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The United States consumes 20.8 million barrels of oil everyday which leads the world; China is a distance second with 7.5 million barrels per day (Oil consumption, retrieved 8 Apr 2011). The number one transportation fuel used in the United States is gasoline and that fuel is used to keep our approximately 250 million vehicles running. Today there are about 250 million vehicles on the roads that use gasoline with the average miles driven at about 12 thousand per year (Gasoline explained, retrieved 8 Apr 2011). It doesn’t take a rocket scientist to understand how dependent Americans are on their vehicles and that we will only change our habits if given an affordable choice. The auto maker that provides the cheapest and most reliable options to go green is the one who will reap the benefits of profit.
Even though many loyal consumers may continue to purchasing GM vehicles regardless of fuel prices, GM must change its current business model by going green to stay competitive because fuel prices are on the rise and competitors are passing them up by providing more fuel efficient options.
There are many challenges facing today’s automakers. A dilemma has developed in the auto industry as it pertains to profit and or moral responsibility. Auto production is not as profitable as before because of a flood of choices in vehicles. The auto industry makes money by mass producing a style of vehicle the consumer is asking for. On top of all that the government continues to introduce strict environmental regulation that auto makers must conform to. A perfect storm has developed between the auto makers and environmental responsibility in an effort to meet the challenges of producing a sustainable and profitable industry for the future (Nieuwenhuis, P., Wells, P., and retrieved 8 Apr 2011)
The transition to a new business model has not come easily. In 2008 the General Motors Corporation sat on the edge of going into bankruptcy needing the United States government to bail it out with a $13.4 billion loan. President Bush expressed his concern fearing that liquidating the company would cause even more economic hardship in America (Hinton, C., 2008). In mid-2009 GM finally declared bankruptcy even after the $13.4 billion dollar loan given by the government a year before. The bankruptcy would only negatively affect a portion of the organization that would later be called the “bad GM” that included the undesirable parts of GM like older factories, unpopular brands, and healthcare and pension liabilities. The “Good GM” that included the more desirable modern factories and popular auto brands would be spared in the downsizing and reemerged in the new GM in July 2009 (McCracken, J., 2009).
Most realize that supply and demand is the backbone of any for profit organization. In the case of GM or any other supplier, production is driven by the customer or consumer. If the customer wants hybrids-electric vehicles the auto manufacturer will supply them if they don’t there will not be any regardless of any perceived moral responsibility of the auto maker. With that understanding the need to look into GM further to find the trigger events is necessary. Remember trigger events are the things that cause an organization to change (Spector, 2010, p.18). With General Motors some of the triggers came in the form of the commodities needed to produce the vehicles. With the increased costs of materials needed to produce vehicles like steel and aluminum GM’s profit margins were reduced. The expensive material needed to produce vehicles cannot easily be replaced with a cheaper material so the auto maker is stuck. One interesting perceived trigger for change by GM is oil prices. Keep in mind that oil prices may not be a trigger in the view of GM but is a trigger in the view of the government (who now holds a large part of GM’s stock) based on the U.S. oil consumption each year. So in GM’s case oil prices are a direct change trigger. The fact is that oil prices affect the day-to-day cost that the consumer pays out more than it affects the auto maker who can absorb the year-to-year cost of rising oil prices. Besides the issue with production cost GM experienced a lot external change triggers through the pressure from the government and the media. With recent attention on the environment and the high cost of fuel GM just as all the other auto manufacturers are now answering the call from customers for less polluting more fuel efficient vehicles. Because GM was known for its large gas guzzling SUV’s, luxury cars while other auto manufacturers like Toyota, Honda and Volkswagen were already making fuel efficient vehicles high gas prices became a change trigger for GM. Not only did GM need to make a business model change based on these triggers but they would need to do so in a catch-up mode because the before mentioned organizations already had began developing the technology needed for the change (GM Corporation, 2008). Even though some consumers may continue purchasing GM vehicles regardless of fuel prices, GM must change its current business model by going green just to stay competitive because public opinion, pressure from the government and rising fuel costs.
