parte 2 second revolution [modalità compatibilità]

Automotive industryAutomotive industry

From crisis to restructuring From crisis to restructuring From crisis to restructuring From crisis to restructuring Rewriting the rules of Rewriting the rules of automotiveautomotive industryindustry

The second revolutionThe second revolution

The rise of The rise of The rise of The rise of General MotorsGeneral Motors

By Masters Division By Masters Division -- Facoltà di Facoltà di Economia di TorinoEconomia di Torino

Trying to create an automotive monopoly Trying to create an automotive monopoly or trustor trust

�� WilliamWilliam CC.. DurantDurant organizedorganized aaseriesseries ofof secretsecret meetingmeeting inin DetroitDetroitandand NewNew YorkYork attendedattended byby HenryHenryFordFord andand otherother leadingleading producersproducers totoFordFord andand otherother leadingleading producersproducers totodiscussdiscuss aa giantgiant merger,merger, inin 19081908..

�� JPJP MorganMorgan && CoCo waswas interestedinterested ininfinancingfinancing anan automotiveautomotive industryindustrytrusttrust ““toto savesave itit fromfrom deathdeath bybycompetitioncompetition””..


General MotorsGeneral Motors

�� NegotiationNegotiation reachedreached aa finalfinal stagestage whenwhen FordForddemandeddemanded cashcash insteadinstead ofof stockstock inin thethe newnewcompanycompany..

�� HeHe wouldwould sellsell forfor 33 millionmillion $$ butbut wouldwould notnotHeHe wouldwould sellsell forfor 33 millionmillion $$ butbut wouldwould notnotmergemerge..

�� HavingHaving reachedreached aa stalemate,stalemate, thethe dealdeal dieddied ..�� AA fewfew daysdays laterlater,, onon SeptemberSeptember 88 19081908,, WW..

DurantDurant incorporatedincorporated aa holdingholding company,company,selectingselecting thethe namename GeneralGeneral MotorsMotors


GM had no choiceGM had no choice

�� FordFord heldheld nearlynearly halfhalf ofof thethe marketmarket duringduring thethe19101910ss..

�� WithWith mostmost firstfirst timetime buyerbuyer stillstill attractedattracted toto Ford’sFord’slowlow--pricedpriced ModelModel T,T, GMGM hadhad nono choicechoice butbut totolooklook forfor consumersconsumers consideringconsidering thethereplacementreplacement ofof olderolder vehiclesvehicles withwith newernewerlooklook forfor consumersconsumers consideringconsidering thethereplacementreplacement ofof olderolder vehiclesvehicles withwith newerneweroneone..

�� RichRich peoplepeople couldcould bebe countedcounted onon toto buybuy thethelatest,latest, mostmost luxurious,luxurious, mostmost powerfulpowerful cars,cars, butbutthosethose customerscustomers amountedamounted toto perhapsperhaps 2020..000000 aayear,year, andand GMGM hadhad plentyplenty ofof competitorscompetitors forfortheirtheir businessbusiness..


BUICK GENERAL MOTORS (1920)


A change was neededA change was needed

�� GMGM futurefuture waswas especiallyespecially shakyshaky inin 19211921.. GMGMsoldsold onlyonly 200200..000000 carscars andand trucks,trucks, onlyonly thethe 1212%%ofof thethe marketmarket..

�� Worse,Worse, thethe outlookoutlook waswas discouragingdiscouraging :: thethenumbernumber ofof firstfirst timetime buyerbuyer inin USUS seemedseemed toto bebenumbernumber ofof firstfirst timetime buyerbuyer inin USUS seemedseemed toto bebestabilizedstabilized atat aa bitbit overover 500500..000000 aa yearyear andandappearedappeared likelylikely toto slipslip..

�� Besides,Besides, FordFord hadhad securedsecured aa locklock onon firstfirsttimetime buyersbuyers byby pricingpricing itsits vehiclesvehicles muchmuch lowerlowerthanthan anyany otherother companycompany includedincluded GMGM..


