WAC Assignment

The New GM Assembly Plant

Submitted By: Ravi Kant 12P162

Table of Contents
1. Situation Analysis ..................................................................................................................... 3 1.1. Facts ............................................................................................................................................. 3 1.2. Limitations:................................................................................................................................... 4 1.3. Assumptions: ................................................................................................................................ 4 2. Problem Analysis ...................................................................................................................... 4 2.1. Problem Statement: ..................................................................................................................... 5 2.2. Objectives:.................................................................................................................................... 5 2.3. Alternatives: ................................................................................................................................. 5 2.4. Evaluating Criteria: ....................................................................................................................... 5 2.5. Prioritize Criteria: ......................................................................................................................... 6 3. Decision Analysis ...................................................................................................................... 6 3.1. Alternative I:................................................................................................................................. 6 3.2. Alternative II:................................................................................................................................ 6 3.3. Alternative III:............................................................................................................................... 7 3.4. Best Alternative:........................................................................................................................... 7

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1. Situation Analysis
1.1. Facts
In 1980 and General Motors (GM) was the largest industrial corporation in the United States. Due to foreign players competition and government regulations, GM was facing decreased sales. Hence it was forced to cut back production and layoff hundreds of people. In order to tackle this problem, GM planned to construct a state of the art facility for a $ 40 billion capital investment program in the same year. It had to be constructed after demolishing two existing facilities- Cadillac Assembly and Fisher Body Fleetwood Plant. It could be constructed anywhere in Sunbelt. On the other hand Detroit area had faced many years of economic difficulties. Large firms had moved out to the suburbs and other states. Unemployment was at a 18%. Closing of the 2 GM plants would lead to loss of jobs of 6000 assembly workers and thousands others in design, manufacturing and sales departments. The tax revenues for the Detroit area were low, but the tax percentage was high. The inner city was 63% minority and high in elderly, disadvantaged and poor GM was experiencing lower sales, production cutbacks, foreign competition & tighter government regulations $40 Billion Five year Capital investment program for saying competitive to be completed by 1981. Existing Detroit Facilities to be demolished and one state of the art facility to be constructed. Economic condition of Detroit city is bad & unemployment rate is very high with most of the population being elderly. 5.300 Acres of Poletown land is a residential area with people considering their homes as their most valuable asset. Court Decision in favor of GM and against the wishes of Poletown residents. Detroit City offer is among the best of all other offers in terms of Cost. General Motors planned their fight-back with a huge capital investment and a realignment of strategy. Optimization of resources became their sole point of focus. GM decided on a capital investment of $40 billion over a period of 5 years that would become operational in the same year itself. The recovery consisted of two phases
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Phase 1 comprised of the shut-down of two manufacturing facilities of General Motors in Detroit: Cadillac Assembly & Fisher Body Fleetwood Plant. o Phase 2: Construction would ensue on a state of the art facility to combine the operations of the two closed down plants. Location for this new plant was not restricted to any particular area or region. The Detroit Mayor, Coleman Young was applying pressure on General Motors to remain in the Greater Detroit Area as it had suffered many years of great economic difficulties. Numerous firms had exited the state and many of them had moved to the suburbs too if not out of the state. Unemployment was at a high of 18% and the shut-down of the two older plants would result in a loss of 6000 jobs and 1000s of other jobs in ancillary units of auto manufacturing. Due to recession in business environment, the buildings in Detroit were decaying and prohibitively high taxes, was becoming an unattractive business place. The population was also not industry-usable as the state and the city consisted of high percentage of elderly, disadvantaged and poor.

1.2. Limitations:
The new plant needed to be close to the suppliers in order to utilize the Just-InTime inventory methods. It had to be completed till mid1981 to prevent loss of market share. It required about 500 acres of land to be constructed fully.

1.3. Assumptions:
GM estimated the cost of constructing the facility at $500 million assuming no delays in all the processes ranging from land acquisition to construction & inauguration of the plant.

2. Problem Analysis
Due to already persisting problem of unemployment and low tax revenues in Detroit, its Mayor wanted GM to remain in the Detroit area and build its plant there. He is also ready to give huge tax benefits to GM in return amounting to $13.35 million in 12 years. GM study feasible site location in Detroit area and found a combination of 2 sites (300 acres in Poletown and 165 acres in Hamtramck). The latter property could be acquired without any problem. However, Poletown was home to 3438 Polish resident base. The resident base consisted of elderly and retired Polish descendants who considered their homes to

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be their most valuable asset .Hence due to their emotional attachment with their ancestral homes, land acquisition became an issue.

