Executive Summary

The following study will discuss the changes taking place at General Motors (GM), focusing
mainly on its North American operations and change experience. A brief overview of GM’s
history will be provided culminating in its bankruptcy and government bail-out in mid 2009.

GM’s current position will be outlined highlighting its recent bankruptcy filing and eventual
purchase by the American government and its current measures to improve.

Its most recent change strategies (as of 2009) will be discussed along with a brief overview of
the results so far. The experience of other automakers response to the automobile market crisis
will also be briefly discussed and compared to General Motors.

Some recommendations will be provided as to what GM can do to increase its sales, profit and
public perception.

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1.0 Introduction

What is change? Many definitions have been offered, but most agree that change can be
managed in one way or another. Likewise all will agree that change is inevitable. Many
companies, large or small will have to deal with such change, be it external or internal.

This study will utilize the American carmaker General Motors as an example in change
management. In this assignment, the following issues will be discussed:

1. Reasons and forces for change in General Motors.

2. Types of change.
3. Change strategies employed.
4. Steps in the change management process.
5. Constraints and problems with the change process.
6. Results of the change process.
7. Various issues arising from the change process.
8. Suggestions and recommendations for the change management process.

As General Motors is an enormous company with a long history, for the purposes of our
discussion we will be mainly focusing on its activities in North America and its change
management experience during the 2000s where it was pressured the hardest and ultimately filed
for Chapter 11 bankruptcy in 2009 to allow for restructuring. Before continuing, it would be
helpful to give a brief overview of General Motors’ history.

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Brief History & Overview of General Motors

General Motors (GM) was founded in 1908 as a holding company for Buick, based in Michigan.

In the 1920s, its sales surpassed that of the Ford Motor Company hence becoming the largest car
manufacturer in the world. Most attribute GMs’ successes at this time to the leadership of Alfred
Sloan. Sloan introduced such concepts as “planned obsolescence” (where the style of a car would
be changed every few years) as well as a tiered pricing structure for its different brands
(Chevrolet-Pontiac-Buick-Cadillac) so that its brands would fill different niches as well as not
compete with one another. (Corporate Information – History n.d)

With the rise of the Japanese automakers (especially Toyota) in the 1980s, GM was beginning to
be threatened. The SUV (Sports Utility Vehicle) boom of the late 1990s halted GMs decline for
the time being as it made large profits (especially in the North American market).

While sales had already been declining after 2001, it was only when the financial crisis began
that GM began to flounder. It was surpassed by Toyota in early 2007 as the world’s largest
automaker in terms of sales (Hawkes 2007). In late 2008, GM received loans from both the
American and Canadian governments to help it stay afloat.

Despite all that, GM had to file for bankruptcy on June 1, 2009 which became the fourth-largest
bankruptcy filing in U.S. history. As part of the bankruptcy deal, GM had to sell or discontinue
several brands, such as the luxury Hummer brand (sold to a Chinese company).

In return, GM would restructure and continue business, focusing on its four core brands in
America – Chevrolet, Cadillac, Buick and GMC.

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2.0 Findings

2.1 Reasons and forces for change

In this section, the reasons and forces for change in the automobile industry in general and
General Motors in particular will be discussed. Since GM has a long history, the period of 2000-
2010 will be focused on in this assignment.

Forces of Change Analysis for General Motors (2000-2010)

The following are some of the forces of change that have affected GM in the period above:

External Forces

These include the highly competitive automobile markets. North America is GM’s largest market
(followed by China) and in 2008 GM sold 2.9 million vehicles in America with Toyota a close
second at 2.2 million. While GM is still leading sales in America, its market share has been
eroding constantly, down from the 30% in the year 1999 (where it sold 5 million vehicles) to
22% in 2008. It should be noted that many of GM’s sales during the 2000s were that of SUVs
and trucks which were hit the hardest when fuel prices went up. On the other hand, Toyota with
its more fuel efficient cars benefited. (Saporito 2008)

Another main force is that of the ongoing financial crisis which has severely affected GM’s cash
flow. In late 2008, GM predicted that it would go bankrupt without government aid or a merger
by 2009. (Gow 2008)

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Internal Forces

One main internal issue is that of GM’s previous agreements with the trade unions. The UAW
(United Auto Workers) union of which almost all of GM’s employees are members has been
criticized for imposing high wage costs on employers.