CHEVROLET GENERAL MOTORS (1920)


The turnaroundThe turnaround

�� While other companies floundered and failed in While other companies floundered and failed in the 1920s and 1930s, GM figured out how to sell the 1920s and 1930s, GM figured out how to sell more cars, a lot more. more cars, a lot more.

�� The turnaround started when GM presidentThe turnaround started when GM president�� The turnaround started when GM presidentThe turnaround started when GM presidentPierre du Pont hired engineering consultants Pierre du Pont hired engineering consultants in 1921 in 1921 to independently evaluate the to independently evaluate the company’s eleven models, which were marketed company’s eleven models, which were marketed underunder seven nameplates.seven nameplates.

�� Their conclusion was devastating:Their conclusion was devastating: quality was quality was poor and pricing illogical.poor and pricing illogical.


Outmoded preOutmoded pre --war designswar designs�� OnlyOnly twotwo ofof thethe company’scompany’s

sevenseven nameplatesnameplates –– BuickBuick andandCadillacCadillac –– hadhad favourablefavourableconsumerconsumer recognitionrecognition forfor highhighqualityquality..qualityquality..

�� Chevrolet,Chevrolet, OaklandOakland andandOldsmobileOldsmobile werewere sellingsellingoutmodedoutmoded prepre--warwar designsdesignswithwith poorpoor reputationreputation ..


CADILLAC GENERAL MOTORS (1933)


Many misguided acquisitionsMany misguided acquisitions

�� GMGM hadhad toto manymany nameplatesnameplates becausebecause itsitsfirstfirst president,president, WW Durant,Durant, boughtbought everyeverycompanycompany hehe couldcould andand thenthen grantedgrantedeacheach ofof themthem nearlynearly totaltotal autonomyautonomy inineacheach ofof themthem nearlynearly totaltotal autonomyautonomy ininsettingsetting pricesprices..

�� TwoTwo weeksweeks afterafter incorporatingincorporating GMGM ((19081908))DurantDurant beganbegan aa buyingbuying binge,binge, believingbelievingthatthat diversificationdiversification minimizedminimized riskrisk..


Alfred P. SloanAlfred P. Sloan

�� WhenWhen DuDu PontPont tooktook controlcontrol ofof GMGM inin 19211921,,AlfredAlfred PP.. SloanSloan waswas placedplaced inin chargecharge totoimplementimplement thethe consultant’sconsultant’srecommendationsrecommendations.. SloanSloan-- scrappedscrapped twotwo brands,brands,-- repositionedrepositioned thethe pricesprices ofof thethesurvivingsurviving modelsmodels toto eliminateeliminate overlap,overlap,-- selectedselected pricesprices toto ““ placeplace GMGM atat thethetoptop ofof eacheach priceprice rangerange””..


ALFRED SLOAN (CEO GM)


……their second car.their second car.

Within a few years, Sloan strategy had Within a few years, Sloan strategy had been proved correct. been proved correct. Ford sold most Ford sold most people their first cars, but GM people their first cars, but GM –– offering offering people their first cars, but GM people their first cars, but GM –– offering offering more features at somewhat higher prices more features at somewhat higher prices --sold most people their second car.sold most people their second car.


GM understood consumer GM understood consumer preferencespreferences

�� GM became the world’s largest GM became the world’s largest manufacturer because it understood manufacturer because it understood consumer preferences consumer preferences better than any better than any other corporation, and it shaped and other corporation, and it shaped and other corporation, and it shaped and other corporation, and it shaped and manipulated these preferencesmanipulated these preferencessuccessfully for more than a halfsuccessfully for more than a half--centurycentury..


