Huge Financial Loss Of General Motors Commerce Essay

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This report is to investigate the cause of huge financial loss of General Motors and the impact towards their Human Resource Management. Currently GM has retrench thousands of workers and shut down several main production plants to recover from their problem. This issue was assisted by several external environment, such as the economic, competitors and world fuel price. The use of Strategic Human Resource theory such as the Balance Score Card and High Performance Work System (HPWS) is measures GM can take to solve their issue based on their changing external environment. Balance Score Card can be used as a short and long term for their financial and non financial performance measurement. The HPWS will give a long term solution so that General Motors will be able to compete in the years to come. Recommendations on Human Resource Activities are given that are relevant to General Motors current position at the end of this report.

Background to General Motors

General Motors Corporation (GMC) is a car manufacturer establish in 1908 in Flint, Michigan. According to New York Times (2008), based on global sales, General Motors is the largest automaker in the world and an enormous 284,000 employees world wide They manufacture both car and truck under many brand names. Those cars and trucks are "Buick, Cadillac, Chevrolet, GM Daewoo, GMC, Holden, Hummer, Opel, Pontiac, Saab, Saturn and Vauxhall which are sold in 35 different countries" (GM Website, 2008). General Motors have been the leader in the automaker industry until late 2006. As they enter 2007, their financial has face turmoil. Early 2008, "the company reported a loss of $38.7 billion, or $68.45 per diluted share in 2007, compared to a reported loss of $2 billion, or $3.50 per diluted share in 2006" (Autospies, 2008) (refer appendix 1). This in result has led to shut down several manufacturing plants and caused thousands of employees to lose their job. "GM announced it was closing plants by 2010 in Janesville, Wisconsin; Moraine, Ohio; Oshawa, Ontario and Toluca, Mexico, eliminating more than 8,000 jobs" (Walsh D. 2008).

2.0 Objective

This report seeks to investigate what are the factors that caused such a huge amount of losses and the impact towards their human resource management.

3.0 External Environment

There are three factors which had made General Motors in this situation. Firstly, the United States economy is not progressing cost their U.S. sales projections for 2008 have been too rosy. "GM had been expecting more than 16 million vehicles, including trucks and buses, to be sold this year" (Taylor III 2008). Secondly, intense competition from their global competitors such as Honda, Nissan, and Hyundai which had produce better fuel efficient engines, stylish at a much lower price compared to any GM brands. Thirdly, the world's fuel price had increased to USD 120 per barrel in the market had made consumers not to purchase vehicle and using public transport or smaller vehicle. In the United States, "consumers want to abandon their less-fuel-efficient vehicles for smaller cars, and that's illustrated by all sorts of trends, said David Tompkins, executive director of industry solutions for, parent of Auto Observer" (Buss 2008) (refer appendix 2).

4.0 Strategic Human Resource Management Theory

4.1 Balance Score Card

Balance Score Card is a performance measurement indicator that can be used to measure the financial and non financial situation in General Motors. There are four parts; financial perspective, internal business perspective, customer's perspective, learning and growth perspective. Balance Score Card is like your cars dash board where there is indicator on as you drive, you can look at the dashboard to obtain real-time information such as how fuel, speed and the distance you've traveled or even any faulty system etc. "It's known to help companies and implement the changes required to meet their business goals" (Pangakar & Kirkwood, 2007). The balance score card enables the companies to develop a more comprehensive view of their operations and to better match all operating and investment activities to long- and short-term strategic objectives (Punniyamoorthy & Murali, 2008).

The loss of USD38.7 billion is a huge financial loss which in fact will affect the internal business process, the customer, and growth of GM. The huge loss was largely contributed from deferred tax charges and drop in sales. Currently, the organization financial perspective appears to the share holder is in a decline where "GM shares fell nearly 5 percent, or USD1.67, to USD34.48" (Bunkley N. 2008). Thus to manage this losses, thousands of workers are laid off from duty. This will affect their internal business process and may lead to dissatisfied customers. For example, usually General Motors takes 1 week to deliver a car to a customer. When they decided to retrench workers they will lose their competitive advantage where now it takes 2 weeks to deliver a car. This will cause dissatisfaction to consumers because they have to wait an extra week to obtain their vehicle. In the end, the learning and growth perspective cant' be achieved because the lack of resources will disable them to compete in the turbulent environment result to decline in sales.

To ensure that General Motors can effectively achieve its balance score card in the future, they must handle their external environment issue concisely. They have to improve thru their internal process and learning and growth to overcome their competition issue. General Motors have to come out with new design and technology to increase the product line. Research and Development expenditure have to be spent so that they could create better vehicle then their competitors. How to create better vehicle than the competitors? This can be accomplished by purchasing the technology from their competitors or similar industry. For example Proton had acquire Lotus in the year 1996 had made them competitive at that point of time. When this happen, employees will have to be train thus it can increase the knowledge of the workers. In certain cases, workers will be sent oversea for such training to acquire technology. Workers will be more effective and consequently increase productivity in General Motors.