The most important reason GM must change its current business model by going green is because their competitors will pass them by and steal their customer base if they don’t. As a result of public pressure and the politics of the auto industry GM is simultaneously making progress and history. This year General Motors produced the first production version of a hybrid vehicle called the Chevy Volt. The sale will serve as a test in America to see if consumers will be willing to spend their hard earned money in the name of helping the environment. The event will also serve to test which of two marketing concepts Americans prefer, one is the before mentioned hybrid vehicle with batteries that can be plugged in at your home and recharged and two the series hybrid production car. The Volt is the first to pop through the hybrid-electric market but BMW is ready to release their version hybrid- electric concept. Later this year BMW plans to release the Fisker Karma, a luxury sports sedan (Voelcker, J., 2011).
There are many different approaches to change and just as many opinions of which change model or redesign to use. The answer to which way to go is dependent on the end goals of the organization. General Motors desperately needed to rethink and turnaround their sinking business because they were running out of money and feeling pressure from sluggish sales. As mentioned the GM organization was in need of a change based on the need to stabilize and increase its profits. Part of what GM decided to do fits firmly into the definition of a “turnaround” which is when an organization doesn’t look to change its current business practices to meet the expectations of the stakeholders or consumers but instead reevaluates it’s assets in an effort to cut the fat. When an organization implements turnaround they streamline and reprioritize the areas critical to increase profits. This was displayed in the actions of GM through their decision to close out dated factories, draw downs, reducing health insurance, and pension benefits (Spector, 2010, p.15). In many cases turnaround alone is not enough to meet the organizational goals and in the case of GM they needed to look at changing in their organizational business plan. Based on rising oil prices and political pressure from the government and the public through the media the days of gas guzzling SUV’s and luxury sedans may be in the past. General Motors now must look at reducing its vehicles dependence on gasoline and branch through organizational redesign into the hybrid-electric vehicle market.
One of the triggers that have motivated General Motors to make a change was pressure from the United States government based on their agreement to bailout GM. In a statement on auto industry restructuring by the new CEO of General Motors Frederick Henderson “the government has given GM 60-days to come up long-term viability of the company including restructuring of the financial obligations to the bond holders, unions, and other stakeholders”. Henderson went on to say “General Motors was one or two generations behind” in the development of green technologies. He added that hybrids will be one direction GM will go in the new business model and that GM must move quickly to catch up with Toyota and Honda while at the same time advancing the development of their electrically-powered vehicles like the Chevy Volt (WSJ Staff, 2009).
General Motors is currently working with over 30 utility companies in the U.S. to work through any issues dealing with the required electrical access in anticipation to its roll out of new electrical vehicles that will be ready in about two years. The partnership includes some big players in the field include Duke Energy, Southern California Edison and the Electrical Vehicle Institute. All the main players will figure out the details such as tax and tax incentives and the locations and times an electric car owner can plug in for a charge or recharging. General Motors engineers are working towards building an enduring infrastructure for green vehicles that will be used in the future. Britta Gross a GM engineer say’s”We know that when the vehicle is in the showroom and ready for sale, it’s got to work seamlessly with the infrastructure. It’s the whole picture. We got to make sure the infrastructure is ready.”
General Motors is getting in on the ground floor with its partnership with the utilities. The groups will develop policies, tax incentives on the expensive green vehicles. The idea is to design electric cars that will be low demand type usage vehicle traveling only abut 40 miles between charges. Other issues GM and their partners will need to work out is the speed in which a vehicle can recharge, voltage, and amperage (Krisher, T., 2009).