Highly emotional productHighly emotional product

�� Consumers in US and other rich countries hold Consumers in US and other rich countries hold onto stoves and washing machines as long as onto stoves and washing machines as long as they operate reliably, perhaps for decades, they operate reliably, perhaps for decades, but but dispose of perfect serviceable motor dispose of perfect serviceable motor vehicles every few yearsvehicles every few years and replace them and replace them vehicles every few yearsvehicles every few years and replace them and replace them with others that perform not much differently. with others that perform not much differently.

�� The decision to buy a new vehicle, as well as the The decision to buy a new vehicle, as well as the selection of the model to purchase, is selection of the model to purchase, is highly highly emotional. emotional.


A ladder of consumptionA ladder of consumption

GM’s marketing structure worked because GM’s marketing structure worked because both reflected and shaped the American both reflected and shaped the American class structure. class structure. It had created a ladder of consumption in It had created a ladder of consumption in It had created a ladder of consumption in It had created a ladder of consumption in whichwhich a person who owned a Buick was a person who owned a Buick was instantly identified as belonging to instantly identified as belonging to higher social class than a person who higher social class than a person who owned a Chevrolet.owned a Chevrolet.


Chevy for the masses…Chevy for the masses…

�� GM’sGM’s strategystrategy reflectedreflected brilliantlybrilliantly thetherealitiesrealities andand thethe aspirationsaspirations ofof thetheAmericanAmerican familiesfamilies andand corporatecorporateadvertisementadvertisement listedlisted productsproducts byby priceprice..advertisementadvertisement listedlisted productsproducts byby priceprice..

�� ChevroletChevrolet waswas thethe carcar forfor thethe masses,masses,CadillacCadillac forfor thethe aristocratsaristocrats andand thethe otherotherthreethree carscars forfor thethe growinggrowing middlemiddle classesclassesinin betweenbetween..


DuPontDuPont formulaformula

�� WhenWhen itit tooktook controlcontrol ofof GM,GM, DuPontDuPontinstalledinstalled itsits accountingaccounting systemsystem .. TheThefundamentalfundamental measuremeasure ofof performanceperformance ininGMGM waswas raterate ofof returnreturn onon investedinvested capitalcapitalGMGM waswas raterate ofof returnreturn onon investedinvested capitalcapital

ROE = (Profit margin)*(Asset turnover)*(Equity multipli er) = (Net profit /Sales)*(Sales/Assets )*(Assets /Equity )= (Net Profit/Equity)


Profits, not volumesProfits, not volumes

UnderUnder DuPontDuPont management,management,GMGM waswas notnot committedcommitted toto sellsell aa largelargeGMGM waswas notnot committedcommitted toto sellsell aa largelargenumbernumber ofof carscars perper yearyear


Return on investment (ROI)Return on investment (ROI)

�� For the next several decade GM used the For the next several decade GM used the rate of return on investment rate of return on investment to monitor to monitor the performancethe performance of its many divisions as of its many divisions as the performancethe performance of its many divisions as of its many divisions as well as those of competitors. well as those of competitors.

�� Each operating unit was required to Each operating unit was required to demonstrate each month that its rate of demonstrate each month that its rate of return met the companywide target of return met the companywide target of 20%.20%.


“Standard price”“Standard price”

�� GMGM establishedestablished thethe soso calledcalled “standard“standard price”price”thatthat wishedwished toto receivereceive forfor eacheach ofof itsits product,product,includingincluding 2020 percentpercent returnreturn onon investmentinvestment..

�� TheThe corporationcorporation thenthen forecastforecast thethe numbernumber ofofvehiclevehicle thatthat couldcould sellsell thethe comingcoming yearyear atat thethevehiclevehicle thatthat couldcould sellsell thethe comingcoming yearyear atat thethestandardstandard priceprice andand orderedordered onlyonly thatthat numbernumber totobebe builtbuilt..

�� TheThe approachapproach gavegave GMGM aa highhigh raterate ofof returnreturnyearyear inin andand yearyear outout regardlessregardless ofof salessales werewereupup oror downdown inin aa particularparticular yearyear..


