Decision Making at General Motors Company
General Motors Company is an auto multinational corporation with headquarters in Detroit, Michigan, United States of America. The company designs, builds, and sells crossovers, cars, automobile parts, and trucks in the United States and all over the world including South America, Asia, and Europe, among others. Therefore, the company has factories and outlets all over the globe. In addition, According to Law (2017) the company sells through joint ventures and dealers in many parts of the world. Since the great economic recession of 2008-2009, General Motors has learnt to use managerial accounting to make critical decisions on where to produce and how to distribute products in the world.
The past one decade has seen General Motors relocate production from one region to another due to the market dynamics or the political atmosphere. Additionally, in the past, the company has allocated varying amounts of financial resources to its production lines all over the world. For instance, in January, 2017, the company decided to invest additional one billion dollars in its United States based factories and relocate some parts production from Mexico to the US. The the allocation was an addition to the about three million announced in 2016 (Linder & Williander, 2017).
The decision was arrived due to the criticism to the company and other automakers made by the then president elect Donald Trump; hence, had no financial implications. The then president elect had criticized GM and other manufacturers for locating factories outside the United States of America; hence, denying the Americans a big number of job opportunities that come along with such factories. However, General Motors has come out to explain the decision to relocate from Mexico to the US and increase their investment to the factories based in the country (Law, 2017).
Activity and Time Utilized
The management of the General Motors Co has decided to relocate production of some parts from Mexico to the United States. According to Law (2017), some of the production parts that will be relocated include axle production for the next generation of trucks and pickups. Linder & Williander (2017) explain that the relocation process will also involve an additional investment of approximately one billion dollars in its factories in the United States. However, the additional investment is not inclusive of the relevant and non-relevant cost associated with the relocation process. The management’s decision was a response to criticism by the then president-elect Donald Trump, which created pressure for the company to relocate and create more jobs in the United States. Law (2017) highlights the decision as a way of improving relations with United States, which is one of the company’s lucrative markets across the globe.
According to Linder & Williander (2017), the process of evaluating relocation of a company’s production activities is cumbersome, as it requires review of the process itself, relevant, and non-relevant cost. Therefore, to come up with relevant implications, it requires carefulness and ample time to produce accurate results. It took six months to review the process of relocation of General Motors Co from Mexico to the United States.
The process utilized various resources, which included finances, personnel, and information. According to Linder & Williander (2017), for the process to run smoothly and produce accurate results, it required information on the company’s profile, market, and reason for relocation. The process also required experts in finance, marketing, and motor production among others. In terms of finances, the direct and indirect financial cost of the process was approximately $ 0.8Million.
Results and its Implications
Relevant Costs involved
The company will incur some relevant costs if it relocates production of some parts form Mexico to the United States. First of all, the company will incur the cost of relocating the production plant, which includes the cost of establishing a new plant. Further, the company has to comply with the tax and labor laws of the United States, which are different from those in Mexico. According to Law (2017), in the United States, the company is expected to pay higher license fees, taxes, and pay more to its employees because labor is more expensive in the country. Besides, the company will incur the cost of recruiting new employees to comply with the labor laws in the United States, which require a company to consider locals first if the skills are readily available. Therefore, employees who will be laid off will demand benefits from the company.
Non-relevant Costs Involved
The salary and allowances of the directors and the Chief Executive Office will remain the same whether the company relocates or not. Additionally, non-relevant cost include the cost of advertisement to reach the global market because the company sells all over the world, therefore, it contracts both international and local media, which will not be affected by relocation (Linder & Williander, 2017).
Labor cost and taxes are quite higher in the United States compared to Mexico. Therefore, the company is expected to incur more in production. Besides, the company will have to incur the cost of establishing a new plant in the United States. However, if the company relocates, it will improve its relations with the United States, which is one of its stable markets in the world. Finally, the salaries of the top management and advertisement cost will remain the same whether the company relocates or not.
Law, C. M. (2017). Restructuring the global automobile industry. Taylor & Francis.
Linder, M., & Williander, M. (2017). Circular business model innovation: inherent uncertainties. Business Strategy and the Environment, 26(2), 182-196.