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Journal of Economic Perspectives: Vol. 28 No. 1 (Winter 2014)

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Management Practices, Relational Contracts, and the Decline of General Motors

Article Citation

Helper, Susan, and Rebecca Henderson. 2014. "Management Practices, Relational Contracts, and the Decline of General Motors." Journal of Economic Perspectives, 28(1): 49-72.

DOI: 10.1257/jep.28.1.49

Abstract

General Motors was once regarded as the best-managed and most successful firm in the world. However, between 1980 and 2009, GM's US market share fell from 46 to 20 percent, and in 2009 the firm went bankrupt. We argue that the conventional explanation for this decline—namely high legacy labor and healthcare costs—is seriously incomplete, and that GM's share collapsed for many of the same reasons that many highly successful American firms of the 1960s were forced from the market, including a failure to understand the nature of the competition they faced and an inability to respond effectively once they did. We focus particularly on the problems GM encountered in developing the relational contracts essential to modern design and manufacturing, and we discuss a number of possible causes for these difficulties. We suggest that GM's experience may have important implications for our understanding of the role of management in the modern, knowledge-based firm and for the potential revival of manufacturing in the United States.

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Authors

Helper, Susan (Case Western Reserve U and US Department of Commerce)
Henderson, Rebecca (Harvard U)

JEL Classifications

G33: Bankruptcy; Liquidation
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L14: Transactional Relationships; Contracts and Reputation; Networks
L60: Industry Studies: Manufacturing: General
L62: Automobiles; Other Transportation Equipment
M10: Business Administration: General

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