Why General Motors Failed to Compete with Globalization

General Motors’ biggest dilemma could be attributed to the global trend in the shift in production techniques from inshore to offshore outsourcing to low-wage plant locations worldwide. Until the 1970s, the Big Three dominated the automotive industry. From there, General Motors, Ford, and Chrysler gradually lost market share to Asian competitors that produced cheaper, more fuel-efficient vehicles (Aherne, 2007, p. 209). Several studies basically attribute this failure to compete globally with the United Auto Workers (UAW) union’s hold on the Big Three.
Aherne (2007) clearly elaborates that: The United Auto Workers (UAW) union was formed in 1935 and began organising unskilled workers, an innovative approach for its time. The union forced recognition from GM and Chrysler in 1937, and Ford in 1941. The combination of the post-war demand for cars, the oligopoly of employers, and the strong union, enabled the UAW to negotiate favourable pay and working conditions, including fully paid hospitalisation, sick leave benefits and pensions.
The cost burden of those benefits are now legacy issues for the Big Three which they allege are making them uncompetitive against overseas manufacturers, including those who have built plants (‘transplants’) in the U. S. (Cooney and Ycobucci, 2005). Though most transplants are non-union operations, they provide an equivalent level of benefits but they do not face the burden of healthcare and other benefit costs for older workers (ibid). The Big Three have been locked into multi-year labour contracts with the UAW that require them to support laid off workers at 95% of salary, plus benefits (ibid).

(p. 210). Other Factors That Contributed to General Motors’ Economic Downfall Moreover, other business analysts or experts provide other explanations. Richard Tedlow, professor of business administration and David Ruben, research associate, both of Harvard Business School state that: GM was afflicted by the same malady that has recently stricken the financial sector as well as many other companies. That is, the separation of top management from its customers, its shareholders, its workforce, the public, and reality.
This divide is perhaps best symbolized by Rick Wagoner’s recent use of a corporate jet to go to Washington to beg for money from the government. This disconnect runs deep at General Motors. In another light, John Kay of the Financial Times (2009) provides insight that: The factors that had once been the company’s strengths were now weaknesses. Mass production and piece-rate incentives created a workforce with little pride in the quality of the product. The cadre of professional managers became a complacent, inward-looking bureaucracy. The diversified corporation became a collection of competing baronies.
Most noteworthy, however, is Dr. Kurt Richebacher’s forecast as noted by Whitney (2007): The US economy is in danger of a recession that will prove unusually long and severe. By any measure it is in far worse shape than in 2001-02 and the unraveling of the housing bubble is clearly at hand. It seems that the continuous buoyancy of the financial markets is again deluding many people about the gravity of the economic situation. ” Conclusion Currently, the U. S. is in a recession. Whitney (2007) observed that this could be the Second Great Depression in the U. S.
since 1929. In another light, the U. S. has 776 cars per 1000 population (United Nations Economic Commission for Europe, 2005) for an estimated average family size of 3. 19 (U. S. Census Bureau, 2005-2007). This means that a typical U. S. family has 2. 47 cars on average. In the Great U. S. Depression of 1929, Franklin Delano Roosevelt’s New Deal banked on an economic recovery strategy that used the great economic multiplier of the automotive industry when cars were barely available to the entire U. S. population. Today, General Motors is facing a greater challenge.
The demand for cars, that GM produced more expensively, will not likely increase with the U. S. housing market crash that basically triggered the current U. S. recession. For over 100 years, GM has enjoyed great prosperity. However, the year 2009 is unique. It ushers in a new economic era for which GM is not prepared to face. References Aherne, W. (2007). Lessons From The American Automotive Industry. Student Economic Review, Vol. 21 Retrieved July 28, 2009, from http://www. tcd. ie/Economics/SER/sql/download. php. CNN. com/US. (2009, March 30). General Motors CEO resigns as part of bailout deal.
Cable News Network, Turner Broadcasting System. Retrieved July 28, 2009, from http://www. cnn. com/2009/US/03/30/gm. ceo. resigns/index. html. Cole, D. , McAlinden, S. , Dziczek, K. ; Menk, D. M. (2008, November 4). CAR Research Memorandum: The Impact on the US Economy of a Major Contraction of the Detroit Three Automakers. Michigan: Center for Automotive Research. Retrieved July 28, 2009, from http://graphics8. nytimes. com/packages/pdf/autorecess. pdf. Financial Times. (2009, June 3). “Salutary lessons from the downfall of a carmaker. ” John Kay. Retrieved July 14, 2007, from http://www. johnkay.
com/print/612. html. Tedlow, R. S. ; Ruben, D. (2009, June 3). “GM and the world we have lost. ” The Boston Globe. Boston: Globe Newspaper Company. Retrieved July 28, 2009, from http://www. boston. com/bostonglobe/editorial_opinion/oped/articles/2009/06/03/gm_and_the_world_we_have_lost/. United Nations Economic Commission for Europe. (2005). Thematic Atlas of Europe and America. Retrieved July 28, 2009, from http://www. unece. org/stats/trends2005/transport. htm. U. S. Census Bureau. (2005-2007). Fact Sheet: United States. Retrieved July 28, 2009, from http://factfinder. census. gov/servlet/SAFFFacts.