Like a well oiled machine, every part in the organization performs best when all of them work towards a common goal. All of the four perspectives in the balances score card works hand in hand thru their substantial objectives, measures and initiatives. As mentioned above, to make sure that General Motors can make profit to cover the huge amount of losses they must increase productivity, more expenditure on research and development etc. In General Motor's case, financial perspective is the key strategy for the other three perspectives. For General Motors, the learning perspective can work together with the sales department to train and coach the sales staff or even developing new efficient production, training equipment. To improve on the customer scorecard they could do research by surveys from their existing customers on how to improve customer relationships. Customer retention is important factor ignite buyers to increase sales. It ensures repeat purchase, increase positive word of mouth and reduce cost to find new customers.

Balance Score Card will "ensure human capital development, improving employee satisfaction and increasing employee motivation" (Kaplan & Norton, 1992) in General Motors.

Link of each perspective in the Balance Score Card (BCS)

4.2 High Performance Work System

High performance work system (HPWS) is also another method to explain the situation in General Motors. Autonomous work teams, open systems and performance-based pay are known collectively as high-performance work systems (Rouse, 2000). HPWS have also "come to be known as high involvement work systems, flexible work systems and high commitment work systems" (Aghazadeh & Seyedian, 2004) In other words, they are simply work practice that can be deliberately introduced in order to improved organizational performance The main focus of HPWS is organizing work so that the employees participate in decisions that affect the everyday operations of an organization. There are three potential factors that can affect high performance work system in General Motors; retrenchment of workers, technology used and layout design.

A worker is the key success to any organization. Retrenchment will cause General Motors to lose talented workers subsequently lose competitive edge. To survive in the changing environment, a company must rely on their workers creativity, ingenuity problem solving ability and strong team work. Workers are able to make their own decision on the best way to accomplish their work. The knowledge and skill shared will create a high performance work system. For example, an engineer in General Motors is developing a fuel efficient engine. Engineer A may need assistants from Engineer B, however when GM decided to retrench workers, Engineer A will face difficulty in developing the engine. Performance of employee can be boost thru team works. A study by Thompson, Baughan and Motwani indicates that company such as General Electricity, Proctor & Gamble, Xerox Corporation had huge increase productivity as high as 250 percent and double their profit (1998).

The use of technology is another feature in High Performance Work System. All managers in every department of General Motors must be able to identify the technology they use in their organization. The application of Human Resource Information System that can store information on workers that can assist managers in deciding which employee is performing and which is not. The use of technology without human operating it is also meaningless. Managers in General Motor must identify whether the qualified workers are able to operate the tools or not.

Layout of General Motors production plants and office be required to properly design in order for them to increase workers performance and productivity. This involves careful job designing by HR managers. According to Aghazadeh and Seyedian, layout plays a role to ensure success by using space, people and equipment effectively, increasing the flow of information and materials, boost employee's morale and utterly encourage flexibility (2004). Managers in General Motors may have to come out with proposals to change the existing layout to a improved, sustainable working layout.

If all of the three factors are taken into account, General Motors can recover from their huge financial losses just and can avoid retrenchment of employees. Although to implement HPWS is costly, uncertain success and time consuming but in the long run this can benefit General Motors.

5.0 Recommendation for Human Resource Activities

Training and development programs should be given to employees to ensure increase in productivity. Offshore training in Japan car manufacturers to learn various methods to make better cars.

Mangers are required to make research and human resource planning on the best methods to do a particular task.

General Motors would have to find a partner to form a strategic alliance to recover from the huge financial loss. From this alliance, both companies are potential to learn from each other on the technology and trade secrets.

Develop a module which to help retrench workers to find a new job. This will avoid them from paying more money for their compensation of retrenchments

Outsource to countries like China or India. Cheap labors will benefit companies to recover them from financial loss.

Create a reward programme where employees are rewarded by their managers based on their ability to work in a group

Create a talk to all employees at least once in 3 months to explain the company's vision, strategy and objective. This will make employees feel a sense of belonging and may be able to work extra for the company.

6.0 Conclusion

In conclusion in order for General Motor to stay in business, managers must change the direction by adapting to the current issue and environment. By using both Balance Score Card and High Performance Work System they may succeed from keep losing their market share. Retrenchment and shutting down plants will just make situations even worst despite it is necessity to create space and time to recover. Until General Motors can make cars that appeal to buyers they will continue to loose money and their market. Human Resource managers must act quickly and effectively to overcome this issue in General Motors.



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Buss D. (2008, June 17). Desperate To Downsize: American Consumers Dash to Cheaper Fuel Sippers. Retrieved September 4th 2008 from


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Appendix 1