Managment Lessons from fall of General Motor

By | June 4, 2009

The fall of GM is symbolic of the current times in which America is living in. If GM was the symbol of the arrival of the super power in the early 1900’s, the fall of this mammoth company is a reflection of the collapse today. It is Japanese cars which command the maximum respect and market share in US , and it is once again the Japanese which have made significant inroads into all facets of the country.

Now that GM has filed for bankruptcy, it’s easier to see what went wrong with the company. As the saying goes, one should learn from mistakes. For Indian car makers, a lesson to keep in mind is the mistakes which GM made. By looking at what exactly went wrong, we can see what Indian car manufacturers can avoid doing.

What went wrong with GM?

1: The company just hoped that it would be able to live forever on its brand loyalty. It felt that people would just keep on buying their same cars even when things all around GM were changing rapidly. Losing sight of what people actually wanted led to this end of an era.

2: GM made SUV which were basically gas guzzlers. When price of fuel was at reasonable levels, it was ok to have an SUV but over a period of time, with fuel prices soaring and global warming becoming a reality, people changed their preference to a more ‘green’ and fuel efficient car. People wanted a car which would give them better mileage and this important indicator, of having more fuel efficient cars was also missed by GM. This is where Toyota gained and GM started losing out.

3: The designs of GM just simply did not appeal. GM did keep up with new models but with competition from the likes of Honda and Toyota, churning out swanky and better looking cars, the new models of GM just did not find favour. Its Aveo model was a complete failure and its Cobalt, though was doing well was no match for Toyota’s Corolla and Honda’s Civic.

4: The economic turbulence and then the fall in demand also just added on to the already brimming cup of woes. With demand falling sharply, costs became untenable. And the most significant cost, which was affecting the costing of the cars was the burgeoning labour bill. Labour cost was almost $2,360 per car, which was $800 more than Ford’s and $500 more than Chrysler’s.

5: Its sheer size was also its nemesis. It grew so big, it lost touch with its customers, especially the new ones. Those who grew up with GM knew what it was but those who saw their father’s with GM cars, wanted no part of it. The median ages for buyers of GM’s Chevrolet was 45, it was 55 for Oldsmobile and 60 for Buick. As against this, the new generation preferred the Japanese cars and their age ranged from 35 to 40. When an elephant walks with its head up, it is sure to miss the pitfalls and thus get trapped.

6: The biggest lesson for all car makers from this fall of GM – always listen to the dealers. The showrooms are the true indicators of what customers actually want. GM failed to do that. Though it kept on giving new models, these were versions of the older ones and not what its competitors were giving. The floor manger in the car showroom can give one the exact idea of how well or badly the car is doing.

7: Companies need to change with time, especially the way in which the top management functions. GM ran the company the in the same way for 70 years, following the same rules laid down in the memo by its founder. Also the arrogance of success was so high, they just failed to adapt to fundamental changes in the industry.

By the time GM realised its follies and started making amends, it was too late and too little. Till then the Japanese had stolen away a considerable market share and the same brand loyalty which GM was harping on about, was now passé.

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