For over a generation, General Motors Corporation (GM) was the largest American business enterprise, and nearly a symbol of the American industrial economy. Yet, by the 1980s, the company was near to collapse. The immediate cause of GM's difficulties was competition from Japanese imports, but the more fundamental cause was arguably GM's difficulty in making the most efficient use of capital and labor. Thus, the experience of GM in deploying its capital and labor is a useful illustration of some fundamental issues facing all firms in a competitive environment. The following pages will examine the challenges facing GM since the 1970s, and its response to those challenges.
Automobile manufacture is the capital-intensive, assembly-line industrial process par excellence. The story of Henry Ford and the assembly line is a familiar piece of folklore. The "line," as we usually visualize it, is in fact only the last of five basic stages in the production of automobiles; these stages are summarized in Figure 1 (taken from National Academy, 1982, p. 21, Figure 2.1).
This complex industrial process requires a combination of enormous capital investment and a highly specialized work force. The former is straightforward; an automobile assembly line is a large, complex, and highly specialized machine, not readily adaptable to any other purpose (beyond turning out some slightly different model of automobile). The same is true of all the other production stages save perhaps the first, raw-materials processing.
The role of labor in the automobile production process requires some further explanation. In spite of the element of automation implied by the assembly line, and further developments in automation (e.g., robots) in recent times, a large labor force is required. Much of this labor force is "unskilled," in that many, perhaps most assembly operations are simple and repetitive. However, an automobile plant requires a large lab...