Let them competeLet them compete

�� HadHad itit engagedengaged inin aggressiveaggressive priceprice cutting,cutting,GMGM mightmight havehave drivendriven everyevery otherother carmakercarmakeroutout ofof businessbusiness..

�� Instead,Instead, GMGM usedused itsits dominantdominant positionposition inin thethemarketmarket toto raiseraise pricesprices ..marketmarket toto raiseraise pricesprices ..

�� HavingHaving decideddecided asas earlyearly asas 19371937 thatthat itit couldcould notnotletlet itsits marketmarket shareshare exceedexceed 5050 percentpercent withoutwithoutrunningrunning inin antitrustantitrust problemsproblems,, GMGM waswas contentcontenttoto letlet thethe otherother companiescompanies shareshare thethe otherother 5050percentpercent ofof thethe marketmarket..


GM opened door to European and GM opened door to European and JapaneseJapanese

�� One reason why foreignOne reason why foreign--owned companies owned companies successfully entered the US market in the late successfully entered the US market in the late 1950s and again in the 1970s was that GM 1950s and again in the 1970s was that GM 1950s and again in the 1970s was that GM 1950s and again in the 1970s was that GM opened the door to let them in. opened the door to let them in.

�� Regarding half of the US market as it rightful Regarding half of the US market as it rightful share,share, GM was happy to see healthy firms GM was happy to see healthy firms competing for the other half.competing for the other half.


Ralph NaderRalph Nader�� GMGM arrogancearrogance reachedreached itsits peakpeak

duringduring thethe 19601960ss inin itsits handlinghandlingofof thethe RalphRalph NaderNader..

�� Nader’sNader’s book,book, UnsafeUnsafe atat anyanyspeedspeed,, publishedpublished inin 19651965,,arguedargued thatthat thethe BigBig Three,Three,especiallyespecially GM,GM, werewere moremoreespeciallyespecially GM,GM, werewere moremoreconcernedconcerned withwith makingmaking higherhigherprofitsprofits thanthan inin makingmaking theirtheirproductproduct safesafe..

�� NaderNader pulledpulled examplesexamples fromfrom allallthreethree ofof thethe majormajor carmakers,carmakers,butbut mostmost ofof hishis criticismcriticism waswasdirecteddirected atat GM’sGM’s ChevroletChevroletCorvairCorvair..


RALPH NADER


CORVAIR GENERAL MOTORS (1960)


A smear campaignA smear campaign

�� Stung by Nader’s attack,Stung by Nader’s attack, GM officials GM officials decided to fight back decided to fight back by smearing him. by smearing him.

�� Instead, they ended up making him Instead, they ended up making him a heroa heroand a potent longand a potent long--term force in the term force in the and a potent longand a potent long--term force in the term force in the consumer safety movement.consumer safety movement.


InvestigationInvestigation confirmsconfirms NaderNader’s ’s chargeschargesagainstagainst CorvairCorvair

�� TheThe recordrecord containedcontained ampleample evidenceevidence thatthat GMGMofficialsofficials knewknew aboutabout thethe Corvair’sCorvair’s tendencytendency totorollroll overover butbut chosechose toto produceproduce itit anywayanyway..-- TheThe firstfirst GMGM driverdriver toto testtest aa CorvairCorvair-- TheThe firstfirst GMGM driverdriver toto testtest aa CorvairCorvairprototypeprototype rolledrolled itit overover..-- TheThe firstfirst FordFord driverdriver toto testtest aa CorvairCorvair inin 19601960 ––companiescompanies routinelyroutinely obtainobtain earlyearly versionversion ofofcompetitors’competitors’ modelsmodels –– alsoalso rolledrolled itit overover..


parte 2 second revolution [modalità compatibilità]

Documents

aa stalemate

aa holdingholding company

thethe dealdeal

automotive monopoly

gmgm futurefuture waswas

aa fewfew daysdays laterlater

torinobuick general

powerfulpowerful cars