GM Decides Small is Better

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General Motors Decides Smaller Is Better
eneral Motors (GM), the largest corporation and
carmaker in the world, had a turbulent decade in
the 1990s. It started by incurring huge losses of $2 billion in 1990 and $4.5 billion in 1991 as the result of a
bloated workforce and management, low capacity utilization, too many divisions and models, and high-cost
suppliers. For a corporation that had been extolled as
the epitome of a successful corporation in 1946, this
was a dramatic decline indeed! As the data on sales per
employee in Table 6-6 seem to indicate, GM was too
large and faced strong decreasing returns to scale.
Chrysler, on the other hand, could still have expanded
to take advantage of increasing returns to scale (in
fact, Chrysler merged with Germany's Daimler, the
maker of Mercedes-Benz, in 1998). Ford, with the
largest sales Pl!r employee, seemed to be just about the
right size in 1991. It was clear that GM required a major restructuring-and
this GM did throughout the
1990s.
As part of its reorganization plan announced in December 1991, GM closed 21 plants and shed 74,000
workers (50,000 blue-collar and 24,000 white-collar)
from 1992 to 1994. The plants closed eliminated GM's
excess capacity of 2 million cars and trucks per year
and left GM with a 5-to-5.5-million capacity in its
North American operation and 33 percent of the U.S.
car market, down from 46 percent in 1978 and 35 percent in 1991. Just closing plants and reducing GM's
size, however, were not sufficient, and GM went
through more restructuring during the mid-1990s. Although these increased efficiency, its competitors did
• not stand still, and GM productivity still lagged in re-

TABLE

6-6

General Motors
Ford
Chrysler

nil.

• 1U),'I;J:J,. ••• r.1U.I

lation to that of its domestic competitors. For example, in 1998, GM required 34 worktr-days to produce
its average car, as compared with Chrysler's 32 and
.Ford's 30, and GM's share of the North American car
market declined further to 29 percellt.
Toward the end of the 1990s,it hl:cameclear to GM
that nothing short of a complete change in corporate
mentality was needed. In 1998-1991>,GM tried to do
exactly that with its newest and mott far-reaching restructuring. This involved consolidating its North
American and international operatios, (borrowing liberally from Ford's 2000 program of consolidation
launched in 1994); reducing the number of models
produced from 89 to 75; cutting avtrage manufacturing time from 34 to 30 worker-days per vehicle; centralizing its vast sales, service, and lllarketing system;
spinning off its auto-components gr{Jup(Delphi Automotive Systems) so as to reduce COltsand outsource
more of the assembly task; and improving its worker
~elations (GM lost $2 billion becauseof a seven-week
strike by its workers in 1998). As ilItportant as these
steps were, however, experts believe'hat GM will put
an end to its 20-year market slide on.yif it can generate excitement over its new models and coax buyers
back into its showrooms.
Source: "Automobiles: GM Decides Smaller h Better," Tbe Mtlrgin,
November/December 1988, p. 29; "GM Post'Record '91 Loss of
$4.45 Billion, Sends Tough Message to UAW", Closings," Tbe Nf7J)
York TImes, February 25, 1992, p. 3; "The Declu, and Fall of General
Motors," Tbe Economist, October 10, 1998,pp. (; {il; "Reviving GM,"
Business Week, February I, 1999, pp. 114-122;"J "G,\II Looks at Furure with Internet Unit," Tbt New lork Times, ·~,~t 11,1999, p. 84.

•••"t;U:J..'1I.r•

11(1),'1;.1 •.••.•

Sales
(in billion dollars)

Employees
(in thousands)

Sales per Employee
(in thousand dollars)

123.1
88.3
29.4

756
333
123

162.7
265.4
238.8

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