2.1. Problem Statement:

GM has to decide the location for the new plant keeping in mind the limiting criterion mentioned above: Detroits economic problems Tax benefits given by Detroit as compared to other states and sentiments of Poletown residents.

GM has to decide whether to go for Detroits offer and establish plant in Detroit at its only feasible site which would end up displacing Poletowns resident base or whether it should respect the sentiments of the Polish descendants and find another suitable place, within or outside Detroit.

2.2. Objectives:
The objective is for GM to find the most appropriate site location which not only minimizes its costs to the maximum possible extent but it is also a socially responsible move. It also has to keep in mind if some human sentiments would be hurt, if yes, how can that be minimized.

2.3. Alternatives:
1. 2. 3. 4. Building New plant in Sunbelt Building New Plant in Detroit other than Poletown Building New Plant in Detroit in Poletown Continue with existing plants

2.4. Evaluating Criteria:

Minimize cost to the company in order to maximize profitability To maximize the social welfare of the people of Detroit Compensate the displaced residents, if any, to maximum extent possible to minimize the hurt feelings

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2.5. Prioritize Criteria:

Both the mentioned criteria hold importance. But if there was a question of choosing one, the second criteria, i.e. of satisfaction will be chosen.

3. Decision Analysis
3.1. Alternative I:
The first alternative is to setup the plant in Poletown area. The Poletown Neighbourhood Council had filed a lawsuit against the city of Detroit ascertaining that the eminent domain legislation was designed for public usage. They argued that the new plant was meant for private use and not public. Further the use of the law in such a way violated the Michigan State Constitution and destroyed both cultural and social environment of the community. But jury voted against Poletown Neighbourhood Council. If GM plans to setup the plant in Poletown area, this would mean unwilling displacement of people in Poletown. Although this would still bring in the tax rebate and would prevent the loss of jobs of factory workers, but it would lead to mass discontent among the town people as 3438 people would be relocated. This would also lead to social clash between Poletown resident and factory workers who would retain their jobs. This would also reduce the goodwill of GM and the respect it commanded in the market. On top of that, GM would have to incur costs of $ 207 million for the relocation of the Poletown people. However that would be compensated by Tax benefits provided by Detroit to some extent.

3.2. Alternative II:

The second option for GM is to find another possible site in the Detroit area in association with Detroit city council. Some redundant establishment can be demolished to find a feasible site location. Also GM should explore the options to make do with an alternative site by compromising on some conditions. It can also be slightly far from Detroit if required. This would be the best possible choice as it would retain the jobs of the people, would not incur costs of relocation of Poletown residents and most importantly would not hurt the sentiment of any stakeholders.

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3.3. Alternative III:

The third alternative is for GM to move the location of the new factory to a different site outside Detroit city. A site in the Sunbelt would probably provide the same tax rebates, but this alternative would lead to job loss of thousands of workers in existing two factories. GM can explore some other alternative to benefit the residents of Detroit people and economy.

3.4. Best Alternative:

As explained above, the best alternative would be to find an alternative site by making some compromises.

4. Plan of Action
4.1. Implementation:
Explore the options where GM can compromise upon and find out financial implications of each option
Residents who will fully agree to relocate should be given incentives such as job offer to the able members of family

Associate with Detroit city council to locate the possible undisputed sites within the Detroit area New site location can be located slightly far from main city or demolishing some redundant establishments in geography Timing of the completion of new factory and closing down of old facilities should be synchronized to ensure that the workers dont have to go through a phase of unemployment before the new factory starts Explore the cost saving techniques by training the workers for new facility, so that production can begin smoothly as soon as the facility starts Workers can be given residence facility/Transportation facility if its too far from city And basis this gesture, GM should talk to the city administration to still hold the tax incentive they were ready to offer if the plant were within the city.

4.2. Contingency Plan:

In case GM is not able to find any suitable site for the factory within Detroit area, the problem of Detroit and site infeasibility can be explained to Poletown residents.
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They should be explained that displacing them is the drastic measure being taken after exhausting all the possible alternatives. Some other benefits can be given to them by GM and Detroit city council like declaring them state heroes who sacrificed their homes for greater good. These emotional benefits would placate them to some extent.

5. Expected Result
Thus, basis the steps taken above, all the stakeholders will be satisfied. Poletown residents will not lose their houses. Even if they do, they do it with dignity. The workers of the factory will not lose their jobs. GM also would benefit as it would be able to establish a new facility with maximum possible benefits from Detroit in the form of Tax abatement.

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