Dethroning Of General Motors Essay

2596 words - 11 pages

Dethroning of General Motors

Abstract
General Motors, GM was unseated from being the world’s top auto manufacture to Toyota. There were many factors involved which resulted in GM losing its position. This paper will explore several of the factors such as union relationships that resulted in payroll differentials between GM and foreign transplants, legacy costs, and the job banks program. Secondly, poor strategic management decisions including product development and the quality gap issues between GM and its Japanese competitors. Finally, the effects of foreign competition including imports from Japan, foreign transplants here in the U.S. and currency manipulation by the Japanese ...view middle of the document...

There were a myriad of issues and problems that caused the final downfall of GM as the top automaker. Issues related to unions such as payroll differentials between domestic auto makers and foreign transplants in the U.S., the legacy costs bore by GM, and the job bank program have all contributed to GM’s troubles. Strategic management decisions have led the company to make poor choices in product development, and a lack of focus on quality in the past has had a detrimental effect on the company. Foreign competition has also played a critical part in GM’s decline, Japanese imports, including their transplant operations in the U.S., and currency manipulation by the Japanese Government. General Motors losing its position as the world’s largest auto manufacturer was the result of many factors, some of which include union relationships, strategic management decisions, and foreign competition.
The United Auto Workers, UAW has been able to negotiate very generous labor contracts over the past 30 years. In 2007, as noted by Regessa and Ahmadian (2007, General Motors Versus Toyota Motors Corporation section, par. 5), GM spent $100,000 per employee for 5,200 employees who were part of the job bank program, which provided benefits to laid-off employees. Payroll differences were another important factor between General Motors and Japanese transplant operations here in the U.S. Flint writes in his Forbes.com article (2009, para. 8), that Japanese transplant workers earn $49 an hour including benefits while their Detroit counterpart earns $70-$75 an hour. The Japanese along with most other foreign transplant operations are predominately located in southern states and do not have unions. Japanese competitors, such as Toyota are not constrained by these types of labor agreements. These differences in pay and other contractual obligations like the job bank have created an adverse competitive environment for the domestic auto industry specifically GM. Health insurance expense is another area that gives Japanese competitors a huge advantage when competing with U.S. automakers. In 2005, health care costs added $1,500 to the cost of each vehicle produced by GM as reported by Connelly (2005, pE01). When Japanese automakers can avoid this added cost, it makes them more competitive, especially in the small and midsize vehicle market. During the 1990’s and 2000’s, Toyota was able to profit on smaller vehicles while U.S. competitors focused on larger SUV’s and trucks. The domestic automakers were realizing greater profits from the sell of trucks and SUV’s, a market they dominated, which in turn helped offset the increased labor, health, and pension costs. It is also important to note that the American consumer had a significant appetite for these vehicles. Subsequently this fueled the demand. In 2007, when gas prices began to rise, the domestic auto makers, found themselves in a precarious competitive environment. GM along with other domestic...

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