Instructions Strategic Analysis (Pick one case study that is attached) This week's paper is required to be approximately 4 -6 pages in length, not including the title page and the reference page. No p

'f\1 ''trt-''i /^ t Ft ..ll LADE . ;- Mary T. Barra. the CEO of General N{otors, had not found it easy as the tirst woman to take o el' a large autor]]o- bile company. The third-largest automaker was engult'ed by the gravest safety crisis in the company's history. It issued a record 84 separate recalls in the United States in 2014 jnvolving more than 30 million cars. 2.6 million of which had a ploblem with defective ignition swilches that could shut down engine power and disable airbags. Gen- eral Motors (GM) had to make compensation off'ers to the families of 42 people who had died in accidents in vehicles with a defective switch. as well as to more than 50 people who had been injured. "It was clearly a tragedy and it was deeply troubling," Barra acknowledged.l Barra realized that GM would continue to deal with the repercussions of the safety problems that it had tailed to address. The firm was f-acing several investigations. including a federal trial, set to begin in early 2016. that wouid deal with several lawsuits against the lirm. The U.S. Department of Transportation hit GM with a $35 million penaity, the maximum allou'ed under law, and imposed oversight of the automaker's safety ptactices fbl neglect- ing to infbrm government officials of the ignition switch defect in a timely manner. These new requirements rep- lesented a return of sorts to the ovelsight that GM had thought it was finished with in December 2013. when the U.S. government sold off the final piece of the company that it had acquiled four years earlier as part of its bailout. r'Case preparod b,,- Janral Shamsie . Michigan State Ulir,ersit!'. u'ith the assistarce of Professor Alan B. Eisner, Prcc Universitv. \'Iaterial has been drau,n lrom publishcd sourccs to be used tbr purposes of class discussiou. Cop.vright O 2015 Jamal Shansie and Alan B. .Eisner. The biggest concerns about GM's practices were raised by an internal report released in June 201r1 that faulted a lack of lesponsibility and accountability at the fii'm Ibr its failure to recall def'ective cars for years after it had learned about the faulty ignition switch. Barra had already acknowledged this issue in an internal video that was broadcast a few months earlier to all employees. "Some- thing went very wrong in our processes . . . and terrible things happened," she statec1.2 In response to the report, she promised to ensure that such neglect of safety isstLes would not occur again. But the depth of the dysfunction rvithin the film, as detailed in the leport, made several industry analysts question how Barra would be able to keep this pledge. On Janualy 8, 2015. Barra used a media roundtable to state her intention to try to finally put this crisis behind and move on with the commitment to build the best cars that GM ever offered. "It was a year of great.disappoint- ment. but also great progl'essJ! she reflected.' She noted with great relief that the safety issues had not caused con- sumers to avoid the fir"m's new models. The iirm had. in fact. ended the year on a high note in the United States, where its sales rose about 5 percent for the full year, with seven of its vehicles setting lecords for annual sales (see Exhibits I to 3). Those vehicles included both GM's smaller cars, like the Chevrolet Sonic and Spark, and its sport utility vehicles. like the Buick Enclar,e and Encore (see Exhibit 4). While Barra did not lay out specific goals tbr'2015, she said that GM expected to expand sales in its two largest markets, the Unitecl States and China, and break even in its long-troubled European division (see Exhibit 5). lncome Statement ($ millions) Revenue Gross profit 0perating income Income before taxes Net income Source: Generlrl l\,[otors. 