Factors That Contributed To The Diminishing Dominance Of General Motors In The Automobile Industry

Jim Collins, the renowned business consultant and author has precisely pointed out in one of his recent bestsellers that, history proves with substantial evidence that the mighty can always fall. He exemplifies this statement by projecting the fate of ancient kingdoms of Rome, Athens, Egypt and so forth. The same scenario appears to perfectly apply for the automobile manufacturing giant, General Motors (GM), whose situation has degraded from being the largest automobile manufacturer globally for the last 7 decades to a struggling and faltering organization in the current competitive industry. This essay reviews the major reasons that led to the downfall of GM.

Crises faced by GM

General Motors’ position as a chief player has been jeopardized by quality and design issues like low ride quality, noise, harshness and vibration all through the 1980s and 1990s. Due to these issues, the cars manufactured by the competitors like Toyota and Honda were selling for $3000 higher than that of GM cars of equal size and standard. It would take another decade for GM motors to touch the quality ratings of Honda and Toyota through the launch of Chevrolet.

One of the most projected causes for the decline of GM is its union contracts that conferred enormous cost disadvantage to the company. Owing to schemes like retirement pensions and ‘legacy health care’, the labor costs at GM were higher in comparison to its Japanese competitors ($73/ hr vs. $48/hr). The legacy costs for each car manufactured by the firm in 2005 was over $ 1,600, which could in turn be attributed to the company’s falling market share.

Apart from losing its prime position, the company also had to tackle other nagging problems like consistently lower productive ability in all areas of its operations. In contrast to its Japanese counterparts, the company took double the amount of ‘adjusted engineering hours’ to turn out a car worth $14,000 in the 1980s. This persistent decline in production was reflected in assembly operations as well. These problems were compounded by the poor management of its supply network despite using over 70 % of purchased parts from suppliers. Lot of industry experts believe that failure of GM to adapt according to the changing industrial scenario and a lack of motivation from the senior management to act immediately has contributed significantly to undergirding of the company’s success prospects.

To sum up, the phenomenal success of the firm made the management reluctant to acknowledge the threats and competition posed by the Japanese firms in the 1980s. On recognizing the rivalry, the company decided to act and adopt the system of managerial practice implemented in Toyota. In this process, GM experienced many difficulties in the form of contract building, supply chain management, product development and so forth which considerably slowed its growth pace.