For example, GM pays its employees on average $74 per hour compared to Toyota employees
who receive $44 an hour. Likewise it must run its plants at 80% capacity minimum whether they
need to or not. These agreements have hampered GM’s ability to conduct cost-cutting and is one
of the reasons that drove it to file for bankruptcy (in order to force new agreements with unions).
(Saporito 2008)

GM’s CIO Ralph Szygenda has commented that “We have a serious legacy cost problem that a
number of our competitors do not, including healthcare and pensions. Sometimes, it feels like
having one arm tied behind your back. Our processes tend to be as good as any automotive
company in the world…But we’re still not as profitable as we need to be.” (Driving Change at
General Motors 2005)

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2.2 Types of change

In this section, the types of change implemented and experienced by General Motors will be
discussed. Other automobile makers will also be compared, along with the changes affecting
them. Harvard Business School lists four main types of change programs, namely, structural
change, cost cutting, process change and cultural change. (Managing Change and Transition
2003)

GM suffered from a lax mentality that came with market leadership in the 1960s and 70s, though
by 1990s it began to streamline its processes and become more competitive in the face of
competition, especially from the Japanese automakers and from Ford & Chrysler. Furthermore,
as a journalist commented, GM has been “struggling with a change agenda for years”, i.e. it has
been unable to come up with a focused idea of what to change. (Muoio 2007)

In recent years GM has been focusing primarily on cultural change and cost cutting programs
(GM to speed car launches, target market share gain 2009). After GM’s recent bankruptcy
filing, GM’s chairman and current acting CEO Ed Whitacre Jr. stated that he wanted a company
with “less bureaucracy” and more young blood. (Paukert 2009)

In a 2009 press release, the new GM which emerged from bankruptcy revealed its new emphasis,
which was a focus on “customers, cars and culture” (Shunk 2009). GM also has special divisions
in charge of leading innovation, such as the Advance Portfolio Exploration Group (APEx),
which provides advice into what brands and markets to pursue in the future, as well as
recommending when a product should be discontinued or changed. (Muoio 2007)

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2.3 Steps in the Change Management Process

The following section will highlight some of the steps taken by GM as it goes through its change
management process. As GM has a long history, the steps discussed below are those that are the
most recent.

Culture Change

GM had already begun moving in this direction much earlier in the late 1990s with its “Run
Common, Run Lean” initiative, which promoted centralizations of functions (e.g. GM
consolidated its purchasing offices from 25 to 1 in the U.S) and removal of any unnecessary and
redundant processes. (Henry 2008)

In its most recent round of culture change measures, GM removed its automotive product board
and automotive strategy board with an 8-man decision making team reporting directly to the
CEO, its objective to speed up “day-to-day decision making”. (Krolicki & Bailey 2009) GM also
stated that it wants to instill in its employees greater accountability and responsibility, as well as
emphasizing the need for risk-taking and not playing safe. (Gow 2008)

Former GM CEO Fritz Henderson (who stepped down in December 2009) outlined the following
steps that will be taken by the top level, namely, more visits to operational centers, dealers and
customers (“getting out of the office”) to built rapport with fellow employees and customers.
(GMBlogs 2007)

Cost Cutting

Trimming its cost has also been very high on GM’s change agenda. Some measures include the
offloading of GM’s marques, such as Saturn and Hummer to other companies and focusing on its
four core marques in the US (although it still maintains overseas holdings such as Opel and
Daewoo). (Martinez 2009)

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It also includes retrenchments and pay-cuts – although this has been limited by union agreements
(discussed in the constraints section below) and is one of the reasons why GM filed for
bankruptcy (in order to obtain a better bargaining position against the unions). GM’s total cost
cutting target for 2008-2009 would be $15 billion. (General Motors Taking Swift Cost-Cutting
Action 2008)

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2.4 Constraints and problems with the change process

The constraints and problems affecting General Motors change process will be described here,
along with discussions as to why they are occurring.

Problems with cultural change plan

Some have criticized General Motors’ top down approach, saying that GM has had a long history
of mistrust towards its employees, unlike Toyota who according to John MacDuffie of Wharton
Business School, "relies on contributions from employees. It feels vulnerable, but your
willingness to be open to that vulnerability is what helps you make it work." Likewise, he says
that GM’s (along with Ford & Chrysler) biggest failure is that of the failure to learn from others
and that the “top-down culture” of the American automakers did not place trust in the workers.
(Saporito 2008)

This means that in order for cultural change to be successful, GM has to start empowering its
workers in the way Toyota did, where workers played an active part in the change program,
rather than merely telling them what to do.

Problems with cost-cutting

Cost-cutting plays a major part in GM’s change plan. While it had been implementing such
measures prior to its bankruptcy, it was hampered by various factors, such as prior agreements
with the UAW (United Auto Workers) union that prevented it from lowering employee wages
below a certain level. (Saporito 2008) It also had to keep plants operating at a minimum capacity,
no matter how unprofitable.

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2.5 Results of the change process

It should be noted that the change programs described in the previous sections have been
attempted many times previously by GM to a various degrees of success. These changes are the
latest that have been implemented by GM in the year 2009. The results of the changes will be
described below:

Culture Change Results

GM has had various culture change programs in the past with varying success, such as the
GoFast program (to eliminate bureaucratic inefficiencies) and GMS, General Motor’s version of
Toyota’s lean production system. It is clear that despite such programs little its overall culture
was still unsatisfactory. (Taylor 2009)

Emerging from its bankruptcy in 2009, GM implemented another round of culture change
programs (as discussed previously). So far, the results have not been promising, marked by the
resignation of CEO Fritz Henderson in December 2009, with the board of directors stating that it
was “unhappy with the pace of the Detroit automaker’s turnaround since it emerged from
bankruptcy” (Deveau 2009) On the other hand, the results of GM’s latest round of cultural
change program, aimed at creating a leaner, more efficient company will obviously not be seen
immediately.

