Case
Supplementary Resources
Abstract
During the 1950s, a small band of meteorologists, physicists and chemists began conducting observations and building models linking an increase in CO2 and other gases in the atmosphere to the general warming of the earth's climate, a phenomenon dubbed “the greenhouse effect.” Since CO2 was a byproduct of the burning of fossil fuels, these models implied that human activity was a contributor to this increase in global temperature. During the 1980s, the models drew more scientific adherents as additional observations lent further support to the theory. In 1988, the greenhouse effect hit the front pages, as NASA scientist James Hansen told a Congressional committee that he was “99 percent certain” that global warming due to the greenhouse effect was underway and could have potentially devastating consequences for the ecology of the planet.
Since automobiles were a substantial contributor of CO2 to the atmosphere, scientists at General Motors, the world's largest automaker, had started looking at the greenhouse effect in the mid-1908s. The wide-ranging discussions within GM had led to an ambitious program to improve the efficiency of internal combustion engines (ICE) and to seek an alternative powertrain that did not use fossil fuels. For GM, the search for a new powertrain required a substantial change in mindset, since the ICE had been a mainstay of the automotive industry for over 80 years. Nonetheless over the next decade, GM spent billions of dollars experimenting and building prototypes with an array of technologies; including diesel, battery, hybrid gas and electric systems, and hydrogen fuel cells. While GM researchers had made progress by 1998, the technical hurdles were steep; and GM believed it was nowhere near placing an automobile with a new type of powertrain in the market.
Besides the technical hurdles it was facing, GM's efforts to introduce more fuel efficient vehicles had run into resistance from consumers, oil companies and the government. While consumers generally indicated that they liked the idea of an environmentally friendly automobile, they did not want to give up the performance they had come to expect from ICE-powered vehicles. Indeed, the trend in the US during the 1990s had been to ever larger and less fuel efficient sport utility vehicles and light trucks. Oil companies had proven resistant to the reformulation of gasoline and had not invested in alternatives to fossil fuels. Government officials refused to increase taxes on gasoline (which would make efficient cars more attractive) or allow more efficient diesel engines on the U.S. market.
Meanwhile, international efforts to prevent global warming had accelerated, A series of UN-sponsored conferences, bringing together the nations of the world, had culminated in a 1997 meeting in Kyoto, Japan. At the Kyoto meeting, an agreement was reached that the developed nations of the world bring their greenhouse gas emissions back to the 1990 levels within 15 years/ The United States had signed the agreement, but most observers believed that the agreement would not be ratified by the Senate. In 1998, a vocal, well-financed lobbying organization called the Global Climate Coalition (GCC) had been formed by dozens of large corporations to debunk the catastrophic economic consequences from capping greenhouse gases. The GCC's lobbying efforts paid off and the Kyoto Accords had little political support in the United States.
GM did not support the Kyoto Accords because the climate agreement exempted developing nations such as China and India. However, GM did agree that global warming was “an area of concern,” and the company was pushing ahead with its development efforts. While GM had been a founding member of the GCC, GM executives and board had become aware that the debate had become increasingly polarized with the GCC denying the existence of global warming while environmental groups were calling for drastic cuts in the consumption of fossil fuel. With its significant investment in new technologies, in 1998, GM believed the debate should be shifted to discussing feasible alternatives, but how could the company position its environmental efforts in an increasingly polarized atmosphere?