This month General Motors will be the first of the big three American auto makers to roll out a new electric car known as the Volt. GM is committed to ensuring the Volt is marketed well because they understand how much America needs this type of vehicle. The worlds first mass produced production electrical vehicle will be released in Boston Mass. The Volt is a hybrid-electric vehicle with a gas engine that is only engaged after about 35 miles which is the current one charge battery life. After the 35 miles the electric engine will be replaced by the internal combustion engine. For those Americans who travel the 35 miles or less in their daily travels to work will get indefinite gas mileage. Just in time to charge/track the infinite mileage the Environmental Protection Agency has developed a way to measure the energy used by electric vehicles. The EPA figures the amount of electricity needed to charge the Volts rechargeable battery gives the Volt a fuel rating of about 93 miles per gallon. The 93 miles per gallon is the highest rating of any vehicle in history for any US car manufacturer. As far as the looks of the Volt which is very important to the American consumer the vehicle looks just like a traditional gas powered vehicle until you open the hood. Under the hood are two electric motors, a four-cylinder gas engine and a huge T-shaped battery pack that runs the vehicle. In 2009 the U.S. government bailed out General Motors and in turn they have pinned their hopes on the Volts success. The Volt is GMs future as far as its advancement in green technology (Kronenberg, J., 2011). Now that General Motors has identified the need to change through the triggers discussed earlier and they then redesigned their business model as well as made some hard choices that fit under the “turnaround” concept that meet their current and future needs it now time to look at if the changes have been successful.
In March 2004 President Obama invested billions of dollars to assist GM and to keep the organization from falling through. The U.S. government also guided GM through a uniqueness of a divided bankruptcy that kept the good GM and cut lose the parts of GM that were losing money. It’s widely accepted that GM’s bailout has developed into a great success. Just in recent weeks General Motors has announced its highest returns since 1999 a $4.7 billion profit, the first time that’s happened since 2004. A year ago sales were 46% lower that present day sales. The expectations are that GM will continue to increase their Market share and their profit margines even in the face of rising fuel prices. In addition to the new growth/profits GM has begun paying back the billions of dollars it owes the U.S. government. The future looks bright as well with GM producing two more new vehicles but the star is the most electric Chevrolet Volt the plug-in-play hybrid car. GM has also advertised that they have more new vehicles and technologies on the way (Editorial, 2011).
With any organizational change the requirement to reflect objectively to the changes is a must. The importance of revisiting the changes is to ensure the changes made have stuck and that the old habits haven’t resurfaced. Just because an organization has developed a great strategy that should be successful doesn’t mean it will be successful. One way to look back in an effort to identify successes in a winning strategy is to answer a few well thought out questions.
The first question should be; does the strategy fit the organizations situation? In the case of GM the change in their business model was designed partly by their external situation in that the U.S. government forced them into developing a strategy that would sustain the organization long term. The strategy also satisfied the internal needs of GM because they needed to reduce the bad GM that was keeping them from turning a profit. The bad side of GM was of course the old factories, unpopular brands and also costly healthcare and benefits. The change satisfied both GM their customers and the U.S. government. The second question is; has the strategy yielded a sustainable competitive advantage? This question is answered in the fact that GM new strategy is innovative in respect to the development of hybrid-electric vehicles and in producing the first production car that is a hybrid. The third question is; Has the strategy produced good financial performance? The answer to this last question is a thundering yes. General Motors based solely on the organizational redesign and updated business model have produced a 46% market value increase compares to pre-strategy implementation (Gamble, J., Thompson, A., 2011).
General Motors was by all accounts forced to change the way they conducted business. The economy and GM’s stakeholders both applied their unique pressures that included significant a bailout by the U.S. government. If not for the pressures mentioned above who knows if GM would have ever changed their organizational practices. Supply and demand will always drive organizations to change. So you can see that even although consumers may continue to purchase General Motors vehicles regardless of fuel prices, GM must change its current business model by going green in an effort to stay competitive for two main reasons. First, fuel prices are on the rise. But more importantly, GM vehicle competitors like Honda and Toyota will pass them bye if they don’t change.
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