General Motors

General Motors was the largest industrial corporation in the US in 1980. It was part
of the Big Three (Ford, GM, and Chrysler Corporation). It had around 850,000
employees worldwide. It had worldwide sales of around $66.3 Billion. It operated in
6 divisions Chevrolet, Pontiac, Cadillac, Buick, Oldsmobile, and GMC (trucks):
Argonaut Realty was a separate division of the company responsible for acquiring
property. It introduced a strategy of market differentiation i.e. it started making
automobiles ranging from economy to luxury models, so as to cater the common mass
as well as the elites.

Current Scenario

Govt Regulation: Minimum Safety standards were enacted in the starting of 1966,
including fuel safety regulations. Later in 1968, regulations were also imposed on the
automobile exhaust emissions. In 1983, another set of regulations was enacted to
check the pollution emitted by the production plant.

Foreign Competition: It jumped from almost zero percent to 20% in a span of 2

decades and was approaching 30% in one more decade. Competitors introduced
smaller fuel efficient automobiles following the oil embargo in 1979. Competitors
gained a reputation for superior quality and low cost by implementing methods like
JIT inventory management process, yielding capital savings.

Effects :

Cost of final product increased as compliance requirement increased.

Large drop in number of cars sold by domestic Automakers.
Dismal profit performance: return on Equity of -10% with projected loss of $750Mn
for 1980.
Forced to concentrate on large scale innovation of $40Bn 5-yr capital spending.(2/3rd
accounting for reconditioning and replacement of old plants, and 1/3rd for new tools
and equips)

Decision Problem :

Which site to select for establishing new manufacturing plant to produce

upcoming 1983 model considered important for company future?

Available Options:

A site in Central Industrial Park within the city found in collaboration with Detroit.

A location out of the state in the mid-west region found by company task force
meeting all requirements.
Q) What are the factors and needs of a new site selection?

Expected construction and equipment cost of $500Mn

500 acres of rectangular land to cover one story assembly line, marshalling yard for
trains, employee parking lots, a power plan, treatment and storage areas for storm
water, storage of completed cars, and landscaping for the facility.

Access to both long haul railroad and freeways to provide link with suppliers and
routes to ship finished cars.

Proximity to suppliers is important for JIT implementation, with suppliers even

closer than 100 miles.

Preferably around Detroit to employ existing labour force from Cadillac and Fisher
Body plants

Employment of 6150 workers in 2 shifts

50 miles within any closed plant based on the agreement with UAW.

Equip new plant with the latest technology, including robots.

New plant ready for production by September 1982.

Q) What is your recommendation to GM regarding the site selection and why? How can
the recommendations be implemented?

A) Some of the main factors taken into consideration while selecting the site for new plant
are the time taken to set up the plant in that area, the cost associated with it, the public image
and the adherence to the government regulations, and its fitting with the GM corporate
culture. Assigning 35%, 30%, 25%, 15% respectively to them, the sites were analysed
according to the criteria.

Time to set up was given the highest weightage as the company needed to introduce
entirely new models to compete with foreign entrants who are expanding their market
share at the cost of GM. The market share of GM is shrinking and so is their
credibility by some events corresponding to the social activists.
o Starting a new planting in CIP site, required relocation of people, people are
unwilling to move without proper participation or compensation off the
project. Such a need was not seen while setting up plant outside Detroit and
hence it was preferable
Set up cost was also crucial as they had a limited budget of $3.5Bn and the company
had suffered losses in the recent past with grim future.
o Cost of a new plant was high(200$) in CIP with marginally less training cost.
Setting up outside Detroit was considerably cheaper even though it had higher
training costs. Hence plant outside Detroit was preferable.
 Lawsuit on the GM vehicle safety and the imposition of govt regulation had a huge
impact on its decision for a new site. Job loss in a already poor community may make
Detroit mayor hostile towards GM.
o Setting up in CIP ensured employment opportunities for the people and hence
went well with the government. Also the Govt provided offers as inside CIP it
would acquire more taxes from GM. Plant outside Detroit meant job loss for
the commoners, and may cause repercussions from being in bad books of the
Mayor. Hence plant in CIP is preferable.
Company believed in free enterprise and return on shareholder investment necessary
for success. It wanted to be in the goodboks of the government and the common
people and wanted to increase revenue and be a leader as well.
o While CIP was a measure to be in the goodbooks of the Govt and the
commoners, a plant outside Detroit was good for free enterprise and may lead
to an increase in share holders value. Hence a plant outside CIP was
preferable.

It would be recommended to GM to start up a new plant outside the state at the

earliest.

A safety measure not to lose the goodwill of the mayor is by assuring

him that it is the need of the hour and Detroit may get a new plant in
future, by the time CIP area is rehabilitated. A proper system should be
incorporated to ensure that the labours of the old plants are properly
compensated for their losses and should be ensured that in case of a
new plant being set up in Detroit, they or their family members will be
given the first preference in employment.
The new people who shall be employed in the new plant should be
properly trained to get accustomed to the new technology that shall be
used in the new plant.

These two major steps must be followed to ensure the smooth installation of a new plant
outside Detroit.