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Resources
Exhibit 1: Selected General Motors Financial Statistics 1988-1998 (in $ millions, except for EPS)
1988 | 1989 | 1990 | 1991 | 1992 | 1993 | |
Cash & Short-Term Investments | $5,800.30 | $5,169.50 | $3,688.50 | $4,281.50 | $7,789.90 | $13,790.50 |
Receivables - Total | $92,017.50 | $97,802.00 | $95,847.50 | $87,872.30 | $73,509.40 | $60,263.90 |
Assets - Total | $164,063.10 | $173,297.10 | $180,236.50 | $184,325.50 | $191,012.80 | $188,200.90 |
Accounts Payable | $7,896.90 | $7,707.80 | $8,824.40 | $10,061.30 | $9,678.40 | $10,276.50 |
Long-Term Debt - Total | $31,908.80 | $36,969.20 | $38,509.60 | $40,682.50 | $39,956.10 | $34,464.70 |
Liabilities - Total | $128,391.40 | $136,664.60 | $148,082.80 | $155,708.30 | $184,022.20 | $182,153.40 |
Sales | $121,816.60 | $124,993.90 | $123,276.20 | $122,081.40 | $130,590.00 | $135,696.80 |
Cost of Goods Sold | $102,525.20 | $104,550.00 | $107,414.60 | $109,824.10 | $117,417.50 | $118,637.00 |
Pretax Income | $6,734.90 | $6,398.30 | ($2,217.10) | ($5,892.30) | ($3,333.10) | $2,575.30 |
EPS (Basic) - Excludes Extra. Items | $13.64 | $6.33 | ($4.09) | ($8.85) | ($4.85) | $2.13 |
1994 | 1995 | 1996 | 1997 | 1998 | |
Cash & Short-Term Investments | $10,939.00 | $11,044.30 | $14,063.00 | $11,262.00 | $10,869.00 |
Receivables - Total | $63,055.10 | $68,720.40 | $64,107.00 | $66,363.00 | $79,846.00 |
Assets - Total | $198,598.70 | $217,123.40 | $222,142.00 | $228,888.00 | $257,389.00 |
Accounts Payable | $11,635.00 | $11,898.80 | $14,221.00 | $15,782.00 | $19,971.00 |
Long-Term Debt - Total | $38,123.00 | $37,297.60 | $38,698.00 | $42,787.00 | $52,794.00 |
Liabilities - Total | $185,324.90 | $193,777.90 | $198,724.00 | $211,382.00 | $242,405.00 |
Sales | $152,172.00 | $165,370.20 | $160,121.00 | $168,919.00 | $158,514.00 |
Cost of Goods Sold | $130,607.40 | $140,305.30 | $139,952.00 | $128,568.00 | $119,616.00 |
Pretax Income | $8,353.30 | $9,776.30 | $6,676.00 | $7,714.00 | $4,428.00 |
EPS (Basic) - Excludes Extra. Items | $6.20 | $7.28 | $6.07 | $8.70 | $4.26 |
Source: Compustat
Exhibit 2: General Motors Stock Price 1988-1998
Source: Center for Research in Securities Prices (CRSP) dataset
Exhibit 3: Truck vs. Automobile Sales for General Motors, Ford, & Chrysler
Manufacturer | Year 1970 | 1980 | 1990 | 1998 |
GM Trucks | 17.0% | 18.4% | 35.2% | 46.1% |
GM Cars | 83.0% | 81.6% | 64.8% | 53.9% |
Ford Trucks | 23.1% | 35.2% | 43.1% | 59.5% |
Ford Cars | 76.9% | 64.8% | 56.9% | 40.5% |
Chrysler Trucks | 9.2% | 29.1% | 51.8% | 67.4% |
Chrysler Cars | 91.8% | 70.9% | 48.2% | 32.6% |
Truck Totals | 14.8% | 20.1% | 32.9% | 47.2% |
Car Totals | 85.2% | 79.9% | 67.1% | 52.8% |
Exhibit 4: Real Gasoline Prices (in Constant U.S. $ per Gallon) 1949-1998
NOTE: From 1949 to 1977, fuel prices are for regular leaded gasoline, after 1977 the price is for regular unleaded gasoline
Source: Energy Information Administration, Retail Motor Gasoline and On-Highway Diesel Fuel Prices, 1949-2006
Exhibit 5: Carbon Dioxide Emissions from Select Countries 1998
Region/Country | 1998 Total* | Per Capita** |
United States | 5,581.44 | 20.23 |
China | 2,968.48 | 2.35 |
Russia | 1,482.56 | 9.90 |
India | 898.09 | 0.93 |
Germany | 863.32 | 10.51 |
United Kingdom | 558.48 | 9.44 |
Canada | 547.91 | 17.77 |
Korea, South | 370.17 | 8.11 |
Australia | 333.60 | 17.76 |
Poland | 310.78 | 8.05 |
Saudi Arabia | 256.82 | 11.73 |
United Arab Emirates | 116.09 | 50.59 |
* Million Metric Tons of Carbon Dioxide
** Metric Tons of Carbon Dioxide
Source: Energy Information Administration, International Energy Annual 2004, Updated: August 1, 2006
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2024 Sage Publications, Inc. All Rights Reserved