Poletown Dilemma

The Poletown Dilemma

Contents

Introduction 1

Who are the stakeholders involved in the new site selection decision? 1

What are the factors that you would consider to choose the new site? 2

What is your recommendation to General Motors regarding the site choice? Why? 4

How would you implement your recommendations? 4

Exhibit 1 Comparison of costs of setting up plants in Detroit and Mid-West 5

Exhibit 2 Linkages with the society across the value chain 5

Exhibit 3 - Categorization of Social Issues faced by GM 6

Introduction

General Motors is faced with a dilemma. In the face of economic depression, competition from foreign players was driving down profits and the market's preference was changing to efficient cars due to increase in gasoline prices. The situation is demanding dire steps like increasing capital investments to 4 times the usual amount to modify existing plants and to build a new one that adopts new technology that enables GM to change their product line drastically.

GM has to close two existing non-performing plants and build a new one. The choice is between a plant in Detroit itself in a new area and one in a Mid-Western state. Time is of the essence as GM has to make a choice such that it can stay competitive.

Who are the stakeholders involved in the new site selection decision?

The main stakeholders in this and their considerations are summarized below:

General Motors Chairperson Thomas A Murphy - onus on him to take GM out of its current crisis.

Midwest State heads - With the economy not doing well throughout the country, they would want the plant to be setup in Mid-West and provide employment opportunities to its people.

Stakeholder Goal Negotiation Power comments

Mayor Economic development,

Enhancing public-private coalitions,

upliftment of the African American community Medium GM is headquartered in Detroit, so keeping good relationship with the government is important for GM

Mayor is well connected to the President

Mayor is willing to acquiring land under eminent domain to retain GM and the jobs in Detroit

PNC Transparency in plans to relocate relocate citizens

Development of non-project areas Low Only half of the Poles staying in Poletown are in support of them.

UAW Job protection of union members. The sinking economy had already taken away 5000 jobs, they wanted to protect the remaining ones High Productivity and Quality are dependent on relations with the Union

Moving away from Detroit may cause backlash from workforce in other Detroit plants as well

Citizens Half of the citizens do not have attachment to the place and want better jobs and lower taxes

Avoid relocation and get fair compensation in case of relocation Low They can file law suits, to negotiate the price with the state based on the 'quick take law', but there is no impact to GM

Citizens also represent the company's customers, but this is a very small fraction

GM

Agility in setting up new plant and executing their new strategy

This can be achieved with efficient labor, vendor ecosystem, and ease of management of new plant High GM is setting up the new plant to be able to execute a new strategy to transform the product line to compete with foreign car makers.

Agility is their primary goal, and being close to headquarters will help in faster decision making

What are the factors that you would consider to choose the new site?

As per the site qualification criteria laid down by GM, Central Park within Detroit and a plant in a mid-western state outside of Michigan were the two options.

Various factors play a role in selection of the site. They are:

1. Economic analysis -- The table in Exhibit 1 brings out the fact that, the difference between the sites is approximately $150 m, is about 4% of GM's annual income in 1979 and 0.1% of the planned investment of 8billion per year. This indicates that it is not a very large expense for GM.

The intangible factors play a more significant role in this decision than the tangibles

2. Schedule

GM wanted the site to be available for construction by mid of 81, so that the plant is operational by September 1982

Poletown

Although demolition was involved, quick take law will help avoid delays

QWL program built cooperation with union, and union was in support will help quicker time to hire/relocate workers.

Detroit was where the GM headquarters were. Having new plant closer to headquarters would make management much simpler

Vendor ecosystem is already established Mid-Western State

Much faster with ease and support from state (given in case fact)

New relations would have to be established with labor unions

Management overheads are higher for new plant when away from headquarters

3. Political environment and support for the business would be a third