135,592 16,800 5,084 5,137 6,172 150,276 1 9,1 05 5,656 5,985 9,1 90 152,256 10,81 3 -30,363 -30,257 6,1 BB 155,427 18,054 5,131 1,458 5.346 155,929 13,BOB 1,530 4,246 3,949 eASE 3?:: GENERAL MOTORS l?3S Balance Sheet ($ millions) Total current assets Total assets Total current liabilities Total liabilities Total stockholders' equity Sor..., C"n.r"l lfonr Moving through Bankruptcy General Motors had fallen fr-om its dominant position in which it held almost 50 percent of the U.S. market fbr automobiles. A succession of CEOs over the year-s failed to halt its decline in spite of their resolve to rrn.n things around. When Richald Wagoner took over in 2000, he carried out three major restructurings. eliminating doz- ens of plants. tens of thousancls ot jobs. and hunclreds of dealers. In spite of these efTorts, GM announced a loss of $30.9 billion for 2008, amounting ro a stag-[ering S50 a share. The flrm l.rad not managed to post a profit since 200,1, runnin-s up cumulative losses of over $82 billion between 2005 and 2009. Wagoner eventually began to run short of lunds and tulned to the U.S. government fbr loans in oldel tct survive, but tl-re Obanta adntinistt.ation demanded his resignation tbr its support. Wagonel rvas replaced on :in interim basis by Frederick A. Henderson, who had been president and chiefoperating officer of the film since 2008. Under Henderson. rhe firm was asked to negotiate with bondholders and the union fbr fulther concessions to reduce its bloated cost structure. Unable to reach any agreement. the finn announced in late July 2009 that it had to seek chapter I I bankruptcy protection. Under the terms of the bankruptcy agreement, GM was able to wipe out a big chunk of its debt. reduc- ing it from over $46 billion befbre the filing to abonr ti17 billion afterward. saving about $1 billion a year. in interest payments. The U.S. government agreed to inr,est another $30 billion in the firm. in addition to rhe Si20 bi1- lion it had already contributed, in exchange for 6l percent of the stock in the new GM Shortly al1er the bankr.uptcy tiling, changes were made to the board of dilectors and there was a shake-up of the ranks of GM's senior managentent. The new board was determined to address problems that had been laicl bare by the task force assigned by the -rovernment to in',,esti- gate GM in early 2009. The task force had been ptrticu- lally astonished by the firm's emphasis on past -glories and its commitment to the status quo, which the team fbund to be quite widespread among the tirm's ntanagement [;4* l&$X 3?:: GENEIIAL MOTORS 69,996 149,422 tr? oo, 1 13,11B 36,244 166,344 62,412 123,131 42,601 83,670 177,67i 65,70l 142,22C atr tE ,- ranks. "Those values were driven fiom the top on dou,n. said Rob Kleinbaum. a former GM executive and con- sultant. 'And anybody inside who protested that attitude rvas buried."l Over the following year, GM was led by two differeni board membels. Edward E. Whitacre, Jr., ran the firm fb: about a year befbre bein-t replaced by Dan Akerson. Aker- son had been appointed by the U.S. -{overnment as a boar. member during GM's bankruptcy. A no-nonsense forrner navy otficer. Akelson began to address the various prob- lerns that continued to plague the flrm. There was a stron,i consensus among the execLltives that the company \'il\ beginning to change its approach to its business. Shottly aller he took over. Akerson wrote in an internal memo. "Our results show that we are ch_anging the company so \.e never go down that path again.") In Janualy 2014, GM rvas finally able to move pasr: the bankruptcy as govel'nment-appointed Akerson 1,,-as replaced by Barra, who had worked her way up within the film and became the first woman to ever run a bi-9 auto- rnobile company. She had been a rank-and-file engineer. a plant manager, the head of corporate human resources. and. r-nost recently, the senior executive overseeing all oi GM's global product development. Barra's appointrnent came on the heels ofthe sale ofthe last shares that the Il.S. government had held of the firm. finally ending its bank- l'uptcy obligations. "This is truly the next chapter in G.M.',< recovery and tuniaround history," Bana told employees upon her appointment. 'And I am proud to be a part of it.''6 Focusing 0n Fewer Brands One of the issues tliat GM had wrestled with for years was the number of brands of vehicles that it offbred. For years. the flrm had built its position of dominance by ofi'ering cars that were designed for different customers by sepa- rate divisions. Each of these divisions came to represent a distinct nameplate or brand. lts extensive brand lineup had long been GM's plimary weapon in beating back both domestic and tbreign rivals. But as the firm's market share began to decline. it becar.ne difflcult to clesign and marker 53,053 '138,898 47,157 102,718 36,1 B0 60,241 144,603 48,932 106,483 Market Shares North America United States 0ther Total North America Europe Germany United Kingdom R ussi a 0ther Total Europe Asia/Paclfic, Middle East and Africa China Other Total Asia/Pacific, Middle East and Africa South America B razi I 0ther Total South America Total Worldwide United States Cars Tru cks Crossovers Total U.S. Sonrce: Genctal Nlotors. 