“Au Revoir and Auf Wiedersehen” from GM and Peugeot!

Let’s face it. The economy is still lousy, and many companies are trying to find ways on how to reduce their costs. For General Motors and Peugeot-Citroen, it is time to restructure their operations.

“GM removed the head of its European operations, Karl-Friedrich Stracke, after just seven months on the job and replaced him with Vice Chairman Steve Girsky amid growing frustration with the pace of the turnaround at its European business, which includes the German Opel/Vauxhall unit” (Terlep). “Peugeot plans to eliminate 8,000 jobs, or 8%, of its French workforce, and stop building vehicles at one of France’s largest car factories in 2014” (Terlep).

So what exactly are GM and Peugeot restructuring? Both companies are restructuring their operations management, specifically their capacity. In class, we learned about design capacity and effective capacity. Design capacity is the maximum theoretical output of a system, whereas effective capacity is the capacity a firm expects to achieve given current operating constraints.

“About 30 of the 98 European auto-assembly plants owned by major car makers are operating below 70% of their capacity, levels that typically cause plants to run up significant losses. European auto makers have the plant capacity to make 27 million cars a year but will only make 20 million this year” (Terlep). In operations management terms, 30 of the 98 European auto-assembly plants have a design capacity of 27 million cars, but they are operating below 70% of their design capacity. Their effective capacity this year is 20 million cars.

In order for GM and Peugeot to match capacity to demand and effectively compete in the auto industry, they will have to close some of their factories and lay off thousands of their employees. The general environment and the task environment change dramatically every day. Companies who do not build for change will experience what GM and Peugeot are experiencing today. There is a lower demand for cars, and costs are skyrocketing because factories are not operating at their full design capacity.

If you were the chief operating officer at GM or Peugeot, how would you restructure your company and “build for change”?


*If you would like to access my article, you can click on the link below:




Terlep, Sharon, and Sam Schechner. “GM, Peugeot Take Aim at Europe Woes.” The Wall Street Journal. Dow Jones & Company, 12 July

2012. Web. 12 July 2012. <http://online.wsj.com/article/SB10001424052702303740704577522053739434374.html>.


5 thoughts on ““Au Revoir and Auf Wiedersehen” from GM and Peugeot!

  1. Besides this post being very informative and a little depressing, it is really fascinating to see how the simple concepts and formulas that we learned in class are actually applied in the real world. You get the sense that with this economy the company really had hard numbers that it had to hit in order to avoid this situation.

  2. When running companies like these that are so large with so many employees affected by your decisions to change the size of the workforce, it can be difficult to cut costs. The equations that we learned in class are proven and to have real world uses, otherwise we probably wouldn’t learn about them. With the economy around the world still not as vibrant as it once was executives have a hard job in front of them. Yet, there main responsible is to make the company as profitable as they can with the resources they have been giving in the situation they are dealing with. While cutting the workforce may seem like an evil empire not caring about it’s employees they are thinking about keeping a majority of there employees with jobs instead of the company closing it’s doors completely.

  3. I think that given the situation they are in, GM is doing what needs to be done in order to keep the company moving forward. It is always a sad, difficult situation when large numbers of employees must be laid off during plant shutdowns, but quite certainly, companies are not taking these decisions lightly. If you’re not meeting your desirable capacity benchmarks, then sometimes the only option is to cut jobs. I don’t envy their position, but I do understand it.

  4. The original poster asked, “If you were the chief operating officer at GM or Peugeot, how would you restructure your company and ‘build  for change?'”

    If I were on the board of directors for GM, I would split GM onto smaller companies. They have already reached what economists call “diseconomies of scale;” meaning that each additional dollar spent expanding the company will only reduce profits. GM’s budget cuts are long over due. I would go a step further and do away with all of its beuacracy. Each division of GM (like Chevy and Buick) should be sold off to the highest bidder. 

    Sent from my iPhone in Frankfurt Germany

  5. I think it would make sense for these companies to close and combine some of their plants. From the sounds of things, it seems as though most car plants in Europe are operating well below capacity. Combining some of these plants could make operations in Europe much more efficient. The problem i guess is finding another automaker that could use the extra plant for production, since all companies seem to be having the same problem.

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