General Motors Response to Economic Challenges

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

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European small-car imports in the late 1950s had been turned back. GM executives assumed that the future would be much like the past. But beginning in the late 1960s, GM and the other domestic carmakers faced a new challenge, from Japan, and by the middle 1970s, it was clear that the domestic industry was losing. The Japanese, it appeared, could make better and more popular cars, and make them less expensively. Comparative analysis of the utilization of capital and labor by the domestic industry and the Japanese identifies some of the factors that contributed to the Japanese inroads. In 1982, near the low point of GM's and other domestic manufacturers' fortunes relative to the Japanese carmakers, a panel of experts at the National Academy of Engineers evaluated the components of the productivity differential between Japanese and American labor in automobile production. The components considered were process yield, labor absenteeism, job structure, process automation, quality systems, product design, and work pace (National Academy, 1989, p. 102, Table 6.5). Most of these components are fairly self-explanatory, but some require further explication. Process yield is a measure of the direct efficiency of the line producti

Category: Economics - G