16,858 3,379 20,231 ) )81 2,845 2,541 9,988 18,731 23,861 1 9,1 19 42,980 2,935 478 3,413 231 305 189 525 1,256 3,540 o20 4,378 11 .40 14.10 16.90 7.10 10.70 7.40 5.30 6.70 15,894 3,201 19,095 3,258 2,597 2,834 9,715 18,404 22,202 19,111 41 ,319 3,167 2,173 5,940 84,758 7,556 4,247 4,091 15,894 2,186 448 3,234 17.50 14.00 16.90 7.40 1 1.60 9.10 6.10 7.60 14.20 4.70 9.80 242 301 atrQ 592 1,393 '14.80 4.40 10.20 3,1 60 898 4,058 3,498 1,803 5,301 87,249 7,688 4,153 4,417 16,858 579 299 B7B o o)E 1,085 '1 ,113 737 2,935 16.60 16.60 16.60 11.40 14.10 23.40 16.70 17.40 650 387 1,037 9,722 1,067 998 721 2,186 17.30 '17.80 17.50 1 1.50 14.10 23.50 17.60 '1 7.50 cars under several brands. To cut costs. GM began to shale designs and parts across divisions, leading to some loss of disti ncti veness between the diff'elent brar.rds. Analysts had been questioning for many years GM's decision to stick with as many as eight U.S. brands. with the recent addition of Hummer. The decision to carry so many brands placed considerable strain on GM's efforts to revamp its product line on a t'egular basis' However, the firm finally agreed to cut ottt lbur of its brands- Pontiac. Saturn. Saab. and Hummer'-when it was fbrced to turn to the U.S. government fbr funding to stay afloat. A. Andrew Shaplro. an analyst, believed that GM should have started to think seliously about cutting back on its car divisions during the 1980s' "There ate always short-term-reasons for not doing something'" explained Shapiro.' iii: iJ GENERAL MOTORS ' ' ' ' Vehicle Sales (in thousands of units) United States Chevrolet GMC Bu ick Cadillac Canada/Mexico/Centra I America Europe 0pel/Vauxhall Chevrolet 0ther Rest of world Chevrolet B uick Wuling Holden GI\4C Cadillac 0ther South America Worldwide Source: General Motors. 1,941 451 206 2,033 502 229 171 478 183 448 1,041 350 2 1,313 810 1,484 124 34 55 229 1,037 9,714 1,076 178 2 1,344 920 1,609 120 29 79 278 818 9.925 North America E u rope Asia & Australia South America Source: General N'lotors. Since cutting down on its brands, GM was working on revamping its remaining lineup of cars. The firm suc- cessfully reinvented Chevrolet as a global mass-market brand, with 60 percent of its sales now coming from out- side the U.S. Recent sales were driven by the new Cruze C?4? {ASr 32:: GENERAL MOTORS and the plug-in hybrid Volt. But one of the firm's most significant accomplishments was the introduction of smal1, fuel-efficient cars like the Chevrolet Sonic and Spark. The success of these new cars demonstrated that GM could compete in the small-car segment. A GM executive explained the motivation behind designing and producing the firm's smallest and most fuel-efficient conventionally powered vehicles: "We wanted to prove we could do it."t General Motors was also focusing on strengthenine its roster of higher-profit, luxury models for its Buick and Cadillac divisions. Buick. the oldest active automobile brand in the U.S., was catering to a shrinking population of people over 65. Over the last couple of years, the firm worked on updating the brand by sticking to its image of "refined luxury" but moving the brand away from being regarded as a living room on wheels. GM discontinued the full-size Lucerne in 2011 and drastically redesigned the smaller LaCrosse. Since then. seven new models were 6,603 (1,36e) 1,222 (1 80) lncome by Operating Regions, EBIT ($ millions) added, including the Encore and several aimed at younger. performance-oriented customers. The Encore, a compact crossover sport utility vehicle, was the top-rated small SUV in the J.D. Power initial cluality survey for two con- secutive years. Fina11y, in September 201,1, GM announced rhixr ir was separating its Cadiltac luxury brand from its other brands and relocating Cadillac's headquarters to the tr.endy SoHo area of New York City. Johan de Nysschen. whoni the firm had hired away flom Audi to manage the brand. had pushed for the change, as he believed that the marketing and saies departments would be more in touch with their target cus- tomers in super-fashionable SoHo than in Detroit. CM was also moving forward with the development of a new fiag- ship model tbr Cadillac that was meant to cornpete with the Mercedes-Benz S-Class. "The objective for this upcoming model is to lift the Cadillac lange by entering the elite class of top-level luxury cars," said de Nysschen.e Revamping Product Development For several years. GM had been trying to get all of the functional areas to work together more closely throughout theproduct development process. In