Cost Cutting Results

GM’s extent of cost-cutting can be clearly seen by its employment figures – from 1998 to 2009,
its employment in North American went from 226,000 to 101,000 workers. Other measures
include trimming over 1,100 dealerships (affecting 100,000 jobs) and fourteen plants.

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Nevertheless, GM has recently stated that its focus is on boosting sales, rather than “cutting their
way to profits”. (Langlois 2009) Nevertheless, the substantial job cuts (GM aims to reduce its
factory workforce from 62,000 to 40,000) as well as small scale changes, such as buying cheaper
pencils and removing voicemail from factories will certainly lead to a significant amount of cost
savings. (Stoll & Terlep 2008)

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2.6 Various Issues

The above discussion has centered primarily on GM’s change experience during the American
automobile industry crisis. How did other automakers fare?

Response of other automakers

In early 2009, Toyota posted its first annual loss in sixty years, proving that even the hardy
Japanese automakers could be affected by the financial crisis. (Kim 2009) Toyota’s response was
to emphasize its superior working culture and to conduct drastic cost-cutting, such as pulling out
from Formula One. In November 2009, it posted a $242 million profit, proving that it was
capable of a turnaround. Even Honda, surprisingly, is projecting a net profit of $1.2 billion for
2009. (Rowley 2009)

Volkswagen, Europe’s largest automaker, also will end the year with a profit mainly due to
strong sales in China which is now its biggest market (China is the second largest market for
GM). (Toyota's China car sales up 21 pct in 2009 2009)

But how does GM compare with Ford & Chrysler? Chrysler, like GM, filed for Chapter 11 and
aimed to create a company from the profitable parts, selling away any unprofitable elements
(Chrysler also formed an alliance with Italian automaker Fiat).

Ford has been more successful, avoiding both bankruptcy and government loans and instead
pursued various paths to recovery, such as securing private credit and negotiating with the
United Auto Workers union to lower healthcare and retirement benefits. It also offloaded its
ownership of the Volvo, Jaguar and Aston Martin marques. That said, its turnaround has been
proceeding slowly and it expects to burn through $17 billion before turning a profit. (Brynaur
2007)

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3.0 Recommendations

It is clear that despite extensive efforts by GM to turnaround its struggling sales, its change
measures have not been entirely successful. The following will discuss other options that it can
pursue to reach its turnaround goals of increasing sales and market share.

Producing the right automobiles

GM has long been criticized for its fuel-inefficient cars, leaning heavily towards SUVs and
trucks. While this made it a top-seller during the late 1990s when fuel was relatively cheap, with
the increase in oil prices it made a large majority of its cars unattractive. On the other hand,
companies like Toyota managed to increase their sales with their “right-sized” fuel-efficient
sedans.

It was only in mid-2008 that GM announced plans to review its car lineup, with more fuel-
efficient cars to be in production only by mid-2010. GM has also focused on hybrids, such as the
battery powered Chevrolet Volt (due for 2010) but such cars are for a niche market, and must
start improving its mass-market cars to be more economically attractive.

Improving public perception

GM is currently majority owned by the government and by extension, the public. As such public
perception is especially important. This extends to not only providing efficient customer service
(GM’s culture change is emphasizing this) but also to not appearing wasteful or “ungrateful” in
the eyes of the public.

This might mean cutting any unnecessary expenditure (which GM has also begun to do) and
creating good products and ultimately becoming profitable. The latter is especially important for
GM as it must not be seen as letting the public money spent on their bailout go to waste.

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4.0 Conclusion

General Motors, from being the world’s largest automobile manufacturer (and seller) ultimately
filed for bankruptcy in 2009 and received government bail-out money to the tune of nearly $60
billion. Many change factors led to this, including the ongoing financial crisis, increasing
competition from the Japanese (and European) automakers and a weak and overextended product
line-up that no longer had much consumer appeal.

GM responded, after emerging from bankruptcy, with two major change measures – cultural
change and cost-cutting. Cultural change included removing layers of bureaucracy as well as
increasing the accountability of executives and educating employees. Cost-cutting measures
included massive staff retrenchments.

The results have not been promising so far. GM’s CEO Fritz Henderson resigned in December
2009 as the board of directors was not satisfied with the speed of the turnaround. It also faces
pressure from the government to improve its profitability and repay its loans. Nevertheless, if the
momentum of the changes is maintained, some beneficial results will definitely be seen in the
longer run.

GM is still a vast-company with a strong base in two major markets, namely United States and
China. It must do all it can to exploit this position, as well as work to minimize any of its
weaknesses, such as a poor product lineup and perception. In doing so it would be able to at least
increase its market share and hence profitability.

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