Automotive industry Summary

General Motors was founded by William “Billy” Durant on September 16, 1908. Durant started out by making horse-drawn vehicles in Flint, Michigan, but soon found his love in the automobile industry. GM started only with the Buick line, but GM managed to “acquire more than 20 companies including Oldsmobile, Cadillac, and Oakland” (gm. com). The company Oakland is known to us today as Pontiac. Years later, in the 1920’s, the demand for automobiles grew to unexpected heights because GM managed to the set the pace for all other companies. Their production, design, and marketing innovation made it hard for other companies to follow.

Also, in the 1920’s, GM added Chevrolet, Vauxhall and Opel, which “diversified the selection and added to the reach of GM” (gm. com). GM’s philosophy and strategy of “a car for every purse and purpose” really was true for their company because of how many different vehicles they offered. GM was also able to open more than a dozen new plants outside the United States which added to their popularity and to the industry’s demand for automobile. When and even after the Great Depression occurred, GM was very unsure of where their company would end up, but due to their commitment to innovation, they continued to increase sale and demand.

Some of these milestone innovations included independent front wheel suspension unibody construction, and the one piece steel roof. During World War II, GM supplied allies with more goods than any other company. In the 1960’s and 70’s, GM incurred a lot of new challenges and saw a lot of change because of environmental concerns and foreign competition. This all led to a unique amount of downsizing of vehicles for all of GM. This downsizing was the largest reengineering program ever undertaken in the industry. This reengineering program brought us more fuel efficient vehicles.

In the early 1970’s, GM reached even more milestones including engines running or on low-lead or unleaded gasoline, the offer of an air bag in a production car, and the catalytic converter. The catalytic converter is the most important step in reducing emissions. Even in the 1970’s, industries were worried about the environment. Even with all these amazing milestones for GM, foreign competition really became an issue because German and Japan had finally recovered from World War II and could finally export cars into the US in larger numbers.

Also, with the idea of more fuel efficient cars for GM, came higher fuel prices so consumers bought the foreign cars because they were cheaper overall. Through the 1980’s and 1990’s, GM finally realized they needed to operate as a single global company. GM decided this because it would improve the efficiency of its operations and be able to compete more with their global competitors like Japan and Germany. In 1982, GM announced its largest single production expansion outside of North America with their new building opening in Zaragoza, Spain. Again, GM added more cars to their wide range already, the Saab and Hummer.

In 1995, GM had their biggest year with their annual vehicle sales exceeding three million unites outside of North America, and selling five million units in the United States. GM also announced their first joint venture with China. Later on, in the early 2000’s, GM had completely its transformation into a single global company and had been able to capitalize on the wants of the consumers for a smaller car, called the GM Daewoo. During these years, GM started realizing that their competitors and the fact that they were a less efficient company weighed on their financial issues.

Even with their financial issues being an issue, GM still was able to push ahead with electric vehicle technology. In 2007, GM shocked the industry and consumers with the Chevrolet Volt concept which was a car that could drive on battery power instead of fuel 24/7. Unfortunately, a year later in 2008, “a major recession and global credit crisis drove car sales to near depression levels and dried up private sources of capital” (gm. com). GM now realized that a couple years ago when they were having financial issues, they should have restructured then, but it was too late and GM was given a loan from the US Treasury.

This brought up many issues with the public and other companies because GM knew they were in trouble, but they kept spending money like they were not. On June 1, 2009, General Motors Corporation filed for bankruptcy, but a “new” General Motors Company was created on July 10, 2009 with the US Treasury, Canadian Governments, and the UAW Retiree Medical Benefit Trust is its major shareholders. To this day, the “new” GM is very competitive and is smaller with only four brands in the United States; Chevrolet, Buick, GMC, and Cadillac.

GM has continued to grow even after going bankrupt is now an even better company than it was before all of their financial issues. In December of 2008, GM asked the government for a bailout in order to help them not go bankrupt. “GM received $6 billion through GMAC, which became a bank holding company. GM asked for $18 billion in loans, of which $4 billion was needed to avoid bankruptcy before the end of 2008. In return, GM agreed to give the government warrants for common stock, preferred stock, and a promise to repay the loan in 2012, when it anticipates it will again break even.

GM pledged to cut its debt by $30 billion by converting debt ownership for equity. It agreed that union health-care benefits would be paid to retirees in 2010. It promised to sell its Saab, Saturn and Hummer divisions, reducing the number of models for sale to 40. It would reduce employment from 96,000 to 45,000 by 2012. ” (Source: Bloomberg, Chrysler Financial to Get $1. 5 Billion to Aid Car Sales, January 19, 2009). In January of 2009, the government gave General Motors and Chrysler $17. 4 billion. This money provided the company with operating cash and allowed them to give auto loans to buyers.

If they did not receive the help, the bankruptcy would trigger 3 million layoffs within a year. In addition to the promises the company made to the government that were already mentioned, the company promised to speed up the development of energy efficient vehicles and consolidate their operations. They also promised to delay contributions to the health trust fund for retirees and reduce payments to laid off workers. The CEO also agreed to sell his corporate jet and for $1 a year. Before the money was given to GM, members of Congress complained that GM was not operating competitively for years.

In 2006 they were hit with a decline in sales and decided to offer 0% financing to entice consumers. They were paying their Union members $70 per hour, while new hires were getting paid $26 per hour. As previously mentioned, they had twice as many brands as needed and twice as many dealerships as needed. In December of 2008, auto sales decreased by 37% compared to the previous year. GM was hit the hardest. They were not reacting to these problems and it forced them to ask for money to save them from bankruptcy. Even with the bailout GM still had to decrease employment and production.

The main reason for the fail of GM’s leadership was the fact that they continued to hire visionless CEO’s. Instead of changing things up in the company to increase market share, they maximized on short-term profits, dividends, and bonuses. They were more concerned with filling their pockets than doing what was best for the company. They did not invest in technology to make cars that would give them a competitive advantage. They didn’t make long-term goals that would keep them a profitable company. They also didn’t have one strong leader to lead the entire company.

Instead the company was broken up into divisions with a manager for each brand. GM was too big to operate this way and it took too long to make decisions. Consumers didn’t like their cars. They needed a leader that would step up and cut down under performing products and lay off workers. They also made a made a big mistake by selling off GMAC. GMAC was a profitable financing business for them. They needed to focus on reinventing themselves and gaining back consumers by making attractive and affordable vehicles. References Galbraith, Jay R.

“GM Desperately Needs New Leadership–But Is Henderson It? – Forbes. com. ” Information for the World’s Business Leaders – Forbes. com. 02 Apr. 2009. Web. 11 Dec. 2011. <http://www. forbes. com/2009/04/02/gm-wagoner-henderson-leadership-governance-bailout. html>. Amadeo, Kimberly. “Auto Bailout – The Big 3 Bailout – Government Bailout of Auto Industry. ” US Economy and Business – US Economic Indicators – US Economic News. 29 Aug. 2011. Web. 11 Dec. 2011. <http://useconomy. about. com/od/criticalssues/a/auto_bailout. htm>.