the past. even ifa bold design made it off the drawing board, it had little chance of surviving as it was handed over to marketing, then passed to engineering, and finally sent to manufacturing. Since then, there had been a concentlated effort to wean the GM culture away from a focus on engineering processes. The firm pushed designels to get more involved with the devel- opment process and pushed engineers to find ways to stick with the original car design. Another problem that had plagued GM's product devel- opment process rvas the lack of standardization ol "plat- fbrms" on which the firm built its cars. A platform was the basic underpinnings of a vehicte, and building multiple vehicles on a single platfbrm reduced development and production costs. In lndia. for example, GM was producing seven car nrodels using as many as six different underlying platforms. r'esuiting in considelable inefflciencies. Execu- tives admitted that the firm was lagging behind its rivals, and GM only recently began trying to cut the number. of platforms down to lzl by 2018, compared ro 30 in 2010. It was also planning to cut down to the use of 12 engine fami- lies and eventually just I 0, compared to 20 a few yeal"s ago. Afier the bankruptcy, GM had also been tryin-q to push harder to make cars that would appeal to customers in order to reduce their reliance on sales incentives. One of the ini- tiatives taken by the firm was to assign engineers to work in car dealelships to learn more about what customers wanted and needed in their cals and trucks. At the same time" it encouraged everyone involved with the design of new vehi- cles to raise concerns during the development process and to take steps to hold back a new model in order to make nny changes that could improve its chances of success. Finally. GM was also attempting to roll out new models laster by making changes to its cumbersome decision-making process. Under the old system. any prod- uct decisions would be reviewed by as ntany as 70 execu- tives, with a declsion often taking months to wind its way through a series of committees. To repiace this, the firm reduced the nurnber of executives overseeing a vehicle program and instituted a new system in which all prodr_rct decisions were made in a single weekiy meeting that was run by the top management team. The new approach has 1ed to nruch f-aster decisions. Responding to Safety Concerns Days after Barra took over as CEO. GM executives decided that a recall of the 619.000 Chevrolet Cobalts and Pontiac G5s was necessary. Questions were raised about the delay of several years in recalling these vehicles in spite of knowledge of a faulty ignition switch that would cause these cars to shut off and would disable their- air- bags. In 2004. engineers had suggested a fix, but execu- tives decided against it because ofpotential delays and cost overruns in production. General Motors finally decided to act after the reports of accidents that had led to deaths and injuries could no longer be ignoled. This was parricularly embarrassing for the firm as GM had developed the Cobalt to show that it was no longer cutting corners and was capa- ble of making competitive small cars. In testimonies before a subcommittee of the House Committee on Energy and Commerce. Barra acknowl- edged that the sat'ety problems had resulted from deep underlying problems with the GM culture. A reporr was released in June by Anton R. Valukas. a former U.S. attor- ney whom the firm had hired to conduct a three-month investication of the decision to ignore the probiems with the ignition switch. Its findings indicated that all issues that arose at GM were typically passed through a number of committees without being resolved. Furthernrore, ncr minutes were taken of any of the rreetings to indicate who was responsible or accountable fbr any decisions that were made. Valukas concluded that shilting responsibility for prob- Iems to others was deep in the tirm's DNA. He referred to a GM salute that intolved clossing one's arms and point- ing outward toward others, indicating that the responsibility belonged to someone e1se. In particular. Valukas found that employees at GM were given formal training about how to avoid accountability in documenting any sat'ety issr-res. They were told to avoid using words such as problem or defect and to replace them with softer words such as sal!ry,' or condition. "The story of the Cobalt is one of a series of individual and organizational failures that led to devustating consequences," Vaiukas statecl to a committee hearing.l0 Under Barra. GM