
Figure 2 shows the macro or general environment compromising external factors that influence any firm operating in any market. With reference to this and figure 5 below, factors, which were of utmost importance to General Motors, did affect the company.
For example, the Government had a massive impact on sales. Restrictions on the concept of safety were a great stumbling block for the company. It was evident that their cars were not the safest on the market when numerous accidents occurred and the company had to recall many vehicles because of this.
Media interest in the company was high at this time, resulting in a poor reputation not only with the public, but also with the government. Investigations into the safety of the cars were undertaken, and when a book was published regarding this, the future looked bleak for the company. Media interest only affected the company positively before this time, with reviews of its popular vehicles a regularity.
The government were not always against the company at this time however. It did all it could to prevent the downfall of the US car market in general by restricting imports from foreign competitors. In the past there was not a need for this intervention because of the success of the US market. It helped in the short term to increase sales for US firms, but the Japanese firms developed strategies to overcome this, by building their own manufacturing plants in the USA.
Technology had both positive and negative impacts on the firm. In the past, the company had relied on a mixture of manual labour and machinery. However, with the introduction of new technology, General Motors had taken two steps backwards to move only one step forward. Although this new technology was a good development for the firm, it took a long time for this to prove successful, with training needed and ‘de-bugging’ of new systems.
Figure 5
PEST Analysis
Figure 6a
SWOT Analysis Pre- 1972
Figure 6b
SWOT Analysis Post- 1972
Looking at figures 3 and 4 in particular, stakeholders are of great importance to firms. It is vital for a firm to satisfy as many of its stakeholders as possible, whether they have high levels of power and interest or not. General Motors started off doing just this. During the successful years, they were satisfying every stakeholder possible. This is almost certainly why they were so successful. It was when they started to dissatisfy certain stakeholders, that they became unsuccessful.
Taking a few examples in turn, General Motors started to dissatisfy its customers. The products started to fail safety tests and the popularity of the vehicles reduced. As customers are considered to be Key Players - of high power and interest, this posed problems. The government, another stakeholder, stepped in and investigated. This would have portrayed General Motors as being an unsafe car manufacturer, and with a product as lethal as a motor vehicle, profits reduced.
Employees are a very important group of stakeholders as they hold high power and interest and are therefore classed as Key Players. Ranging from manual labour workers to directors of the company, and the president, all employees should be considered equally. General Motors had a good reputation with its employees in the 1970’s. Employees were encouraged to be loyal to the firm, never questioning decisions. This had a negative effect on the company though. It was in the 1970’s that a major change affected the company. New employees were brought in to turn around the ongoing misfortunes of the company. These people were not from an engineering background however, but a financial background. This was the catalyst, which saw the direction of the company change. Short term increases in profit were demanded, instead of the long term strategic decisions that had been implemented in the past. It was at this time that the company started having problems regarding its ‘sense of community’. Managers were located on the 14th floor of the building, separated from the other employees by locked double doors. They even had their own heated car park, somewhat segregating themselves away from other employees. This would have had a negative impact on the motivation of fellow employees, who more than likely felt that they were being treated unfairly. The directors, at this time, started implementing strategies to reduce reliance on blue collar workers. Roger Smith said “Every time you ask for another dollar of wages, a thousand more robots start looking more practical”. This would have had a negative effect on the company’s employees, drastically worrying them regarding their future within the company. Managerial decisions were drastically different in the Japanese firms though. They had far fewer levels of management (5 compared with 14 in General Motors). If General Motors were to implement this structure into their company it would have positive results. Managers could work closely together instead of having so many different opinions, and the firm could possibly go back to being as successful as it was in the past, when it had a similar structure to this.
Conclusions
Having now discussed the main points regarding the question, I can now conclude my findings.
You can clearly see that the relationship of General Motors and its external environment has changed over time. When the company was in its early stages, being successful was normality. However, when it started to struggle financially, steps were made to adapt to the new situation the company found itself in. These steps were made, with consideration to the external business environment.
Generally, competition has a negative effect on a firm’s sales and profits; General Motors was no exception. They adapted to this by implementing new strategies, which included the inclusion of a new car – the Corsair. This car was a disaster. It had safety problems which escalated out of control. This case shows an example of the thinking of the managers at the time. The president wanted to add a safety bar to the vehicle to make it safer, but the finance department didn’t want the extra ‘unnecessary’ expense. This was just an example of the poor managerial decisions which lead to the downfall of the company.
The managerial structure altered from a team with experience in engineering, to a team of experience in finance. This resulted in the change of objectives from a manufacturing point of view. They had altered their internal environment, to try and keep in contact with the changing nature of the competitive and general environment.
Today, the company has moved on from being solely a car manufacturing firm, to one in the financial services market. It is profitable in making cars in other countries, such as the UK, but cannot attain strategic advantage and be profitable in the US market. This could be due to its past in the country, having changed from being such a successful company to an unsuccessful manufacturer in a short space of time.
I have found the question posed a little difficult to answer. Although it is easy to talk about the external threats that General Motors faced during their successful and turbulent times, it is difficult to assess these factors without also talking about the internal factors that affected the business. I have concentrated on the external factors; however, the majority are not worth mentioning without the addition of internal factors. For example, talking about the managerial structure of the Japanese firms would be of little point if I did not compare the structure of those firms, with that of General Motors, and thus talking about its internal environment.
Bibliography
- Case Study on General Motors
- Lecture Handouts
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MANAGEMENT An Introduction, 2nd Edition, David Boddy, Prentice Hall, 2002
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The Complete A-Z Business Handbook, 2nd Edition, Lines, Marcouse & Martin, Hodder & Martin, 1996