executives moved quickly to respond to the safety problems. The firm dismissed 15 employees, including a vice president lbl regulatory affairs and several corporate lawyers, and disciplined others. It appointed a new global head of vehicle saf-ety and named a new vice president in charge of global product integrity. It mor-e {45[ 3]:: GENERAL MOTORS {2{3 than doubled, to 55 membels, a team of safety investi-ea- tors who would work within engineering. Finally, it hired a compensation expert to examine claims and make cash settlements for individuals who either died or were injured as a result of accidents caused by the defective ignition switch. "We ale a good company." Barra insisted. "But we can and must be much better."ll Firing 0n All Cylinders? Barra was optimistic about the prospects for GM over the next year or two because of expected growth in the demand fbr cars and tlucks in the U.S. as a result of stlongel eco- nomic conditions and lower fuel prices. She expected to see the return of younger consumers to the market because of an implovement in the job market. A stronger malket fol vehicles would give Barra the chance to shifi atten- tion back to the firm's products and away from the vehicle recalls that engulfed hel tirst year as CEO. In spite of the recalls, GM sold nearly 3 million vehi- cles in 201.1, up 5 percent liom the pleviotts year. A1l of its brands, witl.r the exception of Cadillac. had strong sales. Even GMC, which sold larger vehicles, had a 48 percent increase in sales fbr its Yukon, a full-size SUV. Barra acknowledged that the lilm had more wolk to do to improve sales of Cadi11ac, which dropped 5 percent over the past year and was losing ground to other luxury brands. "We have a defined plan lor Cadillac and we are going to stick to it." Barra said. "We lealize that we have work ahead with the brand" bllt we will stay disciplined. There was a time when Caclillac stoocl for luxury."l2 Genelal Nlotors was also expecting to grow in otet- seas markets. It was counting on new models of Chevro- let Cruze and Buick Enclave to increase sales in China' which lemained its lar'-gest market outside the U.S. In spite of some growtl.r in sales, GM was losing ground to other forei-en rivals such as Forcl's Focus and Volkswagen's Jetta. In 2013. China was designated as one of GM's five global regions and was separated from the rest of its international operations, which had recently been relo- cated to Singapore. This Singapole-based office sa. expected to pursue growth in othel international market:. such as India. On the basis of its recent accomplishments, Barra feli that GM had opportunities to glow if it could contirlu- to make good vehicles. She wanted to see her lirm makc some stronger gains in sales, particularly in its largest mar-- kets. Its share of the market in the U.S. had remained sta"- nant at around 18 percent over the last three years. Bart. understood that the finn would have to work hard to con- tinue to climb. ''I told the team that there is no destinatiorr here. that this is a continuous improventent joulney," B:lt'" said in an interview soon after she had taken over GM.l-' ENDNOTES L Bill Vlasic. G.N{. chief vows Lo ntove beyond last year's rccalls. lnterndionti Nr Yu'k Titrcs, January i0-l l, 201-5, p. 11. L Bill Vlasic & Christopher.lcnsen. Something went "\'ery \'rr)l1g rt G.M.. chief says. Nav. York Tirra.i, Malch l'1. 201'1. p. Bl. 3. Vlasic. op. cit. .1. Bill Vlasic. Cultule shock: C.M. struggles to shed a lcgendary buleaucracy. M'u, Ior* Tlrrtr.i, Novembcr 13, 2009. p. B'+. 5. N,lichael J. De La Mercecl & Bill Vlasic. U.S. to shed its stake irr Gcnelirl Motors. Netv York llrrer, December 21. 2012' p. B3. 6. Bill Vlasic. Company u'oman becotnes neu'G.M. chief ltltenturi,,t,' A'cr' l'orl lhre.r. December 12, 2013. p. l. 7. N{icheline N'laynard. A painful departule f'or some G.M. brands' i\zr' Ytrk T itncs, Februar.v 18. 2009. p. B;1. 8. Bill Vlasic. To make 1in1- Amet ican car. G.N4. also shrinks plant and wagcs. rvcr York Tine.s, July 13. 201 I . p. A19. 9. Aaron N4. Kessler. Cadillac makes big pian to u'oo lurutY market. Ner York lhres, Scptember-20, 201'1. p. 83. 10. Bill Vlasic & Daniellc Ivory. G.M. vclws to acldress "cultural problenrs" that led to deadly lecall delays. lnlernutional Nev York Ifurc,i. June I9.2014, P. 18. r 1. Ibid. 12. JetT Berrnett. GM chief: U.S. nlarket couJcl grou' 3ti it2015. \lall Strett Journcrl, January 9 I l, 2015. p. 18. 1 3. Bill Vlasic. Spccding up G.l\1.'s comcback. Nev'York Ilrnei, Januarr 21.2014,p. Bl. fl?44 **:f 33:: GENERAL MOT0RS